Q1 2020 Earnings Call

[music].

Good day and welcome to the BMG Foods first quarter 2020 earnings call.

Today's call is being recorded you can access detailed financial information on the quarter in the Companys earnings release issued today, which is available at Investor Relations section of BG Foods Dot com.

Before the company begins its 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 should not be placed upon them.

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 the 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.

As a result of new information future events or otherwise.

The company will also be making references on today's call to the non-GAAP financial measures adjusted EBITDA adjusted net income adjusted diluted earnings per share 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.

Ken where monsey, the company's President and Chief Executive Officer will begin the call with the opening remarks and discussion very factors that affected the company's results selected business highlights and this thoughts concerning the outlook for the remainder of fiscal 2020.

Bruce Walker, the Companys Chief Financial Officer will then discuss the Companys financial results for the first quarter as well as expectations for 2020, I would now like to turn our conference over to Kevin.

Thank you good afternoon.

Thank you all for joining us in April 1st quarter earnings call.

I played this lines you and your loved ones safe.

LT and whether you use most difficult Josh.

[noise], we find ourselves the unprecedented an extremely volatile and in certain times driven by the coated like GE pandemic.

The food all we had BMG foods have maintained a steadfast commitment to our core values and strategic imperatives.

Sure the long term success of our company and to make the in June BG foods, a more valuable.

During this crisis every single decision, we make is guided by our follow the priorities.

First and foremost <unk> health and safety of our employees.

Assuring our usual high level of quality.

Integrity of our products.

Meeting unprecedented customer and consumer demand.

Hoping ARX <unk> communities.

And lastly, making the right decisions and investments to ensure the long term financial health and success of BMG foods, when we emerged from the standpoint.

On today's call I will cover three topics.

First I'll discuss the actions we're taking during this unprecedented todd to surface all of our stakeholders.

Second I.

Oh provide a year to date update on our business.

And later after Bruce Thomas Oh provide perspective on their outlooks for the remainder of year.

Consistent with our core values, the hope and safety our employees.

And the quality and safety other products our highest priorities.

The as you foods, we have implemented a wide range of precautionary measures at our manufacturing facilities in all of the work locations in response to the cobot MACI in demand.

Precautionary measures would be as you boosting to protect our employees customers suppliers and other business partners.

And to maintain our abilities to supply food products.

The following among many others.

First the establishment of a cold make GE task force.

Consisting of top company executives and senior management.

In Bay.

Screening of all employees, including temperature jeffs before entering or manufacturing facilities.

Enhanced sanitation procedures, and all of our manufacturing and other work locations.

Social distancing at all manufacturing locations, including the required wary bass.

The installation of Plexiglass safety she'll barriers and sportswear line workers most work in close proximity.

Just staggering ship times and briefs.

The restructuring of breakthroughs, including separating lunch tables marquee chairs for socially distance eating and the installation of plexiglas safety shield barriers and each table to maintain proper employee separation.

Quarantining for at least 14 days with pay of all employees, who have either been exposed to covert 19, or who are exhibiting any symptoms Vancouver 19.

The notification of manufacturing employees of any code that made you positive test at their location and the core GE for at least 14 days with pay any employee who may have had contact with the employee who test positive.

Manufacturing plant shutdowns to thorough sanitation upon any cold 90 positive test.

Continued pay for employees.

And instituting a work from home policy for office workers, beginning March 16th and as of this date until at least June 1st 2020.

We believe the early and aggressive actions we've taken in our facilities has helped keep our employee safe and productive with very few positive test results and no widespread infection.

Well employee safety is our highest priority. We're also aggressively managing our production to ensure that we can meet the <unk> precedent.

The demand from our customers.

Our teams have been working tirelessly producing and delivery products to help maintain the nation's food supply with minimal disruption.

Hi manufacturer employees have been break and agile in responding to rapidly changing market dynamics, driven by a rapidly changing consumer behaviors.

Our front line employees are true euros during the spend that's.

And thanks to the tremendous effort of our employees our ability to serve our customers as not to date the materially impacted.

In fact, our customer service wait for March was strong for filling more than 95% of all orders for both the month and for the last two weeks when the demand surge Pete.

Well that has declined with continued increased demand our service rates have declined to just below 90% in April. We're pleased we're doing our part to keep the nations <unk> supply chain strong.

This would not be possible without the hard work and perseverance of our amazing team here, the energy and our value customers, who continue to sort of local communities during difficult times.

We are incredibly proud of how our team has responded to this unfortunate crisis and weve rewarded our dedicated manufacturing employees by increasing wages for hourly employees by $2 per hour from March Thirtyth to at least May 20 seconds.

And provided supervisors and managers with bonuses of up to $500 during that time as well.

We're also very grateful for the recognition our employees are receiving from our customers who greatly appreciate the efforts our employees or keep are doing to keep their shelves stopped.

I would like to share. An example, the type of feedback we've been receiving for many of our retail partners.

The following our just some highlights of a reason, though we received from the top customer.

Quote I.

I just wanted to send you a note.

Touching upon the true value. Your team has provided us over the past month as we work through the availability of products to the customers that shop at our stores.

Your employees over and above commitment to give me the most up to date visibility from the trenches has been awesome, but.

The work your team has done has been best in class Unquote.

At BSG foods, we have always prided ourselves on the can do attitude of our employees and their willingness to I worked competition.

That has been such an amazing experience to see the tremendous results. Our team is to look and see these efforts recognize real time by our customers.

All of these efforts generated very positive results for the first score.

While the onset of a covert Nike pandemic has been dramatic and assuming an economic cost.

The measures that we have taken as a society to combat it, particularly with regards to social dispensing and staying at home has led to a significant increase in American even Canadians preparing eating their meals at home.

And we expect this trend will continue at some level for an extended period of time.

Our busy foods portfolio has been constructed to include a stable over 50 brands with solid positions in the categories in which they compete.

And while some have question the health of center store and even frozen vegetable brands. These are our foundation at PNG foods.

And just the trusted products that consumers have turned to and the time of crisis.

As you likely saw from our earnings release earlier today, we reported net sales of $449.4 million for the quarter.

An increase of more than 36 month million dollars or 8.9% compared to last year.

We delivered adjusted EBITDA of $80.7 million for the quarter, an increase of nearly $5 million or 6.5% compared to last year, despite being negatively impacted by foreign exchange to the tune up $1.9 million.

We reported net cash provided by operating activities, a 57.6 million an increase of nearly 15% compared to last year.

As we highlighted on our last earnings call. We initially had modest expectations for the first quarter.

In January and February we continue to work with our retail partners to execute our trade optimization strategy during the non holiday season promotional calendar, which resulted in softer topline performance to start the year. Although it was the right thing for the business.

By early March sales were back on track and we began to build momentum as we headed toward the Easter holiday.

During the first half in March we quickly realize that we were in a very different environment. Following the outbreak of the Corona bars.

At that point, we immediately shifting gears and began to task our supply chain to ensure we keep our employees safe.

Well at the same time ramping up production to ensure that we were doing the best that we could satisfy what would become unprecedented demand for our products.

In fact, the last week of March was the strongest sales weaken the energy company history with more than $65 million, we left cells.

We experienced strength in almost all of our brands, but especially green giant Ortega cream of wheat Clavier Girl PNM Bear Creek, Victoria and Underwood.

Contrary to some believe.

That consumers Rowley pantry loading for the long term.

Tumors have been consuming a large percentage of increased volume driving continued strong performance throughout the month of April.

With our net sales increasing more than $70 million or more than 60% ahead of last year for the four weeks ending April 25th.

No. We don't expect to see the same level of outperformance in the second quarter or long term are open orders through the middle of May show similar growth as April.

This outside sales performance.

Was driven by strong retail consumption in the quarter.

Consumption as reported by Nielsen services for all of BMG Foods increased 12% 13 weeks ending March 28.

Driven by a strong five week March a plus 44% and specifically driven by the last two weeks of March fight plus 87%.

In fact for the week ending March 21st.

Consumption of all be Angie food products more than doubled at 122% versus last year.

Several of our brands.

Doubled or nearly doubled their a year ago consumption for the entire month of March including Green giant endless Sue can vegetables, clavier girl baking powder DMV, These underwood, Victoria and mccann's.

Total BMG foods consumption trends have continued very strong in April with the four weeks ending April 25th up nearly 41% versus last year.

The Angie foods is largely at North American retail oriented business, but the portfolio with distinct advantages in this current environment.

These strong consumption trends are testament to the popularity and consumer trust in our brands and their utility as consumers prepare meals at home.

However, we have experienced softness in our foodservice business, which represents approximately 13% of our net sales in 2019.

We expect that our foodservice sales will remain challenged as people continue to shelter in place and their away from home eating options remain limited.

Some of the businesses, mostly impacted by the decrease in foodservice sales include our spices and seasonings business being GE brand.

But you know.

Maple Grove farms.

While our overall business is trending very strong we do recognize brand building and innovation remains critical pieces to our long term success.

And while the innovation, we plan to introduce this year will be delayed somewhat due to the retailer movement of reset timing and the manufacturing focused on getting existing products to the shelf first.

We plan to step up investment against our new products to ensure their success.

Any losses sales from delayed resets and other innovation delays will be more than made up in the current consumption trends of our stable of core brands like green giant tandem frozen vegetables, BNN Bear Creek Super mixes.

Hello, and are all fruit, Victoria pasta sauce and Underwood.

Our largest innovation is in green giant frozen vegetables, where we will continue to launch.

That we began in the fall of 2019 with Green giant pizza with cauliflower crust.

Green giant veggie hash Browns.

Green giant cauliflower, Yaki and Green giant cauliflower, Breadsticks, which are already in distribution in an average of 40% of the HCV and performing very well there.

In addition, we're very excited about our recent farm wise acquisition as we expect it will add fuel to our green giant innovation pipeline.

As well as provide us a brand any more appropriate for the natural channel.

This fall we plan to leverage this acquisition of farm wise by introducing green giant veggie fries in innovative new varieties, including leukemia, garlic, Parmesan, cauliflower ranch, and Bacon and broccoli and cheese.

Along with a totally new probably go green giant veggie rings, our cauliflower based take on onion rings. These will come in variety such as cauliflower, French onion, and cauliflower treaties and break it.

Regarding the farm like Brad we plan to relaunch the brand in the natural channel.

That's a few current mainstream retail customers later this year as well.

On the grocery side of the business.

We'll continue to launch.

The ship a shelf stable version of Green giant Rice veggies.

Nutritious alternative to traditional dry rice made from 100% plant based lagoons like lentils suite. These entities.

Retailer acceptance of this innovation has been very good and we expect to be in 30% of the CV by year end.

Less than anticipated due to category resets being canceled or delayed due to covert 19.

The building throughout 2021, where the targeted goal that 65% HCV.

Not to be done by Green giant.

The Ortega brand is moving ahead with this introduction of cauliflower, Taco shells and cauliflower, Turkey is as well as a line of street tacos losses.

These new products have been very well received by our customers.

With many of them, saying, it's the first real innovation they've seen in the category in quite some time.

We expect to achieve an average 30% ACB distribution by year end.

Also less than anticipated due to to the delayed category resets.

But we expect this will continue to build and 2021 with the Golar, 75% HCV.

Another area in which we will make a digital investment this year is an E commerce.

We estimate our ecommerce sales at less than 1% of our business.

And although it's really it has taken off this past quarter growing more than 100% on Amazon alone.

We know we need to catch up to many of our competitors in this space.

By the end of 2020, we plan to make significant progress in building our ecommerce capability by completing a foundational work needed on our digital imaging content and product data.

Improving our product offerings with innovation and ecommerce friendly packaging and improved data compliance.

We will combine this with a greater investment into your internal resources, including marketing sales and supply chain personnel.

Along with increased investments to build out our ecommerce shopper marketing program, including branded stores banner ads social media links in search engine optimization amongst other activities.

Lastly, BMG foods has long been a supporter of the communities in which we live and work and that is only accelerated during this time of crisis.

In addition to our partnership with same Jews Hospital, we've established relationships with feeding America, and no Kid hungry and they're using our electronic Billboards in times square in New York, along with our social media channels to help raise awareness for it is very important charitable causes.

In summary, BG foods has so far it's effectively manage through these very trying times by keeping focused on our highest priorities.

Executing a playing with which we entered the year and then quickly exercise the adaptability and determination for which our company is known to respond to it unprecedented Unfortunately, the time in our country and our world.

I'm extremely proud of our employees.

And I'm confident they can continue their terrific performance going forward.

I will return later to provide perspective on our path forward.

Our first quarter in more detail and thoughts about the remainder of the year.

Yes.

Thank you Ken good afternoon, everyone.

I hope that you and your families are staying safe and healthy.

Before I begin I would also like to add my own thanks to our incredible team of dedicated employees across all of BMG foods for their hard work during this time.

As Ken mentioned earlier in the call while the onset of the Corona virus has been traumatic and its human and economic cost.

The measures that we have taken at the society to combat it, particularly with regards to social dispensing and staying home have led to a significant increase in Americans preparing and eating their meals at home.

And this is something that we expect to continue at some level for an extended period of time.

We constructed our portfolio of brands overtime to include a broad range of shelf stable products and frozen vegetables.

These are exactly the types of brands and products that consumers are gravitating to in the current environment and we were happy to be doing our part to help feed America.

Not surprisingly given this backdrop and our portfolio of brands.

We had a very strong finish to the first quarter of 2020 with outsized growth in March in terms of net sales and adjusted EBITDA.

This was driven by the final two weeks of the month.

Which had frenzy demand for our products and coincided with the establishment of the country social dissing policies.

Oh mandates and the shutdown of large portions of the economy.

We've seen this heightened demand for our products continue throughout April and into the beginning of May.

In the first quarter of 2020, we reported net sales of $449.4 million.

Adjusted EBITDA of $80.7 million and adjusted diluted earnings per share 46 cents.

Results that are far greater than we've expected.

In the beginning of the year.

Adjusted EBITDA as a percentage of net sales with 18% for the quarter.

Which is in line with our expectations for the quarter and for the year.

We were negatively impacted by about $1.9 million in FX for the quarter as well as some discrete incremental spending associated with Corona virus preparedness, but I will walk through a little later on the call.

Absent these costs, we would have generated a little bit more than $83 million of adjusted EBITDA at approximately 18.5% and adjusted EBITDA as a percentage of net sales.

Net sales for the quarter, representing an increase of $36.7 million.

Or 8.9% versus a year ago period.

The acquisition of clever girl in May of 2019 benefited the company and contributed approximately $18.7 million to the first quarter of 2020 net sales.

Base business net sales, which excludes the impact of M&A increased by 17.8 million.

Collars for 4.3%.

First quarter 2020, net sales benefited by approximately $9.2 million from that pricing inclusive of the wraparound benefit of our spring 2019 list price increase and our trade spend optimization program.

These pricing benefits were complemented by approximately $8.2 million from increased volumes in our base business.

As a reminder, while we are seeing a tremendous benefit from increased consumption. Following the onset of the Corona virus, we really only began to see these benefits in the final two weeks of the quarter.

Green giant, let our performance with net sales, increasing by $22.2 million or 16.3% in the quarter.

We saw outsize growth and net sales of both our frozen and shelf stable green giant products.

Frozen growth was driven by our core legacy frozen bag and frozen bag in a box lines.

Well as our innovation products.

Frozen innovation net sales growth was primarily driven by our power innovation skews as well as green giant rice, veggies and green giant veggie spirals, while many of our 2020 innovation launches have been delayed as a result of the turmoil that is occurring and grocery Isles as our retail partners are focused on keeping their largest.

And fastest turning items on the shelf.

Among our other large brands Victoria was the leader and increased net sales by $1.9 million or 17.4%.

New York style had another strong quarter and net sales increased by a million dollars or 11.1% growth.

Cream of wheat increased by $1.5 million or 8.7%.

Ortega increased by $1.5 million for 4.1%.

Maple Grove farms increased by half a million dollars or 3%.

Net sales for our spices and seasonings business and this about the business that we acquired in 2016.

I see brands, such as Dash and accent were down significantly.

Unlike the majority of our business.

Spices.

Service waiting.

[noise] negatively impacted by the current a virus and the resulting shutdown.

Large portions of the American economy.

This is the one significant area of our portfolio, where we have seen any negative drag on performance and not surprisingly net sales were down $12.9 million for 15%.

Well.

In May 2019 also performed exceptionally well.

As I mentioned earlier the call a girl generated 18.7.

Net sales during the first quarter and while we didn't own the business at this point last year and that's all of the sales are purely incremental the business generated approximately $15 million in net sales under the prior Ownerships watch during the same time period last year.

I would also like to highlight our quarterly net sales performance for some of the other brands in our portfolio.

The nm, which increased net sales by $1.7 million or 49% had outstanding performance in the first quarter.

Net sales of Mccann Irish oat meal increased $5.7 million or 20.9% as that brand continued to build momentum since our acquisition.

Others, such as Las Palmas increased net sales by $1.1 million or 12.3%.

Mama Mary's increased net sales by point $9 million or 12.8% and Underwood increased net sales by point $7 million were 13.2%.

Gross profit was $104.9 million for the first quarter 2020, or 23.3% of net sales.

Excluding the negative impact of approximately $2.3 million of acquisition divestiture related and nonrecurring expenses during the first quarter 2020.

Gross profit would have been a $107.2 million or 23.9% of net sales.

Gross profit was $88.1 million for the first quarter of 2019 or 21.3% of net sales.

Excluding the negative impact of $13.1 million of acquisition divestiture related and nonrecurring expenses. During the first quarter of 2019 gross profit would have been a $101.2 million or 24.5% of net sales.

Selling general and administrative expenses were $40 million in the first quarter 2020, or 8.9% of the quarters net sales up slightly in dollar terms, but a decrease as a percentage of net sales.

Selling general and administrative expenses were $38.3 million in the prior year quarter, which was 9.3% of net sales or an improvement of almost 50 basis points.

The dollar increase was composed of increases in selling expenses of $2 million and general and administrative expenses of $1.7 million, partially offset by a decrease in M&A and nonrecurring expenses of $1.2 million.

Consumer marketing of a half a million dollars and warehousing expense of point $3 million.

We generated $80.7 million, an adjusted EBITDA in the first quarter 2020, compared to $75.8 million in the prior year period.

The increase of $4.9 million and adjusted EBITDA represents our second consecutive quarterly increase in adjusted EBITDA, which follows our finally lapping the one year anniversary of the Divesture of payer brands in the fourth quarter of last year.

Adjusted EBITDA as a percentage of net sales was 18% for the first quarter 2020, which is consistent with our performance last year and our expectations for full year 2020.

While we are seeing unprecedented growth in net sales and representative increases in adjusted EBITDA, We havent necessarily seen an outsize increase in margins from the incremental sales driven by some of the incremental costs associated with the current a virus.

For example.

We have engaged and precautionary screenings for factory workers enhance cleaning of our facilities and we are paying additional compensation for our factory workers.

Additionally, we had an increase of nearly $2 million related to transactional losses.

Related to FX during the quarter, which helped to depress our profits.

Absent. These charges, we would have delivered a little bit more than $83 million and adjusted EBITDA and approximately 18.5%.

Adjusted EBITDA.

As a percentage of that fell.

While we expect elevated costs.

Associated with operating any age of the Corona virus.