Good day, and welcome to the B&G Foods, Inc. Second Quarter 2024 Financial Results Conference Call. Today's call, which is being recorded is scheduled to last about one hour, including remarks by B&G Foods Management and the question-and-answer session. I would now like to turn the call over to AJ Schwab, Senior Associate, Corporate Strategy and Business Development for B&G Foods. AJ?

Good afternoon, and thank you for joining us. With me today are Casey Keller, our Chief Executive Officer; and Bruce Wacha, our Chief Financial Officer. You can access detailed financial information on the quarter in the earnings release we issued today, which is available at the Investor Relations section of bgfoods.com. Before we begin our formal remarks, I need to remind everyone that part of the discussion today includes forward-looking statements. These statements are not guarantees of future performance and therefore, undue reliance and should not be placed upon them. We refer you to B&G Foods' most recent Annual Report on Form 10-K and subsequent SEC filings for a more detailed discussion of the risks that could impact our company's future operating results and financial condition. B&G Foods undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We will also be making references on today's call to the non-GAAP financial measures. Adjusted EBITDA, segment adjusted EBITDA, adjusted net income, adjusted diluted earnings per share, adjusted gross profit, adjusted gross profit percentage and base business net sales. Reconciliations of these financial measures to the most directly comparable GAAP financial measures are provided in today's earnings release. Casey will begin the call with opening remarks and discuss various factors that affected our results, selected business highlights and his thoughts concerning the outlook for the remainder of fiscal 2024. Bruce will then discuss our financial results for the second quarter of 2024 and our guidance for fiscal 2024. I would now like to turn the call over to Casey.

Good afternoon. Thank you, AJ, and thank you all for joining us today for our second quarter 2024 earnings call. Q2 results, second quarter net sales of $444.6 million and adjusted EBITDA of $64 million were in line with expectations. Excluding Crisco, whose net sales were impacted by lower net pricing to reflect a decrease in soybean oil costs, base business net sales decreased by approximately 1.5% compared to the year ago period. Base business trends improved relative to the first quarter, but we continue to experience softer trends in the center of the store, consistent with the rest of the industry. Foodservice sales also declined 3%, but much less than in Q1 and more consistent with overall restaurant traffic patterns. Net sales for the highest margin Spices & Flavor Solutions business unit increased by 4.9% versus last year. Q2 adjusted EBITDA of $64 million decreased by $4.5 million compared to the second quarter of 2023. The Green Giant U.S. shelf-stable product line represented approximately $2 million of the year-over-year decline with foreign exchange from Mexico operations on the Green Giant frozen business representing another $2 million. Adjusted EBITDA as a percentage of net sales for the second quarter was 14.4%, down slightly from the prior year period. In quarter two, we continued to see moderating inflation and some favorability in transportation and warehousing. Corporate central expenses were also down in quarter two versus last year, reflecting a moderation in insurance and other fixed costs. Segment reporting. As in the first quarter, B&G Foods is reporting results by operating segments, providing greater visibility into the underlying performance of the company's four operating business units. Spices & Flavor Solutions. Second quarter net sales increased 4.9%, with segment adjusted EBITDA up 5.9% versus the second quarter of fiscal year '23. This segment…

Thank you, Casey. Good afternoon, everyone. As a reminder and before I get into our results, we sold our Green Giant U.S. shelf stable product line last fall, and so we are lapping second quarter of 2023 results, which included Green Giant U.S. shelf stable net sales of $13.7 million and approximately $2 million of contribution. In the second quarter of 2024, we generated $444.6 million in net sales, approximately $64 million in adjusted EBITDA. Adjusted EBITDA as a percentage of net sales of 14.4% and $0.08 and adjusted diluted earnings per share. Base business net sales, which excludes the Green Giant U.S. shelf stable product line, decreased by $11.3 million or 2.5% in the second quarter of 2024 compared to the second quarter of 2023. $1.8 million or 0.4 percentage points of the base business net sales decline was driven by lower net pricing. $9.3 or just under 2 percentage points of the decline was driven by decreased volumes and a little bit less than $200,000 of the decline was driven by unfavorable FX. Net sales of our Crisco brand decreased by $4.6 million for the second quarter of 2024 as compared to the second quarter of 2023, primarily as a result of our commodity pricing model for the brand, which drove a decline in net pricing of approximately $6.5 million to reflect lower soybean oil commodity costs, partially offset by an increase in volume of approximately $2 million. Excluding the Crisco brand, base business net sales decreased by $6.7 million or 1.5% in the second quarter of 2024 compared to the second quarter of 2023. Gross profit was $92 million for the second quarter of 2024 or approximately 20.7% of net sales. Adjusted gross profit, which excludes the negative impact of $1.2 million of acquisition divestiture related expenses…

Thank you, Bruce. In closing, B&G Foods is laser focused on the few critical priorities. One, improving the base business net sales trends of the core business to the long-term objective of plus 1% to 2%, two, reshaping the portfolio for future growth, stability, higher margins and cash flows as well as structuring key platforms for future acquisition growth and three, reducing leverage below 5.5x through divestitures and excess cash flow to facilitate strategic acquisitions. Our second quarter results demonstrated improving trends from the first quarter with base business net sales, excluding Crisco, moderating at minus 1.5% and foodservice sales showing more consistent declines with restaurant industry trends. We expect the gradual improvement to continue in the back half. Further, we are prioritizing efforts to reshape and clarify the portfolio and are actively reviewing and working on possible divestitures, including our ongoing strategic review of our Frozen & Vegetables business. This concludes our remarks. And now we would like to begin the Q&A portion of our call. Operator?

Thank you. [Operator Instructions]. And our first question will come from Andrew Lazar with Barclays. Please go ahead.

Good afternoon, Casey, and Bruce.

Good afternoon, Andrew.

How you doing? Spices and seasonings have been as a category one of the sort of better highlights, if you will, or better growing categories in the sort of the center of the store. You're seeing some of the benefits of that as well. The theory is as more consumers look to do a little more scratch cooking and purchase items around the perimeter of the store or maybe as they look to sort of stretch the food budget, they need to flavor what they cook. And in your results, I guess, you're seeing some of that similar trend, right? Spice and seasonings have been strong. Some of the meals and center store parts of the portfolio for you like others have been a bit weaker. Is that what you're seeing sort of drive that dynamic or are there other things that play there? And then how would you…

I mean, we see some of the -- yes, that is what we're seeing in our business right now. I think it's tied to what you mentioned. We see growth in the perimeter store or in the fresh produce or the fresh proteins. And we know that spices and seasonings is one of the ways that people flavor prepare that. And so we've seen that kind of flavor solutions kind of part of the market continue to be strong based on its kind of correlation to the perimeter sales. And we've seen more weakness in the center store kind of prepared food market, which you referenced in our meals. So, I think people have, and then in terms of baking, we've seen scratch baking stay relatively stable over time. So people learn to bake in the pandemic and they've kind of continued that habit. It's not growing, but it's kind of staying stable. And so our shortening baking powder business and everything has been pretty consistent. The fluctuations in that business are all around the commodity pricing on Crisco behind soybean oil. So yes, I think that is what we're seeing right now in our business. But from our standpoint, if people begin to make more fresh food at home, we make enough in terms of the things that flavor it or enable people to bake from scratch that will ride just fine in that portfolio.

And then you're operating a lot of different categories obviously in the store and some are going to be more promotional than others by nature, others less so. I guess could you characterize what you're sort of seeing broadly in the promotional environment? It sounds like you're expecting less of a drag from price primarily due to lapping some of the Crisco pricing actions. But maybe outside of that, what are you seeing from sort of a promotional perspective that gives you, I guess, some confidence that pricing can be less of a drag as you go into the back half of the year?

So, I mean, I think beyond just the Crisco pricing differential year-over-year, which we expect to not be as significant in the back half as it was in the first half. We started to return to sort of not quite, but almost pre-pandemic promotional levels last year at the end of Q3. So we begin to lap that in Q3 -- at the end of Q3 and Q4 of this year. And we don't see the need to increase from where we moved to last year in terms of a rate spend or promotional depth. So what we're saying is we don't expect to have a promotional dip in the third and fourth quarters that would show us spending at a higher promotion rate than we did last year.

Last thing real quick, and there's probably not much more you can say on it, but in terms of the strategic review around frozen, I guess, how is that progressing? Or have you seen more or less similar amount of interest perhaps than you might have expected? Anything that you can say around it, understanding that there's sensitivity there? Thanks so much.

Yes. And Andrew, I think the sensitivity is we try not to comment on M&A. I think as we discussed on our last call, because of the size of Green Giant and the kind of the name recognition that it made sense for us to at least disclose that we're evaluating the process. But our goal is to not get into a quarterly update on where we are in the process. Just too fluid, it's early in the process and there's a lot of things going on in the world.

Yes, got it. Thanks.

Thank you.

Our next question will come from William Reuter with Bank of America. Please go ahead.

Good afternoon. My first question, inventory has continued to decline on a year-over-year basis. Is there opportunity to reduce your inventory levels further over the next handful of quarters or into next year?

So certainly, on a year-over-year basis, you see it in the balance sheet. We significantly reduced our inventory from where it was at the beginning of last year. And so we're going to have favorability for a good portion of this year. As we get into the back half of the year, our expectation is to still drive favorability, but a lot of the easy lifting is probably done. But very much we expect to continue to reduce inventory from that kind of post pandemic level.

Okay. And then…

You just seeing continuous improvement in our inventory levels, we'll show that, but more at a continuous improvement level versus the big year-over-year decline driven by exiting the canned vegetable business.

Got it. And then, similarly, there was destocking by your foodservice customers earlier this year. Has that process now been completed and you feel like your sales trends will align with their kind of sell through and what we're kind of seeing more broadly from food service?

We think that's the case.

And that's certainly what our Q2 trend shows.

Okay. Just lastly, in terms of non-tracked channels, a lot of times the trends there, I guess over the last six or nine months have been better I think than tracked channels. What percentage of your sales are through non-tracked channels and how have those done versus tracked channels? And I'm referring more towards kind of Nielsen.

Yes. So Nielsen only is capturing about 70% of our total sales. We have obviously food service and industrial sales, which aren't captured by Nielsen. There's probably about 5% that is untracked retail channels that Nielsen doesn't cover. And then we have a Canadian business, about 10% of our business is not covered by the Nielsen data in the U.S. So yes, so 70% is kind of correlates to Nielsen, 30% is outside. And so we -- Canada had a reasonably strong quarter. Our Food Service Industrial business was slightly down as we've talked about, but not down that much, much more moderate kind of declines consistent with the industry. And we've continued to perform in one or two customers that are tracked by Nielsen reasonably well.

Got it. That's all for me. Thank you.

Thank you.

Our next question will come from Rob Dickerson with Jefferies. Please go ahead.

Great. Thanks so much. I guess couple of questions. Just first question, both kind of related to cadence for rest of the year. As we think through kind of the updated guide, Q3 relative to Q4, should we be thinking these are kind of fairly similar year-over-year or just more of the sequential improvement relative to what we are seeing in Q2?

May be a slight bias towards a sequential improvement. We always look that first half of this year and second half of this year as two pieces. First half would be challenged from top line trends. Second half would show improvement. I think we still expect that to be the case. Our back half guide is to a base business down to the plus 0.5 versus earlier in the year, we were thinking plus 1, minus 1. And then just as a reminder, we did sell Green Giant U.S. Canned business last year. And so there's about a $36 million drag from a non-base business concept.

Yes. Okay, cool. And then I guess just on the margin piece, gross margin was a little lighter than expected in the quarter. I mean, clearly, you had a great Q2 last year. And then at the same time, right, sales come down a little bit, for the year you lowered the high end of your EBITDA range a little bit, but the low end stays the same. So again, just kind of a cadence level like we saw it come down a little bit in Q1, but it was up a little bit year-over-year in Q1. Should we still be thinking maybe gross margin could be up a little bit in the back half? And then it also sounds like SG&A instead of maybe being up a little bit for the year given wages, it's maybe flat to down a little bit. And then just one quick add, it does sound like spice and seasonings growing more quickly, right, it's the highest margin business. Like are there other offsets that are just kind of came through Q2 that caused that margin to be down more than you expected? A lot in there.

So a couple of things, I'll try to get them all. We give guidance on an EBITDA and implied EBITDA margin basis. Our guidance expects suggests somewhere between flat and somewhere up from last year's EBITDA margins in the back half of the year. Nothing Herculean, just sort of like a little bit of increase. If you think about gross margin and SG&A so far this year and EBITDA margins on a year-to-date, were basically flat through the first six months of the year or the quarter. On an EBITDA margin, I think we're within 20 basis points. And we had these flip gross margin SG&A. Gross margin was down a little bit in the Q2, but as you remember, it was up a little bit in the first quarter, and I think it's flat on a year-to-date basis versus the prior year period and SG&A went in the opposite direction. So some of this I think is timing. The other thing to keep in mind, there is a little bit of noise from the Green Giant business that we sold. And then the other piece of that is we manufacture the majority, not all of, but the majority of our U.S. Frozen business for Green Giant out of our facility in Mexico. And we've got a drag just the way it works out, currency translation. That was about $2 million, $2.5 million of an impact in the second quarter. It's probably something similar in the first quarter. And that obviously impacts the gross margin a little bit.

Okay. And so far the pesos kind of come back up. So we think that impact will be less in the back half of the year.

Okay, perfect. All right, great. I'll pass it on. Thank you.

Thanks, Rob.

Next question comes from Karru Martinson with Jefferies. Please go ahead.

Good afternoon. I just wanted to get a sense on the competitive environment. Certainly, you have read about the more promotions. It doesn't sound like we're going to be excessively promotional in the second half. But I was also curious on to your comments on the prepared meals saying Ortega was being challenged by Taco Bell and if there are others. What's speeding that?

I think in the particular case of Ortega, we've seen Taco Bell come in with a lot of new items and drive new distribution. And I feel like we're pretty competitive now. We've got some new kind of sauces and taco items coming in, in the back half of the year. But it's just another competitor or entrant coming back in. They've tried before and kind of retreated, but this time they're pushing again and pushing new items. So you've seen both us and Old El Paso get impacted a little bit by the entry of a new competitor in that Taco shell, Taco sauce, Taco kit area, Taco seasonings. But I think we're going to hold up just fine. And I think you're going to see improved trends on the Ortega business in the back half.

Okay.

And then in terms of promotions, what I was trying to say before is that we brought promotion spending and promotional levels up last year at the end back half of '23 at the end of Q3 and Q4 because we have a lot of baking promotional seasonality or baking and fall promotional seasonality. So, we're going to lap that. So, we're already kind of back to where we were in terms of promotion intensity at pre-pandemic levels and the end of '23 and we'll lap that this year. But I don't see us going beyond where promotion intensity pre-pandemic. I think we'll stay right there and we believe we're competitive with that kind of spend rate.

Okay. And then when we look at spices and seasoning, is kind of that licensed line extension the model for growth there or are there products that you're developing on your own?

I think a combination of both. We like the license model where we think we have the right properties like the 4, 6s, I think is a great way for us to get into the seasoning blend business that's designed to kind of enhance proteins and kind of a Western barbecue kind of style. So, we like licensed brands where they bring relevant equities and properties to our portfolio and put us in spaces that we're not really competing in that well. So, you'll continue to see some of that, but we will also look at ways to kind of either extend our current brands, drive our current brands, or even maybe launch new items that aren't necessarily licensed properties. So, we like the spice and season category. We think it's good long-term growth. We think it's good margins. We've built up our capabilities there in development in culinary, and it's a place that we want to focus on long-term both organic and possibly inorganic.

Thank you very much guys. Appreciate it.

Thanks.

Our next question comes from Michael Lavery with Piper Sandler. Please go ahead.

Thank you. Good afternoon.

Michael, go ahead.

You're a little bit better aligned with food service traffic now, But can you give us a sense of maybe how you're exposed there and just, if you've got pockets that are particularly better or worse than some of the general trends and just how to think about translating some of the read through from bigger companies into how it affects you guys specifically?

Yes. I mean, it's obviously, Michael, it's dependent on the portfolio. Our portfolio is about half spices and seasonings, so mostly sold through distributors. So that we've seen track pretty closely in the second quarter to restaurant traffic trends. We have a food service syrup business that with a major customer that's not healthy. So we've seen a little bit of decline there, but not that significant. So, I think overall, our portfolio is kind of tracking with restaurant traffic patterns, call it, we read in Technomic and other places kind of somewhere in the 2% to 4% range depending on the customer profile. And that's kind of what we think our business will continue to reflect for the remainder of the year until we see a turnaround in kind of restaurant trends, because we're just going to reflect what traffic is doing in those channels. We're just supplying those channels with backend ingredients and components.

That's helpful. And then just on the -- I know that's fairly complicated to give any update at all and Andrew touched on some of the frozen divestiture. But for some of the smaller brands that you touched on as well, would you kind of need to bundle those to avoid some of the dyssynergies? Could you sell one-offs here and there? Is that too much complexity or distraction? Just how do you think about how that process is going and does it have to take a certain shape?

Yes, it's potentially a little bit of all of the above. So far what we sold has been one-offs, but there could be other things and other ways that it could happen and it's very situation dependent.

I mean if you look at the business that we've already divested, the Green Giant canned vegetable business kind of had its own supply for that business and then the Back to Nature business was a contract pack business that was kind of isolated itself. So, we will have a combination as Bruce says, but a lot of our products we can carve out pretty easily without having a lot of structural issues or absorption or overhead problems.

Okay. Thanks so much.

Our next question comes from Carla Casella with JPMorgan. Please go ahead.

Hi, thank you. On that asset sale of Green Giant Shelf, is there any stranded cost left from that that would work its way out over the next, I guess, year or two? Or is that all behind you?

Yes, not really. I mean the business itself from just the business and the product line is pretty straightforward. It was U.S. business, canned vegetables, 100% co-packed, right. So you pretty much airlift that and take it away. Freight is what it is, there's less freight. Maybe there's a little bit structurally around like warehouse costs, but not really. I think that pretty much just gets airlifted out and it's nice and clean.

Okay. And then did you say your pro forma, sorry.

You're taking out any resources that we're working directly on that business too.

Okay, great. Do you could pro forma availability on your revolving credit facility post the financing that closed after the quarter end?

Sorry, in what sense?

I guess, so you paid down some of the revolver after quarter end, but you also downsized it. I'm just wondering how much of it is available, today. If it was at the end of the quarter, you announced $600 million, about $605 million available?

Yes. So I would suggest just go into the debt offering docs and I think we've footnoted appropriately what was drawn and available based on closing dates.

Perfect. Okay. And then on the [indiscernible] what I missed the timing you said of that offering, and I'm just wondering if you I mean, what's the shelf kind of placement you've got on it? Any kind of either numbers or percentage gains you can point to?

It's going in this fall. So we'll start shipping shortly. We've had good acceptance and reception from customers, but I don't think you'll see it on shelf until the fall based on when customers set their frozen cases.

Okay. Great. That's all I had.

It's a ramen vegetable kind of dish, but it will start shipping within the next couple of months.

Okay, great. Look forward to trying it. Thanks a lot.

Thank you.

Our next question comes from David Palmer with Evercore ISI. Please go ahead.

Thanks. I wanted to talk about what your vision would be for the business long-term in terms of what sorts of businesses fit within B&G? And I know there's going to be some reticence to talk about categories or brands, but I'm really talking about the types of things that would work inside B&G. There was a wave of acquisitions long ago where the company was trying to growth up with snacks and frozen and then now those businesses are gone or soon to be gone, so they were kind of rejected from the shelf that is B&G. So I'm wondering, what do you think does work from what you've seen and where you might want to get bigger?

Yes, I think it's pretty, we've talked about this before, but I think it's relatively clear looking at our business where we've been successful over time and where we have good margin structure and cash flows. And so I like first and foremost the spices and seasonings and business. If you look at our margin, it's high margin. We actually improved our segment EBITDA margin year-over-year in quarter two, we had good growth on that business. I think that's a business that we want to focus on organically, but more importantly, we would want to look over time to add additional acquisitions. We have a great asset in our Iowa facility. We've got good capabilities. We've kind of built up our culinary and R&D capability there. So that's one business that I see as a strong future for B&G. Also the specialty business, which is as I think I said in my comments is 70% baking staples with kind of number one brands that and pretty stable trends in those categories. We've done a good job of managing Clabber Girl, Crisco, even with some of the kind of volatility in the commodity pricing. We've done a great job of managing the profitability and the cash flow in those businesses. I think we would be interested in picking up additional baking staples or some shelf stable baking products where we could easily fit into that portfolio, get synergies and maintain good margin, stable cash flow. And then I think lastly, meals, we talked about that. I do think longer term meals is a good place for us to be. We kind of are centered in two places, Mexican meals. I believe Mexican meals will grow in terms of at home consumption. We're seeing those trends going, people making different types of…

Yes. And would you say those three by the way, that's a very helpful answer. I really appreciate that. Would you -- those three, I know that's probably not an unabridged answer. That's probably not everything that you would think is core. But like just those three mega platforms that you mentioned, how much of your business do you think is encapsulated with those currently over half?

75%. From a sales basis higher on an EBITDA basis and higher on a cash flow basis.

Thanks. I mean, you said, I think it was in the release that food service was a little bit better than it was in the first quarter. For a lot of companies, food service is actually getting worse. So I'm just wondering maybe what are you seeing with your particular food service accounts and what are you seeing out there from food service looking into the second half?

I mean, the one thing to remember, which we highlighted last quarter was we had some challenges, but some of that was timing, right, and some of that was unique to one or two customers.

I think we see that our business, which should largely track what we expect restaurant and food service traffic trends to be overall. And what we see is kind of I've seen different numbers, but call it minus 2% to minus 4% and people are sort of projecting that for the rest of the year. I mean who knows in a recessionary environment if that would get worse, but that's kind of what we expect. And right now, our trends are kind of mirroring that in terms of restaurant traffic. Our minus 3% -- we call it minus 3% in Q2, that's what I think we're going to see for the near future until something changes. But that's kind of what we stand and what we read in the industry data.

Yes. No, I think a lot of people were thinking that the second half would be better because of comparisons. And I think those expectations might be fading a bit. So I don't think there's many people thinking it will necessarily get worse, but I'll leave it there. Thank you.

Yes.

And our final question will come from Robert Moskow with TD Cowen. Please go ahead.

Hey, Rob.

Hi, I have a glass half empty and a glass half full question. So I think I'm going to just do the glass half full question.

What's in the glass, Rob?

It's pretty light, so I don't want to and I'm covering stocks, so maybe…

9 o'clock somewhere.

But honestly, like if you look at Nielsen tracking data and just look at overall grocery sales, like forgetting about all the who's selling it, it is starting to show some signs of acceleration. I think it's up about 3% in the last four weeks. And it's a clear sign, I would argue of consumers going back to the grocery store, trying to save money, and you can see food service being down a lot. So are you, I haven't heard much about that in your outlook for the back half of the year. I know you have easy comps, but do you -- could you be so bold as to say, hey, there could be a better environment, a better backdrop overall in grocery retail in the back half because of that, as well as the easier comparisons?

Yes. So I think our guidance is somewhat based on that, which is more favorable back half of this year than the first half. We obviously took it down a little bit to suggest some caution. We do have at the high end a little bit of growth, right. So don't disagree with what you're saying. I think if you went back to earlier this year when most of us were talking and giving guidance, I think there was an expectation that that recovery was going to happen sooner. I think we're seeing signs of it, would have just loved it to be a little bit sooner, but that's what we're seeing. That's the glass half full.

Okay. All right. You and me both. All right. Thanks a lot.

Yes. Thank you.

And this will conclude the question-and-answer session for today. Ladies and gentlemen, the conference has now ended. Thank you for all joining and you may now disconnect.