Q3 2020 B&G Foods Inc Earnings Call
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Hello, My name is about.
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Good day and welcome to the PNG Foods third quarter 2020 earnings call.
Today's call is being recorded you can access detailed financial information on the quarter in the company's earnings release issued today, which is available at the Investor Relations section of BG Foods Dotcom before.
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.
Mmm workers enough provoking tirelessly around the clock for many months to meet a customer and kidney during this time.
They continued to be are true heroes.
Oh impressive growth and that's at the cost of our portfolio was driven by a continuation of strong sustained consumption growth throughout the quarter.
So the 13 weeks and then October 3rd as reported by missing the.
The total B M G foods portfolio consumption, 18% versus last year.
This was nearly 50% greater than the total packaged food groceries at 12.4% for the same time period.
She's gonna be itchy foods consistently among the fastest growing publicly traded Buck package food companies in the U S.
Thanks for the quarter and the entire period since the beginning of the pandemic.
In addition, we continue digging a hole marketshare immediately two thirds of our branch in categories.
Our largest plan green giant route, 31.5% and natsios, driven by strong Nielsen consumption growth of 46.6% in church stable vegetables.
2.1 shaped ones from the can vegetable category and more than 13% consumption growth and frozen vegetables.
Sure in a frozen vegetable category that grew 10.6%.
Ah spices and seasonings <unk> 30 per cent, despite the material exposure to the food service channel.
Strong, let me check consumption growth of 29% for the Covid drove strong that sounds good.
Many of our other bands also had a strong third quarter.
Our longstanding acquisition strategy of targeting well established brands with leading market positions and strong cash flow profiles at reasonable purchase price multiples.
Cisco has a strong heritage as the original all vegetable shortening that transformed the way people think that was a 100 years ago.
This goes the number one goal of shortening the number one brand of vegetable oil and it also hold leadership positions in other cooking oils and sprays.
The system with our acquisition strategy.
Expect the acquisition to be immediately accretive to earnings per share and free cash flow.
I'll come back later to share more of that how we plan to continue to capture the many opportunities we have the crystal and all of our brands at the boost provide you with more details on our third quarter financial performance. Please.
Thank you Ken.
Good afternoon, everyone.
As Ken just outlined we continue to see the same elevated business trends during the third quarter that we saw during the first two quarters of the year.
Largely as a result of the ongoing curve at 19 pandemic and its impact on consumers.
Our Q3 2020 results include net sales of $495.8 million.
Adjusted EBITDA of $104.6 million and adjusted diluted earnings per share of 74 cents.
Adjusted EBITDA as a percentage of net sales was 21.1% for the quarter.
Our net sales increased by $89.5 million or 22% in the third quarter of 2020, when compared to last years third quarter.
The increase in net sales was almost entirely driven by increased volumes.
While the impact of M&A pricing and foreign exchange were negligible.
Similarly.
Base business net sales increased by $89.1 million or 21.9%.
Our volumes increased by 89.8.
Million dollars, primarily driven by the elevated trends, resulting from Cove at 19.
In addition, the third quarter also benefited from an extra week due to the occurrence of the 50 Threerd week during our fiscal year.
Our average weekly sales in the third quarter of 2000 22020 were approximately $35 million.
Third quarter net sales included strong performance across the majority of the brands within our portfolio with nearly 60% of the brands in our portfolio generating double digit percentage growth in the third quarter of 2020, when compared to last year.
Among our larger brands net sales of green giant, including will soar increased by $37.9 million for 31.5%.
Net sales of our spices, and seasonings increased by $24.3 million or 29.5%.
Net sales of Victoria increased by $6.3 million or 55.9%.
Net sales of Maple Grove farms increased by $3.2 million or 18.2%.
Net sales of cream of wheat increased by $2.4 million or 17.2%.
Net sales and Ortega increased by $1 million or 3% net.
Net sales of all other brands in the aggregate increased by $14 million or 11.1%.
Gross profit was $136 million for the third quarter of 2020 or 27.4% of net sales.
Excluding the negative impact of zero point $1 million of acquisition Divesture related and nonrecurring expenses during the third quarter of 2020.
Our gross profit would have been $136.1 million or 27.5% of net sales.
Gross profit was $108.8 million for the third quarter of 2019 or 26.8% of net sales.
Excluding the negative impact of $1.5 million of acquisition Divesture related and nonrecurring charges. During the third quarter of 2019, our gross profit would have been $110.3 million or 27.2% of net sales.
While we have continued to see significant operating leverage within our gross profit as a result of our increased sales. These benefits were offset in part during the third quarter by COVID-19 preventative costs.
Enhanced compensation during the pandemic for employees at our manufacturing facility.
And approximately 100 basis points of freight rate inflation.
Our COVID-19 costs, including the enhanced compensation for our manufacturing employees continue to run about a million and a half dollars per month or approximately $4.5 million in the third quarter.
Meanwhile, on a rate basis increased freight rates cost us about $5.5 million in the quarter.
Selling general and administrative expenses were $43.4 million in the third quarter of 2020, which was an increase in dollar terms, but favorable by about 60 basis points as a percentage of net sales.
SGN, a cost increased by $5.3 million compared to the year ago third quarter.
The dollar increase was composed.
But the increases in consumer marketing, including investments in ecommerce of $3.8 million general and administrative expenses of $2.7 million down.
Selling expenses of $1.8 million and warehouse expenses of zero point Threemillion.
Partially offset by a decrease in acquisition Divesture related and nonrecurring expenses of $3.3 million.
Expressed as a percentage of net sales.
Selling general and administrative expenses were 8.8% for the third quarter of 2020 compared to 9.4% for the third quarter of 2019.
We generated $104.6 million in adjusted EBITDA in the third quarter of 2020 compared to $86.2 million in the prior year quarter, which represents an increase of approximately $18.4 million or 21.3%.
The increase in adjusted EBITDA was primarily driven by an increase in net sales volumes.
Adjusted EBITDA as a percentage of net sales was 21.1% which was in line with adjusted EBITDA as a percentage of net sales in the prior year third quarter, 21.2%.
Year to date adjusted EBITDA as a percentage of net sale is now 19.8% approximately 20 basis points higher than the prior year period.
We generated adjusted net income of $47.9 million or 74 cents.
Cents per adjusted diluted share in the third quarter of 2020 compared to $34.9 million or 54 cents per adjusted diluted share in the third quarter of 2019.
Earlier this year like many in our peer group, we suspended our annual guidance at the onset of the co. The 19 Corona virus pandemic.
While we noted that the world the change in net forecasting our business would be challenging due to many factors outside of our control. We expressed our belief that we would materially exceed the financial forecasts that we had made earlier in the year of $1.66 billion to $1.68 billion in net sales and 302.5.
Five to 312.5 of adjusted EBITDA, and we certainly have.
While life is not returned to normal yet given where we are in the year. We believe we are in a position to provide guidance for the remainder of fiscal 2020.
And we certainly expect to see continued elevated performance throughout the remainder of the year.
When factoring in our guidance. However, please keep in mind that while we are very excited about the announced acquisition of Chriscoe from Smucker. This transaction has not yet closed and therefore, our guidance excludes the expected impact of the pending acquisition.
So here goes through.
Through the first nine months of 2020, we generated $1.458 billion of net sales compared to $1.19 billion in the year ago period, an increase of $267.5 million or 22.5%.
Generally through the first nine months of 2020, we generated $287.9 million in adjusted EBITDA compared to $233 million in the year ago period, an increase of $54.9 million or 23.5%.
While we don't expect to remain at the same toward plus 20% area growth rate into perpetuity, we do anticipate growth in the fourth quarter to remain elevated or up as much as 10% or more for net sales, which will drive the rest of our model.
Based on our first nine months of performance and our outlook for the fourth quarter. We expect this strong performance that we are seeing to continue throughout the remainder of the year and we expect to generate between.
1.95, and $1.97 billion in net sales for 2020.
We expect to generate between 360 and $370 million in adjusted EBITDA.
We expect slight improvement in our adjusted EBITDA as a percentage of net sales as operating leverage from increased volume is expected to continue to boost margins.
However, similar to prior quarters, we expect some of these margin benefit be offset by increased costs.
Relating to the pandemic as well as continued uptick in freight inflation.
We are also providing adjusted diluted earnings per share guidance for the full year fiscal 2020 in the range of $2.30 to $2.40.
We expect to spend approximately $40 million to $45 million for the year in Capex.
Based on our latest estimate and our continued debt paydown effort, we're trending toward a net debt to adjusted EBITDA before share based compensation of approximately 4.5 times before the acquisition of Cisco.
Thank you this.
Okay I'm, calling for the same blueprint you began intimidate before the onset of the Corona virus pandemic.
We call it a vision for growth.
And it's anchored include strategic priority.
So I have organic growth improved margins and make accretive acquisition.
Keeping a big business, helping with modest organic blue and good cost management.
So we can keep our cash flow strong and balance sheet ready for accretive acquisition.
Purpose of the term a substantial portion of the extra cash to our shareholders in the form of dividends cause.
Always been the core value proposition.
The pandemic cause there's power to a vision the world is overdrive.
Good good household penetration, including Green giant Ortega called the girl creatively weather and deployed.
And these new households, love our products, just like our existing consumers with a repeat rate of 53%.
Our broad portfolio of brands is driving growth in multiple ways as I mentioned before.
Brands that are getting most of their growth from new buyers include critical Mama Mary's Victoria and price value.
The answer is that in most of the growth from existing buyers include green giant and Ortega.
And we have brands that are seen growth more evenly split between new and existing buyers, including Chris Lee.
You wanted him on your mobile device and in store to help encourage consumption of our brain already thousand their household and encourage repeat purchases thereafter.
We've also apartment with a leading provider of household panel data.
To deliver enhanced consumer demographic attitude and purchase behavior insight.
Mhm sites will not on the eighth of driving skills like better positioning ourselves to existing consumers and retail partners, but also among opportunity consumer segments that would be incremental through our business.
And lastly, I'm pleased to report the Jellybean giant back on National television with a fall advertising campaign teaching concern to kind of get more vegetables into their diet between much of a phase of innovation.
Regarding Congress, we estimate the proportion of ourselves Wootten Congress is doing 140% this year and represents approximately seven per cent of our consumption sales as well for the <unk>.
Which room is only an estimate as retailers have not yet completely broken down ourselves to them between tradition brick and mortar shells.
And Clinton collecting click into leather.
But we know what's going very fast and becoming an increasingly important part of our business.
Ah largest brain. The giant is also our largest brand new comes by far.
And according to Miss and reported our share of frozen vegetables E Commerce does north of 50%.
Proximately four times that of a retail sure.
On this month, we've invested in much of the foundational work necessary to set ourselves up to suggest including internal and external search functionality.
<unk> bye.
Shortly optimization key images you work.
Musician report me with ecommerce retail partners test Miller, and what's most impactful for consumers of D. G food products.
This foundational working testing is critical to our continued success in e-commerce in the near future.
And we believe will allow us to hit the ground and then even faster in 2021.
And last but not least.
Product innovation will remain a major driver of our business day in court.
<unk> <unk>, new kept introductions doing the pandemic.
Certainly didn't sounds volume this year.
Focus or Africa inconvenience apply to all of our best Lollipop.
But this delay had a hidden benefit.
The delay Blue 6629, more months of lead time developed new carpet.
This is a rare luxury in the world.
[laughter].
As a result, I knew innovation pipeline is even more robust.
Some of the highlights of new type interactions late this year and early twenties from one include.
We'll keep the innovation train rolling Audrey Green giant.
Introducing additional product that the liberal on Greens that information to help people get more vegetables into their diet.
Our focus will continue to do to introduce new products made from vegetable.
That offered delicious carbohydrate replacement alternatives to large carbohydrate both categories, such as pasta rice and bread.
This quarter, we will continue the rollout of green giant call from nothing and <unk>.
In addition, we've become rollout of Green giant cauliflower for vegetable based burgee fries and <unk>.
Or take on traditional onion rings.
Early retail movement and his first you chose that launched please new items is very promising.
And next year we.
We plan to introduce a line of outstanding cauliflower package, including Ravioli.
And Mac and cheese.
These are delicious one.
One would never know they're made from cauliflower and other vegetable.
M will be gluten free.
And we would like to get a quote vegetable franchise, so where in G. As in green giant vegetables seasoned with our dash self paced evening, our first cross brand product innovation.
For a second largest brand artiga.
And the magic of a cauliflower.
To a category that really needs better for your renovation.
Introducing ortega cauliflower, and corn Taco shells entropy it.
One of the first pet formulation innovations in this category in quite some time.
Who would complement just launch but the answer.
Protection of Ortega Street, Taco sauces, and three flavors and squeeze bottle to capitalize on the growing food truck Kris.
The spices and feeling we're constantly innovating with new blends like a dash everything, but the salt Lake, which allows people to enjoy the taste of an everything bagel went out to solve.
In addition, we've launched new wherever grilling breath blends, including a Weber cowboy and savory Steakhouse evenings.
Now the next one is very exciting.
Under a licensing agreement, we just recently launched cinnamon toast crunch centered that seasoning blend inspired by the second best selling sealey cereal in America cinnamon toast crunch.
This product is introduced to much fanfare.
To not disrupt their facilities as they significantly ramped up production at the beginning of a pandemic and have not slowed down soon.
We will begin implementing our manufacturing cost reduction programs as we catch up the corporate demand and we will share more on our plan with the risk in this area at our year end earnings call.
Better price manageable is the second driver of our margin improvement imperative because it certainly helped in this area.
Our front line employees are showing that they continue to be zeros throughout the same pandemic and I cannot thank them enough for their efforts.
I would also like to take this opportunity to publicly welcome the Cincinnati based Crystal employees that we expect will join the PNG Foods family later this year subject to the closing of the pending acquisition.
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Heightened demand therefore.
Really need to uptick our efforts from a supply standpoint.
I think we're just going to continue to watch it I think you have you have seen certainly distortion.
From time to time around holidays, and other things were buying pattern look a little bit different we're certainly in the holiday.
Buying area today as we speak in November heading up towards Thanksgiving.
Some of those larger share game, but no two thirds of our branch I've gained or how chairs will kind of hard to pinpoint, but big <unk> big swings in baking powder chefs table vegetables.
Even some late late games.
Segments diverse evenings business, though.
600 basis points.
The girl saw similar HCV increase so.
We're all wondering how sticky consumer trial will be but is the pandemic demand also bringing forward some ACB gains that may.
You may have otherwise taken several years to actually achieve and if so how sticky do you think those distribution distribution wins will be 21 and going forward. Thanks.
Yes.
Good point it does help I mean, you know.
No.
Yeah, I'm not sure the Covance situation is going to make a big difference in lessening our dependence you have to remember that.
So I hope that answers your question.
Got more but didnt get nearly as much as we need it.
And then called the demand was even stronger longer than what we even thought back in may.
Okay, Joseph some retailers.
Uhm, depending on the category changed from you know second third Gore Rollouts of 2024 quarter and some change it to the next year.
And some said some categories I said, rather than a reset the category of next year. So.
Uhm. The good news is we've got the products developed and we're ready to lost when the customers ready to launch.
The X ray to do it in house.
That makes sense and in some cases <unk>.
<unk> the asset light model works.
Works well for me.
From a co Packer standpoint, real big thing is to be important within Arco Packers.
As opposed to being a small player with a large no patterns.
Great. That's all for me thank you.
Okay.
I'll go next to Carla.
P Morgan.
I have one question the capital of Sunshine lay on the bed with the Big acquisition and you've got a carnival that in your structure any thoughts of giving refinancing and potentially.
Using longer term financing for the acquisition rather than your Walter.
Yeah, I think that's certainly something that we're going to look to evaluate overtime and the opportunistic within the market contact.
Okay.
<unk> looked at the brand I just have a couple of on brand categories any of the strength in this quarter is it is is their names are driven by timing, where the shipments came in third quarter. This year versus course border next year.
No in fact that.
Mmm, let off a good starting October so you know our.
From the state they would've loved to watch it goes a higher priority for them, but but we'll certainly take a hard look at them given its going to be a very important brand in our portfolio.
Sounds good and then Bruce you gave.
Two things you give a pricing.
Pricing increase year to date for her her on 23 $24 million that you guys had realized through price increases.
I think it's starting to settle a little bit.
But a lot of the benefit that we took.
We have in place and we expect to continue to keep some of that.
Sounds good thank you very much.
Our next question comes from Eric Larson of Seaport Global Securities.
Yeah. Thank you for taking the question <unk> good afternoon, everyone.
There's a couple of questions Rob.
I think can you alluded to and Oh I think all the companies are talking about this and I. If you could maybe put some quantification on it the total marketing spend.
Consumer you are trying to increase your spending at a time when your your household penetration is up you want to retain as.
As many of those customers as possible. So can you give us a sense of.
You know either on a dollar number or a percentage of sales or in some measurement you know how much your marketing spend is actually going up in total.
And the whole, we're targeting it and using it for both online shopper marketing and then getting getting green jet just getting green giant back on air again critical given the so much innovation, we have with all the different segments were going after.
It is critical that.
That innovation got.
Got some awareness and trial in an accelerated fashion.
Got it and then my follow up question here is.
You know obviously, we've got we've all known that there are some there are some freight inflation actually quite a bit I mean, five and a half million I think in your quarter.
Different the obvious your sales are a lot higher than were pretty than they were a few years ago. When when it was plus five to plus 10 million, but is that it's just because home delivery as if this is sustainable I mean this is is this a situation that could get.
Similar to what we had you know kind of a hyperinflationary period, several years ago or how should we be looking at freight cost.
Yeah, it's interesting because we were actually we were looking for some freight increases this year throughout the year was was their model and what we were expecting and probably the first six months of the year. We just weren't seeing it we actually had some favorability. So it picked up a little bit in the third quarter, we are continuing to watch it.
Certainly because a lot of the moves that we made following that late 2017 or early 2018 increase that that you referenced.
I think we're better able to deal with it today than we were back then were more efficient we've taken a lot of a lot of miles out of the system, so feel a little bit more efficient, but but certainly watching it. It was something that we expected to happen. This year and then there were delays don't think its hyper inflation from a freight Sam.
But certainly it's something that that's ticked up a little bit and.
And people just to it if necessary.
Okay, Yes, I would say that.
And I would say that its basically a shortage of capacity thats whats driving it even here the online delivery company, saying, if you want to order something for Christmas EBITDA order now.
I don't believe putting last minute because it's not going to arrive on time. So it's a really a shortage of capacity and to Bruces point, we're seeing similar 8% increases, but we're offsetting that because we've got long term logistics sufficiency programs in place that number one are sending more from spot to contract. So spot rates have really spike contract rates not as much.
So more from from.
Spot to contract and a lot more in truckload versus less than truckload and that's a huge driver on top of all the strategic moves we make as we look at some of our warehouses to take as Bruce mentioned upon a mile down so.
Those three things we are implementing those elite.
We increased the same rate increase doesn't seem to have the same negative effect. It had a few years ago.
Got it I remember when you added your West Coast distribution Center, I think that took out a huge number of miles by recall correctly huge numbers and we're still saving money on that in revenue, Although east coast move we did as well so and that's really helping out a lot but as rates rise.
Okay. Thank you.
Well go next to Ken Zaslow of bank of Montreal.
Hey, good afternoon, everyone.
Okay.
So I I know, it's early but can you give us some puts and takes of how we think about 2021.
You know you get as I see even in the fourth quarter.
The rate of EBITDA growth, obviously is.
Slowing, but how do I, how do we think about 2021 in terms of what do you think are the biggest puts and takes and how we start framing. It now mind I know, it's early to give exact guidance, but if you could give us some put and take that would be very helpful.
I don't think we're ready to do that to 2021, a long of Bruce comment, but I think with the one thing I would say you get your head wrapped around 2021, we'll do it we're doing look at 2021 versus 2019.
Because that's the trend we know about [laughter].
And.
Trending versus 2020, you know we're still you know still 20 twond still up in the air. So so there was such a major changes to the business in 2021 or 2020 excuse me, we're trying to wrap my mind around how does how does 2021 look versus 2019, what's reasonable to assume.
What's going to carry over and while the look of puts and takes versus 2021 move really with interest 2020, we're really looking to build it brushes 2019, but as you know thats.
Yes, the trends we know of today.
Very very difficult to figure out what's going to happen next March and April versus the last March and April where we saw just you know.
Sudden unexpected huge increases in demand.
What do you think your success rate is an incremental.
From that relative to the idea that you were all talking about you know you're getting new customers and your customers, but but part of it is the innovation of that what percentage of your innovation or what percentage of the sales do you think it's sticky or what what present your innovation. It is somebody that won't go away do you think of that as a percentage of your sales going for.
<unk> can you frame that for us and I'll leave it there and I appreciate it.
Okay, and you want to get that.
You want me to get yes, I I'm, sorry, I will I think that you have to think about your not because they have to check it out per cent of the business in the relation between 20 and that'll that'll be in our guidance next to your next year will be able to lay asking you how much volume and then we will get some innovation and how much of it is sticking in leftover, but suffice to say what.
Will be more vitamin innovation 2021 that will be in 2019, because we've got a good successfully launched everything has not every single skew has been successful in this day on show up but for the most part.
He didn't he launched is doing well and then we're launching new cabinets on top of that so it's busy and in particular, our largest Franklin giant I mean, we can lay it out for you, but the brand has steadily grown over the last few years and that's basically driven by innovation.
Great I appreciate it.
<unk>.
That's definitely.
And our final question today comes from Robert <unk>.
Pardon.
And thank you alright.
I.
It was just my <unk> and I'm Charlotte you mentioned that you would have a rare luxury at uhm retailer's pushing back completely uhm the merchandising reset.
And could you elaborate a little bit more on that for me.
Cause it allowing you to.
More distribution, then that you otherwise wouldn't it.
And if so how how long <unk>.
Or the expanding the overall category or do you think about our branch of your bank we just.
Yeah the.
With the Royal luxury common comes from my minimum <unk> email marketer one of the luxury is really for a marketing and I D and commercialization people to just basically got a six to nine months reprieves to get everything ready.
So that's been unplug the luxury so go into the idea marketing people say guess, what you have now 69 more months before you have to get everything in the market.
<unk>, let's just say if I told them move everything is working out of 69 months, they called and said Oh My God, how in the world will be going to do that in a quality way so.
Uhm, so it's really a luxury of our marketing are neutral so we didn't stop organization pipeline.
Everything just shifted so we were working on 20, 2021, 22 plans and then and and we had great idea.
So everything just shifted meaning we're gonna start with 2020 innovation.
<unk> will probably launch what was gonna be early 2021, one more set in May 2021, or early 2022. So it just it just made it just made a blowhole dust because we had a delay and we certainly.
<unk> was that we didn't need the new for probably volume and rightly so everybody focused on the basement with us. So you have to come with a link to the to the folks that have to get this to get these products successfully develop and commercialized for sure with the customers.
And do you think this will give you a bigger.
You're here in terms of innovation and point on me one getting you set a normal gear like is it.
This is my generation three times as much and.
Alright, well I Wanna, Thank <unk> I <unk> I.
I would like to hope that but I think that's more appropriate for our 20th everyone guidance because right now we still don't know for every single customer and all the different categories when the reset the wrong.
You can still haven't decided that mean.
To check or was not over [laughter] and so there's still a lot of uncertainty.
Okay, and we're ready to go into customers and ready to go but that hasn't been does that hasn't been all decided yet.
Alright, I'm, a big fan of hockey so I'm looking forward to that.
Alright, Thank you alright.
Alright, Thanks, a lot bye.
Alright.
And with no further questions in queue that will conclude today's top.
You for your participation and you may now disconnect.
Thank you.
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