Q4 2019 Earnings Call
[music].
Good day and welcome to the BMG Foods fourth quarter and fiscal 2019 earnings call today's call is being recorded.
You can access detailed financial information on the quarter and full year and the company's earnings release issued today, which is available at the Investor Relations section of Beachy Foods Dot com.
For the company began to formal remarks, I need to remind everyone part of the discussion today includes forward looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon that.
We refer you to the company's most recent annual report on form 10-K, and subsequent SEC filings for a more detailed discussion of their risks that could impact the company's future operating results and financial condition. The company undertakes no obligation to publicly update or revise any forward looking statements whether as a result of known.
<unk> future events or otherwise.
The company will also be excuse me the company will also be making references on today's call to the non-GAAP financial measures and adjusted EBITDA. Adjusted net income adjusted diluted earnings per share and base business nothing else reconciliations of these financial measures to the most directly comparable GAAP measures are.
I did in todays earnings release can roam and see the company's president and Chief Executive Officer, well begin the call with opening remarks and discuss various factors that affected the company's results selected business highlights and his thoughts country concerning the outlook for fiscal 2020 and beyond Bruce Wocket, The company's Chief Financial Officer will then discuss the come.
And you financial results for the fourth quarter in fiscal 2019, as well as the guidance for 2020, I would now like turn the call over to Ken.
Good afternoon. Thank you all for joining us today for our fourth quarter and full year 2019 earnings call.
Finally, I'd like to cover three topics.
First I'll provide a quick recap a fourth quarter and full year 2019 performance.
Second I'd like to share my perspective on BMG foods performance in 29 team against the plan, we developed as a new management team as of April of this past year.
And how I view this in the context of our stock performance over the past year.
And third I'll provide an outlook of where we expect to go in 2020 and beyond.
First a quick recap is our fourth quarter in fiscal 2019 results.
During the quarter, we reported net sales of $470.2 million, an increase of 2.6% versus last year, leading to full year net sales of 1.660 billion and $400000 a decrease of 2.4% versus prior year.
Primarily driven by the sale of pirate brands.
Excluding that sale full year net sales increased 2.1%.
Adjusted EBITDA was 69, and a half million dollars for the quarter, an increase of 18.8% versus a year ago quarter.
This resulted in full year adjusted EBITDA of $302.5 million, a decrease of 3.7% versus last year also primarily driven by the sale of pirate brands.
And was at the midpoint of our latest guidance.
Excluding pirate brands adjusted EBITDA grew 2.8% versus full year 2018.
So overall, we delivered stable expected performance.
View this is very important because after many years of industry, leading performance our earnings stumbled in 2017, and 2018 with fourth quarter earnings surprises, even while growing self.
So delivering what was expected and 29 team is critical for our new leadership team.
Our plan at 29 team was to deliver modest sales growth.
And cover inflationary input cost with pricing and cost savings initiatives.
And that's exactly what we did.
Well, we needed some help from the addition of class a girl we grew net sales, 2.1%, excluding the pirate brands divestiture, well, we also reduced low margin trade promotional activity and skews.
We delivered pricing of $20.3 million on the high side of our plan range of $15 million to $20 million.
We did this through a combination of Lynn list pricing earlier in the year and the removal of very low margin trade deals in the second half of the year.
And while we saw consumption declines in the third and fourth quarter much of that was plan and we did not significantly hurt our bottom line.
Well, taking price is never easy to achieve particularly in today's competitive environment I.
I believe our efforts over the past two years demonstrate our ability to take price when needed.
Hope offset input cost inflation.
On the cost savings front, we delivered $20 million again at the high side of our plan target of 15 to 20 million for the year.
Primarily driven by terrific work in our logistics infrastructure plus some other areas.
In 2020, we'll dig deeper into our cost structure and expected drug another 15 $20 million dollars in cost savings.
And should be in a position to provide more detail when those opportunities in the coming month.
Key highlights and accomplishments from 29 team include in April of this year best year, we realigned our executive leadership team with new heads of sales marketing and supply chain. It's a terrific complimentary combination of new team members and BMG veterans.
We completed the successful implementation of our new Oracle JD Edwards ERP system.
And I'm pleased to report that the system is up and running with minimal disruption.
We're looking forward to taking advantage of the many benefits of the system, which we expect will help a streamline operations drive efficiencies in our finance and accounting processes and improve our operational planning and financial forecasting.
The Green giant brand continued to March against its vision to be the plant based but you brand to the future.
By delivering its mission to get people to eat more vegetables with continued growth of category Reinventing innovation.
Well Green Giant's growth slowed and 29 team primarily due to the reduction of low margin trade deals on legacy product lines and less innovation than in 2018, new products launched on the Green giant since BMG foods acquired the brand in 2015 are now at an annual run rate of more than $200 million in retail.
Ourselves.
While delivering more than one half a billion dollars cumulatively over that time period.
In addition, green giant has almost single handedly revolutionize the frozen vegetable category.
And we've only just begun.
2020, we're launching a range of innovation across both the frozen food and dry grocery items.
More on that a bit later.
We acquired cloud a girl fully integrating the business into our sales and distribution network.
We're very pleased but the results of this acquisition to date and cloud girls dedicated employees, who have joined the PNG foods family.
I'd also like to thank the BMG integration team for their tremendous efforts to make the transition as smooth as possible.
We completed successful 1 billion dollar debt refinancing the largest in our company's history and it very attractive interest rates that included the second lowest coupon in company history of dive in a quarter percent.
We returned $123.7 million of cash to our shareholders in the form of dividends during fiscal 2019, which is consistent with our longstanding dividend policy that have served our shareholders very well since our IPO back in 2004.
And our board management remain committed to returning cash to our shareholders.
We also returned an additional $34.7 million to our shareholders in the form of share repurchases during fiscal 2019.
Well share repurchases have not historically been a primary piece of our capital allocation strategy.
Management and our board of directors, both recognized that our share price is undervalued and people should not be surprised to see a stepping to the market to buy back our shares from time to time.
So stepping back the elephant in the room and the question everybody asking is why youre stuck so low.
Well there my first year CEO I've listened to many investors debt holders bankers and advisors.
And there are clearly three large issues depressing our stock over the last year.
First there's been concern that every two years of disappointing investors with fourth quarter earnings results.
We were disappointed again and 29 team given the large increase we needed in Q4 to hit our guidance.
And more recently, our stock has been under greater pressure due to concerns over fourth quarter Nielsen consumption trends.
Second there's investor beer that will cut our dividend driven by our high yield and concern that we don't generate enough free cash flow to cover it.
And third our leverage is too high at 6.1 times pro forma adjusted EBITDA before share based compensation to net debt.
Hampering our ability to continue our long term successful strategy.
Growth through accretive acquisitions.
So I'd like to address each and every one of these issues.
First I hope, our fourth quarter and full year 2019 earnings announcement shows we can get back to growth through accretive acquisitions and deliver what we say we will deliver.
And while our volumes were on the low side of our expectations in fourth quarter pricing was on the high side.
There's always a delicate balance and we'll continue to balance these two important levers as we move forward.
So while we are not declaring victory yet we see 2019 and this as the first year of many an improved expected performance.
Second we have no plans to cut the dividend under our current operating model and assumptions.
We continue to believe in the dividend because that is the vehicle upon which the company was built.
We also believe that under normal operating conditions, we generate enough cash flow to cover the dividends.
However, as you'll see from our net cash from operations in 2019, and as Bruce will discuss in more detail.
We had several onetime uses of cash and 29 team, including a very sizable tax bill related to a gain on sale from the sale of private brands.
Share repurchases and investments in working capital that increased our debt.
But we do not see these same uses of cash continue and continuing in 2020, and Bruce will share our cash flow plan that should give you the confidence in our dividend as weak.
Lastly, we understand investor concern over our debt leverage.
We're committed to create create excess cash flow to help reduce leverage.
Later, Bruce Bruce will share our plan to get our leverage below six times in our 2020 plant.
In addition, we do not believe were shut out of acquiring more businesses.
The M&A pipeline is active and we believe opportunities remain to acquire businesses without increasing leverage and that in some cases may actually help reduce leverage.
So in summary, we realized we have to deliver consistent results to gain investor confidence and BMG foods.
The BMG model has worked for very long time, and we believe it can continue to work for a long time to come.
We see 2019 as the start of a new era European G.
So now onto 2020.
For 2020, our long term strategic imperatives remain the same.
Drive organic growth of zero to 2% in.
Improved margins.
Make accretive acquisitions and building a winning workplace.
We plan to drive organic growth through key brands like Green Giant Ortega, Mrs Dash, and Mccann amongst others, while maintaining a large portfolio of stable brands.
And managing our remaining brands for cash flow.
In 2020, we expect our net sales to grow about 1% as we drive growth than ours on several of our key brands.
But our growth will be temper down a bit as we continue to reduce low margin trade promotion in skews and overlap the loss of some low margin private label Spice business.
We expect green giant to lead the charge again in 2020 through the introduction of a range of innovation across frozen food categories outside of frozen vegetables, including cauliflower hash Browns.
Cauliflower crust pizza.
Cauliflower and Yaki.
In color for our bread sticks.
Frozen bread sticks made with 40% cauliflower.
And we're not stopping there.
Building on the tremendous success of Green giant Rice, veggies, and the frozen trial, which is now an 80 million dollar business annually.
We are launching green giant rice, veggies, and the shelf stable rice aisle.
Shelf stable rice is it large 3 billion dollar category with little innovation.
Our shelf stable Green giant rice veggies are made from 100% veggies, featuring blends of lagoons and veggies like cauliflower piece lentils and CIC piece.
Green giant rice, veggie taste and perform like regular rice, but our Chuck full of vegetables, with less carbohydrates and more protein.
We expect green giant growth to be driven even further by the acquisition of farm wise, which we just announced last Wednesday.
Farm wise is a small but very prolific forward thinking frozen veggie brand that will allow us to quickly commercialized products from their innovation pipeline and introduced them under the Green giant brand in the traditional food channel.
And under the farm wise name in the natural channel, where the Green giant Brent isn't a good fit.
We're very excited about the small acquisition with quick with quick scale up capability and a good example of what I meant when I said, it's a new era at the Angie.
All in all we expect $20 million in new sales from Green giant innovation in 2020.
But green giant won't have to carry the load alone.
Our second largest brand Ortega has grown steadily under BMG foods ownership since 2003, and we remain very bullish on the Mexican food category.
As leaders in Veggie forward plant based innovation, we are bringing some of the magic of Green Giant tour tager.
Through the introduction of Ortega, cauliflower, Taco shells, and arteaga cauliflower to tiers.
Made with over 25% cauliflower.
No I would tell you got can help people get more vegetables in their diet well they enjoy taco tuesday's.
In addition, we launched a line of or take a street Taco sauces, each with a unique and contemporary flavor.
Capitalizing on the current food truck craze.
We expect further growth to be driven by the continued distribution expansion of Mccain's Irish oatmeal. The small acquisition, we made in 2018.
We've been expanding mccann's in both the U.S. in Canada throughout 2019 and are receiving terrific retailer acceptance.
Mccann's consumption accelerated to 6.5% in the late this quarter.
Our second strategic imperative is focused on improving margins.
And while inflation appears to be more modest in 2020 than it has been over the last two years, we still expect to see increased cost whether it be for inputs tariffs or labor.
To help offset these continued pressures and to work toward improving our margins we've extended our cost reduction program beyond our original goal of $50 million.
Today, we have taken out approximately $25 million in cost since 2017, when we set our goal and our goal going forward is to reduce cost by $15 million to $20 million per year over the next three years.
We expect to do this by continuing to optimize our logistics network.
Reducing product and packaging costs and stepping up the after efforts to optimize our manufacturing network.
We plan to announce several initiatives in this area throughout 2020.
As far as pricing goes we have achieved significant pricing over the past few years and should continue to benefit from some pricing overlap in 2020.
We will continue to refine the delicate trade promotion plans to optimize price volume mix.
And for 2020, we expect pricing to be $3 million to $5 million.
Our third imperative is continue our strategy of accretive acquisitions.
Acquiring integrating businesses has been a part of the beans in strategy since the beginning and we expect that to continue well into the future.
We are always on the look out for branded food products.
Defensible market positions and center store opportunities with high stable margins and good cash flow.
We also focused on acquiring like products to facilitate sales manufacturing distribution and gionee synergies and importantly, acquiring brands at accretive multiples.
We were able to achieve this in 2019 with cloud a barrel.
In an active M&A market in the industry should give us the opportunity to acquire businesses without pressure on our leverage.
And last but not least BMG wouldn't bbmg without the incredible team members we have.
Our focus remains on building a winning workplace to make sure we're always operating at our best.
We've been investing a lot and people processes and systems to improve our execution.
We strengthened our organization in 2019, including an organizational redesign talent enhancements and systems improvements such as such as our new ERP systems integration.
In 2020 will begin to reap the benefits of the new system through better financial planning and forecasting and inventory management.
In addition, this year, we're implementing a new trade promotion management system that should allow us to better manage our large trade promotion spend.
So in closing 2019 was a year to get BMG foods back on track.
We're confident that we will continue to make progress in 2020 against improve sustainable performance.
Now I'd like to turn the call over to Bruce to discuss the details of our fourth quarter and full year financial performance Bruce.
Thank you Ken good afternoon, everyone.
As Ken just outlined we had a strong finish to 2019 with a solid fourth quarter that continued the momentum that we saw in the business in both the second and third quarters over fiscal year.
We reported net sales of $470.2 million and adjusted EBITDA of $69.5 million in the fourth quarter.
Leading to full year net sales of $1.66 billion.
And adjusted EBITDA of $302.5 million for 2019.
Adjusted EBITDA as a percentage of net sales was 14.8% for the quarter, which represents a 200 basis point improvement over the prior year period.
And separately, we generated adjusted EBITDA as a percentage of net sales of 18.2%.
Full fiscal year 2018.
Which was inline with our expectations.
After adjusting for approximately $74.9 million net sales for payer brand in fiscal 2018, our fiscal 2019 net sales representing an increase of $34.5 million were 2.1% over last year.
The acquisition of Clavier girl in May 2019 benefited the company and contributed approximately $53.6 million in fiscal 2018 net sales.
These business net sales, which excludes the impact of M&A decreased by $22.2 million or 1.4%.
Fiscal 2018, net sales benefited from approximately $20.3 million in pricing inclusive of our spring 2019 list price increase and our trade spend optimization program.
These pricing benefits were offset by approximately $42.4 million from reduced volumes in our base business that were driven in part by our trade optimization program as well as an active effort to reduce unprofitable and lower margin skews.
Among our larger brands Green giant was up $7.8 million or 1.5% with a strong first half of the year that was driven by both arch new 2019 innovations.
As well as continued growth by previous year innovations like Green giant race, Veggies and Green giant veggie spirals.
Distribution gains in the dollar channel for our shelf stable green giant products.
These gains were offset impart by reduced volume of our frozen bag and our frozen bag in a box products in the second half of the year as we all through some of our Keytrade programs during the non holiday portion of the year.
As we as stated previously Green giant saw just one wave of innovation launches in 2018 compared to two in 2018.
We also believe the reception of our 2020 launches will be more in line with some of the other frozen some of the other successful frozen innovation launches.
We think we had some big ideas in store for 2020.
[noise] among our other larger brands, New York style had another successful year and net sales increased by 2.1 million or 5.7%.
Maple Grove farms increased by 2.6 million were 3.7%.
Ortega and Victoria were essentially flat or down by 0.6% and 0.7% respectively.
Cream of wheat. Following a strong 2018 performance that was driven by a cold winter was off by 2.6 million or 4.2%.
Driven impart by a much more mild winter season.
Net sales for our spices and seasonings business inclusive of accident, Mrs Dash sandstone and the business that we acquired in 2016 was down $4.6 million or 1.4%.
Both accent Mrs Dash were up modestly while the rest of the business was negatively impacted by lower pricing of some commodity spices that the result of decreases and commodity input costs, primarily garlic and black pepper.
As well as some losses in certain low profit private label contracts.
Despite the lower sales profits in our spices and seasonings business remains strong and have outperformed our original M&A model.
Our recently acquired brands also performed well in 2019 with Glamour girl, which was acquired in May 2018, generating some $53.6 million. The net sales slightly ahead of plan and Mccann directional view, which was acquired in July 2018, Dennis.
Rating approximately $12.1 million net sales in 2019.
The Kansas generated approximately $5.3 million net sales during the period that we owned the business in 2018.
While we have spent a lot of time discussing clubber girls performance in 2019 Mccann's has also done well as we continue to expand distribution and net sales for the brand.
I can't net sales were up 7.5% in the fourth quarter of 2019, when compared to our first full quarter of ownership for the business in fourth quarter 2018.
Gross profit was $383.1 million for fiscal 2019 or 23.1% of net sales.
Excluding the negative impact of approximately $22 million of acquisition divestiture related and nonrecurring expenses during fiscal 2019. The company's gross profit would have been $405.1 million were 24.4% of net sales.
Gross profit was 349.5 million for fiscal 2018 or 20.5% of themselves.
Excluding the negative impact of $76.3 million of acquisition divestiture related and other nonrecurring expenses during fiscal 2018. The company's gross profit would have been 420 by $40 million were 25% of net sales.
Our plan in 2018 was to increase pricing and implement cost savings initiatives to offset inflation in order to meeting gross profit margins and for the most birth that is exactly what happened.
For full year 2019 gross profit benefited from an increase in net pricing of $20.3 million. Just ahead of our full year target of $15 million to $20 million.
Likewise, our cost savings initiatives also came in at the high end of our 15 to 20 million dollar plan for the year with approximately $20 million of cost savings realized in 2019.
The successful realignment of our dry and frozen distribution networks was the largest contributor of the savings as we took more than 19 million miles out of our network.
We also benefits from improved procurement packaging and wait out as well as the DNA rationalization that we implemented earlier in the year.
These initiatives in addition to the pirate brands Divesture help lower our cost of goods sold inclusive of the cost of materials labor overhead free and warehousing from 1.35 billion in 2018 to 1.28 billion in 2019.
Cost of goods sold as a percentage of net sales with 76.9% in 2019 compared to 79.5% in 2018.
By increased input cost that we paid.
Particularly driven by its second consecutive short agricultural.
Crop that negatively impacted our green giant margins.
Increased terrorists and increase can prices, resulting from higher steel and aluminum prices.
Selling general and administrative expenses decreased.
$6.7 million or 4% to $160.7 million for fiscal 2018 from $167.4 million for fiscal 2018.
The decrease was composed of decreases in consumer marketing expenses of $5.7 million warehouse expenses of $2.7 million selling expenses of $2.5 million and acquisition divestiture related and nonrecurring expenses of zero point $2 million, partially offset by an increase.
These and other general and administrative expenses of $4.4 million.
Expressed as a percentage of net sales selling general and administrative expenses improved by zero.
One percentage 0.29, 0.7% for fiscal 2019 compared to 9.8% for fiscal 2018.
We generated $302.5 million in adjusted EBITDA in fiscal 2019 compared to $314.2 million in the prior year.
As a reminder, 2018 adjusted EBITDA included roughly $20 million in contribution from pirate brands.
Which was sold during the fourth quarter of 2019.
As we first highlighted nearly a year ago. When we initially laid out our guidance for 2019, we expected to see reduced sales and adjusted EBITDA. Each of the first three quarters as we lap the sale of pirates.
We then expected to see a favorable fourth quarter finish to the year with pirates generating just $2 million or so in net sales during the fourth quarter of 2018 and this is exactly what happened.
We generated $69.5 million and adjusted EBITDA in the fourth quarter 2019, an increase of $11 million or 18.8% from the year ago period.
Adjusted EBITDA as a percentage of net sales was 14.8% in the fourth quarter of 2019.
Which represents approximately 200 basis point increase from the 12.8% generated in the fourth quarter 2018.
Full year 2019, adjusted EBITDA as a percentage of net sales was 18.2%, which is largely in line with our expectations and the 18.5% generated in the prior year.
We generated a $1.64 and adjusted diluted earnings per share in fiscal 2019 compared to $1.85 per share in 2018.
The decrease was primarily driven by the loss contribution resulting from the sale of pirate brands in late 2080, offset impart by incremental contribution from the acquisition of fiber grow mid 2019, the lower interest expense, resulting from a reduction in debt. Following the sale of pirate brands and a small reduction in our share count reserve.
LT from our share repurchase efforts.
Despite the overall interest savings for the year interest expense was negatively impacted in the fourth quarter 2019 by approximately $512000 or nearly a penny per share following our fall 2019 debt refinancing by the negative carry a both our four or five these notes that we retire.
And our newly issued five and a quarter notes.
Which occurred for about 14 days during the mandatory call notice period before the foreign five its notes were ultimately retired.
The BG foods management team and our board of directors remain true to our commitment to return excess cash to shareholders.
Which in 2019 consisted of $123.7 million in cash dividends paid to shareholders or $1.90 per share.
As well as share repurchases that we made in the open market.
During fiscal 2018, we repurchased $34.7 million in shares at an average price of 1995 per share.
Which reduced our share count by 1.7 million to 64.04 million shares.
The 2018 share repurchases, followed our 2018 share repurchases of $26.9 million of common stock or approximately 1 million shares at an average price of 27 17.
In fiscal 2019.
We generated 120 $420.4 million in net cash from operations after adjusting for the $73.9 million.
Of negative tax impact from our gain on sale pirate brands.
As we highlighted during previous calls we sold pirates in 2018 for agreed price, which resulted in a fantastic return on our investment.
But also on a tax obligation that came due in 2019.
Separately in 2019.
70.4 million dollar invested and net working capital for accounts receivable plus inventory less accounts payable.
Net cash from operations after adjusting for the pirates gain on sale tax and assuming a flat net working capital number would have been approximately $190.8 million.
While inventory step back up on us a little bit at the end of 2018, we think that this creates a nice opportunity for us in 2020.
We expect normalized working capital levels to create an additional $35 million to $45 million, a net cash from operations and to provide a Christian for our expected $122 million of dividends during 2012.
And now I would like to review our guidance for 2020.
We expect net sales to be in the range.
Of $1.66 billion to $1.68 billion.
We expect net sales to be positively impacted.
By a full year of clapper girl.
Elaborate girl, which was acquired in May 2019, and generated approximately $50 million to $55 million net sales under our watch in 2019 should generate an additional $20 million or so in fiscal 2020.
We also expect a strong year for green giant.
With a strong series of innovation launches.
This year, including Green giant rights Veggies.
Cauliflower hash Browns cauliflower crust pizza, cauliflower and spend its gnocchi and cauliflower breadsticks.
As Ken mentioned earlier, we expect our green giant frozen innovation efforts to also receive an extra boost this year and again in 2021, following our acquisition of formalize, which was just announced last week.
Farm Wise is the proud creator of Veggie Prize that you thoughts and veggie rigs. We think that the addition of these products to our frozen portfolio will be extremely complementary to our efforts to revolutionize the frozen vegetables.
On the downside, we expect to see a reduction in our commodity spice sales by approximately $20 million to $25 million as we continue to pare back certain lower margin private label in food service contracts.
We also expect to see some softer sales at the company level in the first quarter of 2020 as a result, the board our Threed spend optimization program.
While pricing came in at the high end of our expectations in Fourq, you and full year 2018, our volumes were a little softer than we wanted.
We expect these similar performance dynamic in the first quarter of this year from a sales standpoint.
Trade spending may be an area that we treat further throughout the year.
As we may very well strategically invest in trade for some of our more elastic brands to optimize performance.
Now back to the rest of our fiscal 2020 guidance.
We expect adjusted EBITDA of $302.5 million to $312.5 million.
Adjusted earnings per share of $1.60 to $1.80.
And cash working capital benefit of approximately $35 million to $45 million.
Net interest expense of $90 million to $103 million, including cash interest expense of $94 million to $99 million and interest amortization expense of $3.5 million.
Depreciation expense of approximately $45 million.
Amortization expense of approximately $19 million.
And effective tax rate of approximately 25% to 26%.
Gas taxes of approximately 10% $20 million.
And finally, we anticipate capex to be approximately $40 million to $45 million in fiscal 2020, which is slightly below last year.
Based on the midpoint of our adjusted EBITDA guidance range, we expected our adjusted EBITDA less capex cash taxes in cash interest will be approximately $150 million to $155 million.
We also expect to see an additional 35 to 45 million dollar cash benefit from an anticipated reduction in working capital taking this number closer to $185 million to $200 million, which should leave us with a reasonable cushion from which to pay our annual dividend of approximately $122 million.
Absent acquisitions, we expect our net debt to adjusted EBITDA before share based compensation as per our covenant calculation in our credit agreement to be approximately 5.75 0.9 time by the end of fiscal 2020.
This concludes our remarks and now we would like to begin the Q and a portion of our call.
Operator.
Thank you we will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad confirmation tone would indicate your line is in the question Q. You May proceed start to if you'd like to some of your question from the Q for participants using speaker equipment, maybe necessary to pick up your handset before passing the start Keith one moment.
If we pull for your questions.
Our first question comes from the line of Angela ZAR with Barclays. Please proceed with your question.
Good afternoon everybody.
Hey, under either Hi couple of quick things for me.
I guess first off.
I wanted to just trying to get a sense of the little bit of a disparity that we've we've seen over the course of the quarter between.
The Green giant sales performance that you talked about today on the call and maybe what we've seen in some of the scanner data.
Perhaps it doesn't take into account some of the.
Some of the areas that are that.
That are growing in that in that franchise, but wanted to make sure I get a sense of what if any disparity we see there.
Good thanks, Heather up a little bit for Green giant, obviously and scanner, it's been a little weaker.
Yes, so well first of all Green giant Thats you ask Green giant is said to we had a terrific year in Canada, plus there is someone measured channels, but but green giant sales were softer in total not quite itself is what scanner showed but.
A lot of that was the the effect of our trade trade promotion.
Production program, but but but we we expect to be through that in the first quarter and onto a more normalized.
Green giant results with stepped up innovation and not nearly as much cutbacks.
On trade.
Post the first quarter this year.
Okay. Thanks for that and then I think you talked about what you anticipate for incremental sales in 2020 from Claborn ROE do you have something similar for EBITDA as I recall.
You weren't expecting a whole lot of benefit in 19 on EBITDA from collaborator also even though it's only in the base for kind of half the year. In 2020 is it more of that you get closer to a full year of Incrementality on EBITDA, maybe I was thinking somewhere around yes.
Sure. So clubber girl was a positive in fiscal 19, it'll be a positive again.
In fiscal 20.
Couple of million dollars in the first half of.
Fiscal 2000.
Okay. So you did actually ended up getting some benefit as of yet yeah. We got some benefit in the second half of fiscal 19 and.
We have a clever obviously baked into our 2020 beds.
Hey that last thing would be a little broader from just under frozen industry standpoint, where we just hear a lot from any number of other companies that operate in this space where therapy your area frozen vegetables, or more broadly frozen meals and such about just a lot of change and disruption at the retail level in terms of things that they're trying to do.
Whether it be changing timing around freezer shelf resets.
Moving things forward, maybe because of all the innovation being brought to the market.
A whole sort of move towards click and collect and having to sort of get rid of let's say.
Take off the shelf some of the slower turning items. So you have more facings of the things that are have the highest velocity for click and collect and have the holding power.
Roastery, there's still a lot of different.
You know sort of trends happening in dynamics happening I was hoping maybe you could put your perspective on it as it relates to what you see and more specific to your business if Israel, if it's having any impact like that on your business at all thank you.
Well.
Can you just described but you've been hearing in frozen you can say that about the whole stores. So there are a lot of times where.
Reset timing changes customers change when they want to we've even stated that we went from.
To innovation launches in frozen.
In a year to our major retailers only wanted to reset the shelf ones.
However, with the increase in innovation from everybody they have to figure out they don't want to pass up and wait to launch the innovation. So I wouldn't say frozen necessarily any more volatile than the rest of the store when when there's lots of innovation that comes.
Retailers have set their set timeframe, sometimes they change them. It is very hard to get.
Good to get retail is on the same timeframe because they are on their own individually.
We are may our major our major new.
Actually muscle we have to exercise going forward is.
While we whereas we had good rhythm launching frozen vegetables.
Our new innovation is now going to go across multiple frozen categories for us. So when you when we read count that we're going to we're going to launch.
Pizzas.
Bread sticks.
A few new items and vegetables as well as yaki.
I'd Thats four different that's four different that could be for different reset timing because there are different categories within the frozen foods that so how it pertains our businesses is I can't tell you exactly each retailer one way to launch because it's going to be multiple dates that those are going to be launched in multiple retailers.
So there is a lot of noise, but I wouldn't say that frozen is any more difficult than any other active category in the store.
Got it thanks very much for the color.
Thank you.
Thank you. Our next question comes from the line of Karru Martinson with Jefferies. Please proceed with your question.
I guess on that same vein Oh, when do we see the new green giant products on the show no or they get it a little more color on when do we see shelf stable veggie rice out there and just a housekeeping I thought I heard the number 20 million in new products sales for 2020 is that correct.
Yes.
Okay.
And then and then how should we think about the cadence I mean I recognize that everyone has their own time, but when it is just going to be more back half weighted more front half how should we think about that.
Well some of the items, we launched already in the fourth quarter with some customers that took them early and they're going to be launching all throughout first quarter and beyond specifically you asked about the raced veggies shelf stable, that's not going to less I've got a first launch until the second quarter.
But I can't promise, you I, but the but the acceptances in the first ship differs by customer all throughout the year.
Okay, and said another way 20 million $20 million, a new product sales aren't the annual run rate. It's the it's what we're adding up.
Based on how best we can project.
The distribution level, we're going to achieve and when the first ship date is by customer imagine a grid of.
[music].
15, new skews across all the retailers all shipping at the first ships at different times.
[laughter].
Absolutely.
When you guys look at the portfolio I mean, how do you guys balance the volume declines that you've been seeing with the pricing what is the optimum optimum mix that you guys would like to get to in terms of the elasticity of products.
We've answered this question over the past couple of years because in 2018, we took more just straight list pricing.
Which is a little bit more predictable and in what the elasticities are and we came in pretty much where we thought we'd come in but thats a base price of maybe a dime or maybe 20 cents a unit in everyday price. It's it doesn't it doesn't normally show up in huge swings of volume either way you might.
I have a little bit of volume down tick some of our brands to prove to be pretty inelastic of pricing in 2018.
So it delivered.
In 2019, we really transition to not only did some list pricing, but transition to to getting to cutting back on some very very deep discounting on a few categories.
When you talk about Elasticities, then that's a much much greater swings of elasticities, because you're talking about.
Changing very very low promoted price points with in many times.
Excess merchandising that goes along with them and forecasting and guessing the volume decline on that is very complicated you learn over time and and there may be places as Bruce mentioned, where we lost a little more volume than we thought we might want to get some of that back, but but it's not like we're going to do a wholesale change we we knew and said we were.
Going to have less volumes, because we were giving up very very deep discounting.
Many at low and below.
A low margin so.
So it's why we were able to withstand a little bit of.
Sales on the lower end and hit our EBITDA guidance, because a lot of them were empty cases.
Okay.
Hey, you guys called out last quarter higher garlic costs due to the tariffs.
And now with the Cronto IRS, we've been hearing reports that garlic prices again are going up just because there's not enough production coming out of China.
Just thinking of that as a lead into how how you're looking at inputs and your ability to kind of price through for that.
We have some ability so we were securing garlic supply. So we are already and we're already we have good supply already in inventory from China, but we're also looking at other regions to make sure we're protected and and never have.
An interruption in supply.
So there is going to be an uptick in our costs and that's probably one of the biggest uptick in cost we haven't really seen a lot of other volatility, but there is an uptick in garlic costs and and the way that.
Many of our spice contracts.
Our Britain, we can pass some of that along it's more commodity based.
Okay. Thank you very much and cops and as Bruce said, we had negative pricing last year on spices, because we gave back some of the commodity savings we got so.
It it's not 100% pass through either way, but it does go in tandem in this space World.
Thank you. Our next question comes from the line of Bryan Hunt with Wells Fargo. Please proceed with your question.
Thanks for your time. This afternoon I was wondering if you could maybe help bridge out on the remainder of the 1% to 4% EBITDA growth for 2020, you gave us a little bit of contribution a couple of million from fiber girl.
I guess I just wonder if you can help cover the rest of it yes.
So there should be a little bit of green giant from incremental sales and then we referenced small price increase which is really the wraparound benefit of last year and some more cost savings efforts.
All of that will contribute an offset some increased costs.
Hi, Good next I was wondering if you could just touch on farm wise, maybe what the acquisition costs are I mean is for that business.
And maybe what the sales and EBITDA contribution might be for 2020, there as well.
It is small less than $5 million in all cases in this was less than acquisition around a business that generating EBITDA that we're going to leverage this year and more about.
Ken likes to describe as the research lab and said.
Product innovation demonstrated ability to launch into the natural channel and products that are very complementary with what we're looking to do with green giant.
Yes. This this business as as it comes in we'll have de Minimis impact on our numbers. It really is a.
It's the acceleration of Green giant innovation going forward.
And we haven't yet even.
Develop a plan for what we're going to do with farm wise a natural channel. We are very excited about our access into the natural channel.
Which will probably move you more of a 2021 opportunity.
But we don't have we all of this great Veggie innovation, we don't have any green giant in the natural channel. They don't want mainstream brands. So we see farm wise is a great.
Great ability for for BMG to now have access with our great innovation engine, both the BMG innovation engine as well as the farm wise engine.
Take farm wise and build it into natural job.
Very good I was wondering if you could also touched about yeah, you talked about a lot about innovation.
When you look across your portfolio of innovation, how how why does the acceptance of.
Of items, such as California bread sticks in my cauliflower.
Corn blended shells.
Hey, guys.
Well if you look at if you look at food.
Because ex AOCI as measured by Nielsen is got convenience stores and stuff like that and it which are hard to measure and not really appropriate for all of our products. So if you look at food distribution, our food distribution on Green giant as a brand is very high assume the 80, 90% range a lot of our top selling innovation gets set.
5% or more.
Distribution on our innovation on Green giant.
On our Tangguh.
I don't believe or that high yet, but we're we're presenting everyday to customers. So.
I don't have the final number about what.
HCV distribution is but it's clearly going to be.
Somewhere in the 50% to 70% range on the on the innovation given there are high priority launches.
So we want to do innovation on the big brands. So that we can get more national distribution and innovation on a regional brands is not going up amount all that much.
Do you believe the discrepancy between what you just reported for Green giant and the Nielsen data I was just.
You know you had better growth in placement in and non measured channels, so that kind of a fair assessment the situation.
Little bit, but both Canada was probably the biggest driver of the difference between because you don't see Canadian neo consumption numbers, but we did have.
Green giant did have a slowdown in sales, but again a lot of that was due to the pullback we did on trade.
Very good I will hand to hand, it off to somebody else out I'm sorry last question. When you look at you know the proposed improvement and leverage two to five seven to five nine.
What does that imply what's your discussions with the agencies. The SEC does that gets you into a spot where you're able to maintain the b to B Pos.
We would love to maintain our existing readings and improve probably not appropriate for me to comment on conversations.
The analyst.
But certainly our ratings are important to us.
Our cost of debt is important to us we've been very fortunate.
With pricing our debt as Ken mentioned earlier, we just do the debt refinancing last fall.
Our largest ever in that one of our largest coupon severance. So that's obviously important to us.
Very good I have a good evening.
Thank you.
Thank you. Our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question.
Great. Thank you so much.
[music].
Bruce.
It sounds like you said some of the year over year EBITDA uptick you expect in 2020, maybe driven by savings.
Is that.
Assuming that includes 15 20 million you mentioned in the prepared remarks, you know each of the next three years.
Or is there other kind of regular productivity I'm really just asking to see.
We think that yes that is the productivity thats exactly what we're talking about that.
Okay. So like if we're thinking about the 15 to 20 million each year over the next three years I am assuming they're selling plan you know to reinvest some if not all that back just given obviously like the competitive dynamics increase you're posting some volume pressure the trade spend you pull back in but you never know you might put more back.
More of that back in so like you know if we're all forecasting next three years, we shouldn't be taking call at $17.5 million per year and dropping that's the bottom line.
You are absolutely correct.
Okay cool, Thanks, and then.
And then just sorry, sorry, our model is really to provide some stage stability to our earnings going forward, we're not going to be presenting huge increases in base business earnings it's really to get back on track to being kind of the steady Eddie performance at BSG is always been known for and then get back and then get back to accretive.
Positions the problem over the last few years before 19 was that while we continued on the acquisition Han we had a little we had leakage and so.
Acquisitions were accretive not because the acquisition didnt perform up because we had a leaky bucket. So our goal was stopped the leaky bucket, which we did last year and Collabra girl helps that helped us grow a little bit.
X pirates, because it's been so much noise with pirates in and out.
So going forward, we're saying, we UNEV stability in topline and bottom line.
We need to do cost productivity to offset inflation and may be dropped some of that to the bottom line, maybe invest some in marketing.
But then make sure that our balance sheet can can be prepared to do the accretive acquisitions and thats, a little trickier with our debt the way. It is right now quite frankly, but not impossible.
With collaboration and as we said in our remarks, there's opportunities. We're looking at that will will that will not put pressure on our leverage but will help us grow our EBITDA, which is what this company has been doing.
For over 20 years.
Fair enough.
And then just quickly on the dividend.
You stayed upfront there three issues are probably pressured the stock one of them you called out with the dividend.
So I'm just curious if you you said.
In the prepared remarks, not trimming the dividend because that's how the company was built which I under stance and extend.
But then ill sept asset why not allocate more to capital more capital that tactic to acquisitions.
And kind of just trying to understand a little bit better just a process behind the capital allocation strategy given your dividend yield is materially higher than the highest.
Next to you within the space, that's off tour and I think.
The board and the management team.
Kevin I included.
Have had a consistent view on this in we went public on the idea of returning excess cash to shareholders.
We view the dividend policy based on our cash generation in the cash generation is here with the company.
We do think the yield doesn't make a lot of since we never set the dividend policy based on yield it's been more a function of the cash flows and our view.
Just the dividend yield doesn't make sense, because the stock breadth of that make sense.
Okay, great. Thanks, guys.
Thank you. Thank you.
Thank you. Our next question comes from the line of Hale Holden with Barclays. Please proceed with your question.
Hi, Thanks for taking my call I had two questions for you. The first it's been a little while since we're talking about our ticket growth and you talked about the innovation and then in response to Brian's question give a little bit of schematic some kind of where you were on distribution.
But as it is it just sort of a new veggie.
Tacos, the choking on street sauces or is this distribution gains on what would it take ticket that to kind of up low single digit growth as a brand.
Well, it's definitely the launch of we think the probably the biggest news and Taco shells and the Daqo shell so.
It is with those launches and of that and the Taco sauces and good acceptance, we should see some.
You got it some some low low single digit growth.
And it does that take more marketing and noise around to do that or.
Excuse me I'm sorry.
With that take more marketing support to do.
While we have marketing that we allocate amongst our brand depending on what each brand has going on but yes Morgan to we're going to support it with a lot. We focused we don't have the biggest advertising budgets. So we do focus a lot on digital and we focused a lot on cost shopper marketing with our retailers and we also focused a lot on.
On the in store.
So there are several categories, we have shared in the past, where we have bought out that some of the categories like frozen vegetables, where the signage that goes on the on the freezer doors, we have exclusivity on though that signage. So.
We have done that in other areas of the store to support both cross brand merchandising as well as innovation.
Got it and my second question first could you give us a sense of where the.
Where are the working capital the 35 million working capital savings is coming from or I guess.
What drove the increase last year, that's you're pulling back on a little but this year end.
Yeah sure in as I'm thinking about working capital I literally thinking.
Accounts receivable accounts payable inventory.
We did a great job 2018, bringing inventory down it came up a little bit again in 2019. Some of that is the acquisition of Clavier girl.
And then and then payables went the wrong way on us and so both of those will be a big focus in 2020.
We think that there's an opportunity to generate some excess cash by bringing those back down to.
Through the rate levels.
There's no one category like the can category that you kind of liquid enough to do that was just just better management across system better management across the system.
Thank you guys. So much I appreciate it thank you.
Thank you. Our next question comes from the line of Ken Zaslow with Bank of Montreal. Please proceed with your question.
Hey, good afternoon.
Good how are you. Good couple of questions you took away the cash flow questions I don't ask that.
When I think about all the reduction in your lower margin.
He is asking you actualization, how come that is not going to add to the operating profit line is that not accretive to your numbers.
It was that if you look our EBITDA was up $11 million in the fourth quarter.
Well executive they'll continue into 2020 or that net.
Action is done.
So we've talked about a very small price benefit in 2023 to 5 million Bucks.
Yeah.
But what about the but you're not calling anymore can use I thought when you're talking about the guidance you said.
It would it be here into 2%, partially offset by some SK rationalization to weight of some low margin SK use.
So that no now and that is all factored in and baked into our full year guidance of through two and half 312 now.
But is it but I guess I'm trying to say is what youre thinking about EBIT da.
Bridge to 2020.
Matt.
Materially incrementally largely incremental it just seems like it would be if you get away marginally marginally incremental and baked into our numbers.
Okay.
Second question is is.
In terms of managing complexity. So I don't remember exactly one was last time you had this much product innovation coming this much.
Products go into different categories.
How do you what capabilities are you better equipped to be able to have.
Manage the complexities relative to history.
I'd say that.
We have been launching a steady array of new products and.
Green giant frozen for now.
Started in 16, right. So 16, 17 18 19 so.
We haven't had any we haven't had any significant material hiccups in our ability to launch a lot of new innovation in frozen.
Having said that since we are putting the accelerator on one of the initiatives that we are doing that we haven't shared is that we are dedicating we're saying, yes. They will be engineer model was to take everything we haven't put it in the same sales persons bag and now that bad guys over 50.
50 brands in it. So we are dedicating some of our salespeople to only focus on frozen green giant.
So across our major customers were going to have people that are dead dedicated on frozen biggest is so much activity and now competing in multiple categories within the frozen foods based and then then we'll have a group thats held the rest of the line. So that's that's our commitment to.
Accelerate our our capabilities to handle.
Green giant.
Okay and then.
My last question is as you think about your new product innovation the.
The investment that goes alongside that how much incremental investment is required year over year for the new product launches investment is it going to be a new level of investment on a per year basis does it is something you as as a base case, where you're going to build onto well.
Is this a onetime infusion can you talk about how you think about the capital investment for.
The new product launches and.
How you think about this.
No I mean, we're not we're not proposing a significant increase in marketing investment.
We are we are spending we're spending a little bit more in slotting next year, but thats baked in our sales assumptions and slotting is a gross to net reduction.
And in terms of capital, we're not spending a lot of capital with a lot of these lot of this quick commercials, they R&D and commercialization of these items are our with partners and outside manufacturer. So.
None of what I.
What we outlined in innovation for 2020.
Craig if I'm wrong, none of the green Giant's going to be internally produced and the cauliflower Taco shells in pieces will will be internally produced but that wasn't as significant capital investments. So.
Really more about R&D expertise and consumer insights than than anything else. Yeah. I don't think anything that we're proposing that we're planning on doing in 2020 is radically different than what we've done in the path so for green giant.
New innovation sales contributed something like $200 million in retail sales.
In the last year up over a half a billion dollars since launch.
And then different brand, but just showing what we've been able to do with big brands. When we bought or take it was something like $75 million in sales, it's north of 140 today and so we definitely demonstrated with some of our big key brands and ability to innovate around the brand growth things clearly, what we deal with Green giant is revolutionary.
In the category.
It it's more of the seem as far as what we've been deal with Green giant for the last couple of years.
Great I really appreciate it.
Thank you we're at a time for today's call I'd like to turn the call back over to Mr., all manzi for any closing remarks.
Well, we thank you for joining us this afternoon I hope we addressed the issues that people have with our.
With our performance of it in the past in that you can understand that we're committed to drive continued sustained performance in the future and that the model for BG is alive and well and worse. So thank you all.
And have a good night.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation have a wonderful day. Thank you.
Okay.