Q4 2020 B&G Foods Inc Earnings Call
[music].
Good day and welcome to the <unk> Foods fourth quarter and fiscal 2020 earnings call. Today's call is being recorded you can access detailed financial information on the quarter and full year in the company's earnings release issued today, which is available at the Investor Relations section on 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 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 financing financial condition.
Company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise.
Company will also be making references on today's call to the non-GAAP financial measures adjusted EBITDA adjusted EBITDA before COVID-19 expenses 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.
Lisa.
Daily winner, the company's interim President and Chief Executive Officer will begin the call with opening remarks and discuss various factors that affected the company's results selected business highlights and his thoughts concerning the outlook for fiscal 2020 and beyond.
Bushwhacker, the Companys Chief Financial Officer will then discuss the company's financial results for the fourth quarter and fiscal 2021 on the company's perspective on the outlook for 2020, one I would now like to turn on our conference over to Dave.
Thank you good afternoon, everyone. Thank you all for joining us today for our fourth quarter earnings call.
It would be a gross understatement to say that 2020 was a year like no other year.
COVID-19 brought on an incredible amount of suffering inconvenience and unfortunately deaths with it.
It's humbling that our company benefited from such a tragedy.
And at the same time, it's a tribute to our employees working in the midst of the pandemic and dealing with their own issues caused by it that we were able to respond.
Respond as well as we did to the increased needs of consumers as they cope with Covid and the resultant quarantine.
Bruce will go through the financial details in a moment, but the headlines for the year are that net sales increased 18, 5% to one.
196, $8 billion and adjusted EBITDA increased 19, 4% a $361 $2 million.
This remarkable increase slowed temporarily in the fourth quarter and I will discuss the factors that lead me to use the word temporarily.
But first I'll turn the call over to Bruce to review, the fourth quarter and full year financial results first.
Thank you Dave good afternoon, everyone.
Dave just discussed we generated unprecedented financial results during fiscal 2020 Dilip.
Delivering company record net sales adjusted EBITDA and adjusted diluted earnings per share for the year.
We reported net sales of $1.96 billion to $8 billion in fiscal 2020, an increase of $307 $5 million or 18, 5% compared to the prior year.
Fiscal 2020 net sales included approximately $27 $8 million.
Net sales from our acquisition of Chris Scott.
Chris go closed on December one 2020, providing us with a full month of net sales.
We generated adjusted EBITDA before COVID-19 expenses of $374 8 million in fiscal 2020, an increase of $72 $3 million or 23, 9%.
During 2020, we incurred approximately $13 5 million.
Incremental COVID-19 costs at our manufacturing facilities.
Which primarily included temporary enhanced compensation for our manufacturing employees compensation, we continued to pay manufacturer employees wildly Florentine and expenses related to other precautionary health and safety measures.
Inclusive of these costs, we reported adjusted EBITDA of $361 2 million, which is an increase of $58 7 million or 19, 4% compared to last year.
Adjusted EBITDA before COVID-19 expenses as a percentage of net sales was 19% in fiscal 2020.
Adjusted EBITDA as a percentage of net sales after including approximately $13 $5 million in cash.
COVID-19 costs incurred during the year was 18, 4%.
Adjusted EBITDA as a percentage of net sales was 18, 2% in fiscal 2019.
We reported net sales of $510 $2 million in the fourth quarter, an increase of $40 million or eight 5%.
Fourth quarter 2020, net sales included approximately $27 8 million in net sales from our acquisition of Chriscoe.
We generated adjusted EBITDA before COVID-19 expenses of $77 6 million in the fourth quarter, an increase of $8 1 million or 11, 7%.
Yeah.
During the fourth quarter of fiscal 2020, we incurred approximately $4 $3 million and incremental COVID-19 expenses at our manufacturing facilities.
As a result, we reported adjusted EBITDA of $73 $3 million in the fourth quarter, an increase of $3 8 million or five 6% from $69 5 million in the prior year period.
We reported $2 26, and adjusted diluted earnings per share in fiscal 2020.
An increase of <unk> 62 per.
Per share or 37, 8% compared to the prior year.
We reported 35 and adjusted diluted earnings per share in the fourth quarter of fiscal 2020, an increase of <unk> <unk> per share or 25% compared to the prior year.
Yeah.
Fiscal 2020, net sales increased by $307 5 million, which included an increase in base business net sales of $244 5 million and an.
<unk> net sales from acquisitions of $63 million.
Of the $244 $5 million increase in base business net sales $209 8 million was attributable to increased base business volume.
Of the $63 million.
Net sales from acquisitions $33 $7 million was.
<unk> to an additional 701 five months of Clabber girl net sales in fiscal 2020.
And $27 $8 million was attributable to one month of Chriscoe net sales.
Fiscal 2020 base business net sales also benefited from $35 8 million and net pricing inclusive of our spring 2019 list price increase.
Our 2019 trade spend optimization program as well as the impact of COVID-19, which resulted in lower than average daily trade promotions during the height of the pandemic.
Keep in mind that our pricing calculation also includes an element of favorable mix as we sold less spices in the foodservice channel, which tend to be priced at a lower margin.
FX was a drag on net sales of a little bit more than $1 million for the year.
We estimate that the extra reporting week in fiscal 2020, which occurred in the third quarter contributed approximately $35 million to our net sales.
Leading our brand performance was green giant which reached approximately $639 million in net sales during fiscal 2020.
Marketing, an increase of $112 2 million or 21, 3% for the year.
Green giant outperformance was largely relied by shelf stable with green giant lessor sales stable net sales up by approximately $64 8 million from.
We're 39, 7% for the year.
Green giant shelf stable had COVID-19 enhanced sales that led to extraordinary performance that began in the second half of March and carried through to the end of the third quarter.
As we hit the fourth quarter, we began to manage sales closely through the implementation of certain customer allocations to ensure that we had sufficient product to last us until this summer's pack season.
As a result green giant shelf stable net sales were flat in the fourth quarter, despite elevated demand and double digit consumption trends that persist today.
Net sales of Green giant frozen products were up double digits for the year, plus $47 4 million or 13, 1%.
Sure.
Among our other larger brands cream of wheat had one of the best performances in fiscal 2020 with net sales up by approximately $12 9 million.
Or 21, 6% for the year.
Cream of wheat continued to outperform in the fourth quarter with net sales up by $2 7 million or 16, 1% compared to the prior year period.
Clabber Girl also had very strong performance as part of what we believe will be a lasting resurgence in Beijing.
Net sales of Clabber girl products were up by approximately $10 2 million.
Our 18, 9% during the comparable period of time debt, we owned it following the mid May 2019 acquisition.
We've been very pleased with the performance of Clabber girl business, which generated approximately $97 5 million in net sales during our first full year of ownership.
Compared to our expectations at the time of acquisition of approximately $70 million to $75 million net sales.
Net sales of Clabber girl were up by approximately $2 $5 million or almost 10% in the fourth quarter compared to the year ago period.
Net sales of Ortega were also up double digits during fiscal 2020, with an increase of $17 9 million or 12, 7% compared to the prior year.
Supply chain constraints, driven by industry wide Taco shell capacity constraints limited the upside for the fourth quarter and as a result, while our net sales growth was impressive with a $2 $5 million increase or seven 3% compared to the prior year period.
We could have done much more had we add incremental product supply.
Victoria was also one of the larger gainers in the portfolio, increasing net sales in fiscal 2020 by $11 3 million or 26, 4% compared to the prior year.
Net sales of Victoria reached nearly $55 million in 2020.
While consumption remained strong throughout the year net sales dropped approximately zero point $6 million or four 7% in the fourth quarter, primarily due to the timing shift of a large promotional event with one of our key club customers.
Debt moved from fourth quarter 2019 to third quarter 2020.
Net sales of Maple Grove farms were up by approximately $6 1 million or eight 7% in.
Impressive performance given that a substantial portion of Maple Grove farms business is sold through the foodservice channel, which went dark for a significant portion of the year.
Fourth quarter performance showed nice improvement as well with net sales up $2 1 million or 12, 2% driven by continued strong consumption trends and an improvement in the foodservice side of the business.
Our spices and seasonings, including our legacy brands, such as accident and Dash and the brands. We acquired in 2016, such as tones and Weber were up by $30 9 million or nine 2% for the year.
Net sales of spices, and seasonings reached $367 7 million in fiscal 2020.
The retail side of this business began to show strong momentum by June as more and more Americans begin to fully embrace cooking and seasoning their meals at home a trend which continues in 2021.
The foodservice side of the business continues to be down but is slowly improving.
In the fourth quarter net sales of our spices and seasonings increased by $2 1 million or two 4%.
Despite the outsized performance for the year, our spices and seasonings could have increased even more even with the drag from foodservice had we had incremental supply.
Among our other larger brands, New York style had challenges both in foodservice and to a lesser degree in the retail deli aisle.
Net sales of New York style were down $1 8 million or four 5% for fiscal 2020 compared to the prior year.
Gross profit was $481 7 million for fiscal 2020, or 24, 5% of net sales <unk>.
Excluding the negative impact of approximately $5 million of acquisition divestiture related expenses, the amortization of acquisition related inventory fair value step up and nonrecurring event expenses included in the cost of goods sold or gross profit would have been $486 7 million or 24 seven.
Percentage of net sales.
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 expenses amortization of acquisition related inventory fair value step up and non recurring expenses, including cost of goods sold or gross profit would have been $405 1 million or 24, 4% of net sales.
Yeah.
Outside of COVID-19 related expenses, including those described previously at our factories and those from our co Packers inflation remained somewhat benign throughout a significant portion of 2020.
However, we did begin to see inflation, starting late in the third quarter and accelerating into the fourth quarter, particularly for freight costs certain agricultural products and other ingredient costs and packaging.
I will discuss inflation, a little bit more than our 2021 outlook, but we expect to see inflationary pressures continue in the coming months and we are working to alleviate these pressures in our 2021 budget.
Selling general and administrative expenses for the year.
We're $186 2 million or nine 5% of net sales.
This compares favorably to the prior year as a percentage of net sales, which included $167 million and selling general and administrative expenses are nine 7% of fiscal 2019 net sales.
The dollar increase in SG&A was composed of increases in selling expenses of $8 2 million increases.
Increases in consumer marketing investments of $7 7 million.
Increases of warehousing expenses of $2 million and increases in G&A of $10 7 million.
Increases in SG&A, including increases in selling brokerage and incentive compensation that are tied to increase sales and profitability.
These increases were offset in part by a reduction in acquisition divestiture related and nonrecurring expenses of $3 1 million.
Yeah.
As I mentioned earlier, we generated $374 8 million and adjusted EBITDA before COVID-19 expenses and after the inclusion of $13 $5 million and COVID-19 expenses adjusted EBITDA of $361 2 million. This compares to adjusted EBITDA of $302 $5 million.
In 2019.
Okay.
We generated $2 26, and adjusted diluted earnings per share in fiscal 2020 compared to $1 64 per share in 2019. The increase was primarily driven by volumes, including COVID-19, driven demand for our products as well as the acquisitions of Clabber girl in mid May 2019, and.
Chris go in December of 2020.
Adjusted diluted earnings per share were also positively driven by increased adjusted EBITDA margins. Despite the impact of COVID-19 costs due to the benefits of our increased sales as well as lower effective cost of borrowings.
We had another strong year for cash with net cash provided by operating activities of $281 $5 million, which more than supported our long standing dividend policy and helped us reduce our net debt before taking into account debt incurred to finance the Chriscoe acquisition.
And our pro forma net leverage.
As a reminder.
We began the year with net debt to pro forma adjusted EBITDA of approximately $6 one two times.
We reached nearly $4 75 times at the end of the third quarter and finished the year with pro forma net debt to adjusted EBITDA before COVID-19 expenses of approximately $5 two one times.
Which is how our consolidated leverage ratio as calculated for purposes of our credit agreement.
Our increase in net cash provided by operating activities allowed us to reduce net debt by approximately $135 million over the course of the year, excluding our acquisition of Chriscoe.
Okay.
Our 2021 outlook includes an expectation for elevated net sales of our products in the early months driven by consumption that has remained over 10% higher than pre pandemic levels on a blended basis across the <unk> foods portfolio for nearly every week of the last 11 months.
We don't expect to exceed our net sales from March April or May 2020, when there was a surge in sales driven more by pantry loading them by consumption.
Our current year is off to a tremendous start as we have strong expectations for fiscal 2021, especially when compared to 2019.
As a result of the challenges face while trying to forecast COVID-19, we are not able to provide a detailed financial forecast at this time.
However, what I can say is that we expect to generate company record net sales.
Two 5% to $2 1 billion in 2021 inclusive of the full benefit of a full year income Chriscoe acquisition.
We do expect 2021 to bring us a different set of challenges that we faced in 2020 and these challenges will include a return of inflation across a number of key input costs, including certain agricultural products packaging and freight as mentioned earlier.
As in prior years, our expectation is that we will manage these costs through a combination of pricing initiatives and cost savings activities to preserve our margin profile and our cash flows.
And now I'll turn the call back over to Dave for further remarks.
Bruce.
As you can see on those numbers the great majority of our balance grew in fiscal 2020, southern substantially because of the dramatic effects of COVID-19 on consumer buying and dining patterns.
E Commerce was a growing driver of those trends and we invested during the year the follow consumers as they bought more through various online.
And we saw sales through those means of buying grow in return.
Although there is no precise way to measure this using IRI and other data sources, we believe that our online sales grew by roughly 150%, albeit from a relatively modest base.
We expect that trend to continue in 2021 and are investing further in building out our online presence and to marketing with various retailers on their site. So that we can be at the forefront of this new way of selling.
Our business also benefited from the low concentration of sales in the foodservice channel versus retail.
Before COVID-19, roughly 13% of our net sales where the foodservice customers.
In 2020 that number decreased to 9% is foodservice sales softened in retail sales group.
We are seeing modest recovery in the channel and expected to strengthen as the year progresses, but in general declines on brands, such as Regina and softness in rights New York style in Maple Grove are the result of higher proportion of their sales to foodservice.
Several other trends on our business in 2020 are encouraging as we move forward into 2021.
Household penetration of <unk> foods brands grew by 900 basis points and the average sale of <unk> products per purchase grew by 25%.
As we expand our digital capabilities, we're able to track the consumers involved in these trends and invest more specifically and reinforcing their purchases.
Our consumption trends consistently showed double digit increases that placed us near or at the top of comparable food companies and those trends continue in 2021.
We increased our marketing spending by approximately 20% for the year last year and over 50% in the fourth quarter to reinforce those gains and speak to all consumers about our brands that are driving growth.
Despite all the positives the year's performance does not reflect the full potential of changes in consumer behavior.
We saw a serious supply chain capacity issues in the second and third quarter and were unable to fully meet demand on brands that offer a meal solution such as Ortega and Bear Creek.
Spices and seasoning sales were also affected by manufacturing capacity issues packaging outages and absenteeism due to COVID-19 related quarantines.
Our policy at on as our facilities has been to be very aggressive in terms of quarantine employees with pay who had any type of exposure.
That has paid valuable dividends in terms of employee safety, but often left the facility's short handed and increased our costs.
Early on in the fourth quarter, we realize that due to crop conditions and co packer capacity issues the supply of green giant shelf stable products would not meet the elevated demand we were seeing in place those products on allocation, resulting in relatively flat sales for the quarter.
We will not see meaningful relief in this area until the summer when the new crop arrives.
Since we took that action we've seen competition take similar actions not surprising since we were all affected by a relatively poor crop last fall.
Turning to a closer look at the fourth quarter it would be easy to say that as the business returned to a more normal footing with base business sales up just two 5% frankly.
Frankly, we don't see it that way.
One thing I've remarked on since returning as how closely consumption trends track the actual demand we see in the business.
It's more true now than it was six years ago.
As noted earlier, our consumption trends remained very strong what.
What we saw on the fourth quarter was a relatively soft November and December.
In factory sales due we believe to retailers stocking up late in Q3 in anticipation of strong demand over the holiday season.
Net demand did not materialize to the extent they anticipated and inventories had to be worked off.
At the back end of the quarter, there was a shift in timing of the typically soft sales week at year end.
In 2019 that week fell on our financial January while in fiscal 2020. It fell at the end of December.
The effect is easy to illustrate January 2020, excuse me 2021 base business sales were up 35%.
The year over year difference accounting for roughly 5% of fourth quarter net sales.
Adjusted EBITDA for the fourth quarter was handicapped by $4 $3 million in Covid related expenses that were not compensated for by the increased sales and an additional spend of $4 $5 million in marketing.
Given that we remain very optimistic about 2021, our sales continued to be strong a reflection of the consumption trends in our service levels continue to improve as we add capacity and are worth workforce strengthens on returns.
While we are still experiencing COVID-19 related expenses the rate of spending is trending downward and should not be near the $13 $5 million cost. We saw on the last three quarters of 2020.
Our growth through innovation was handicapped in 2020 as retailers canceled resets and focused on maintaining inventory of existing products. Despite that the limited launches. We managed to do in 2020 combined with incremental sales of 2019, new products accounted for roughly 2% of our net sales or 45.
<unk>.
The successful items in that group, we will see further expansion of their distribution in fiscal 2021 and will be joined by new product introductions and a variety of brands with special focus on green giant frozen and Ortega products.
Yes.
2021, and we'll also see a full year of ownership of the iconic Chriscoe brand, which we acquired on December one.
On which made significant accretive contributions to our fiscal 2020 results in just one month.
We are integrating the brand into our company as we speak and I expect to have it fully integrated by the end of the summer.
The brand brings with its strong sales reinforced by COVID-19 trends and very attractive margins.
The acquisition profile fits our model perfectly in terms of purchase price financing cost tax advantages EBITDA margin and free cash flow from EBITDA.
We believe that there are good opportunities for the brand to grow in both new distribution and new products and we will be working to execute both in 2021.
As Bruce mentioned this year is not without its challenges we are seeing significant cost pressure on a variety of fronts, including transportation packaging and commodities.
Our operations group has done a good job of protecting us where possible, but there is still exposure that we must cover.
We plan to do that through a combination of pricing rationalization of trade programs and an enhanced cost reduction program.
We've already taken some of those actions price increases on the Underwood brand in Green giant shelf stable products went into effect last month.
More are necessary and will follow.
In my opinion cost relief on some elements of costs such as commodities is uncertain there will be significant competition for what crops get planted this year and the outcome is in doubt until the harvest this fall.
Progress in 2020, that's well worth noting includes a heightened recognition of the corporate responsibilities of BMG foods as we approach the threshold of two $2 billion in net sales.
<unk> saw the formation of a new corporate social responsibility committee at the board of director level, its mission to direct and oversee our efforts to meet our corporate social responsibilities to our employees.
Customers communities and other stakeholders.
During 2020, we also adopted and published on our website, a new human rights policy and a new environmental health and safety policy and most recently, we have established an employee directed diversity equity and inclusion council to help understand and meet the needs of our employees, while achieving appropriate workforce diversity.
Equity and inclusion throughout the company.
While we have already had efforts in place on these fronts. The company has more completely formalized those efforts.
And is committed to increasing all of our efforts and investments.
When we look at fiscal 2021 and try to estimate how we will perform I have to admit that it's a major challenge.
The year has started off with very good momentum, but we will soon reach the sales weeks when consumers were loading their pantries in 2020 with everything and anything and we cannot expect to match those weeks.
But is 2020 stabilized in the third and fourth quarter, we saw more of the new normal unquote trends that we think will continue and could support increased sales versus fiscal 2019.
There is no doubt that many people will continue to work from home for at least part of their work week wed.
We like to believe that consumers have discovered or rediscovered the satisfaction of cooking and baking at home on the savings that they can reap from doing so.
We are investing to foster more banking at home in particular very appropriate since approximately 19% of our sales are in brands that are involved in baking.
And we believe that we can retain many of the new customers, who discovered our brands and more market in the traditional way and online to do so.
All of that leads us to estimate that we will have base business net sales that will exceed 2019 net sales by approximately 10%.
11 months of Chris go net sales incremental to that.
I wish I could call out fiscal 2021 with more precision on that but we obviously are very unchartered waters in many ways.
We continue to believe that our shareholders are best served by the operating model that we've had in place since we went public in 2004.
Strived for modest organic growth in our base business of well established brands layer on a larger growth component via accretive acquisitions and return on a meaningful proportion of free cash flow to shareholders through dividends.
This strategy has resulted in a net sales compound annual growth rate of 11% since our IPO in 2004, and an adjusted EBITDA CAGR of 11, 9%.
Since our IPO BMG foods has paid out $1.073 billion in dividends.
We believe that we have served our shareholders well by making those payments.
On average over the years dividends have represented approximately 60% of free cash flow in 2020 that payout ratio was about 54% lower than normal due to the remarkable surge in operating results.
I'd like to conclude with a final shout out to our employees all of whom have made this company successful in an extremely challenging year and in particular to the workers who have been on the frontline in our manufacturing facilities distribution centers and offices on a daily basis, making sure we can supply the foods consumers.
<unk> need.
Other workers have made important contributions as well, even while working from home a less than ideal scenario in many cases.
Without all of their dedicated efforts, we could not have achieved the records that were set in fiscal 2020 or have begun 2021 with the prospect of another successful year.
This concludes our remarks and now we would like to begin the Q&A portion of our call operator.
Thank you at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone Keypad, Inc.
Confirmation tone will indicate your line is on the question in queue. You May Press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys one.
One moment, please while we poll for questions.
And our first question is from Andrew Lazar with Barclays. Please proceed with your question.
Good afternoon day.
From Bruce.
Afternoon, Andrew.
Maybe to start off.
I guess can you are you able to quantify the various buckets to help explain the difference.
Between the very strong double digit consumption that we've seen through <unk> and the organic sales growth of only about two 5%.
<unk> more important it sort of sounds like this was more of a benefit to <unk>.
And so I'm trying to get a sense of it being from <unk> consumption, you would anticipate to be more in line with shipments and then I've just got a follow up well.
Well.
As I tried to say on my remarks, it was a.
A double hit.
You definitely had a surge in third quarter of especially.
Especially in September you had very large sales in September as retailers loaded up and you had decent sales on October and then the quarter tapered off.
As they work down inventory and I think what they saw.
Was the same as we saw at the fourth of July holiday and the Labor day holiday. We just didn't have the surge the holiday surge that day.
This business usually sees that it was a more tepid holiday season, if you will in terms of.
Buying these kind of products and then you had a hit on the back end. There is always a dead week thereafter, all the holidays on the retailers are exhausted and narrow.
There.
And it's usually a short shipping week as well.
Last in 2019 net debt that wasn't in the year. It fell on the first week of 2020. This year. It fell in the last week of 2020, and then we saw a very large start to January and Thats why January base business sales were up 35% because that week just shifted so.
The shipments are there the timing of the shipments on the front and the back end wasn't ideal in terms of having a great quarter.
Would you anticipate in the first quarter as a whole consumption to be more in line with shipments.
Or are there still some things that you know today that would make those two diverge meaningfully.
Well at the end of two months I can say, yes, but I.
I have three very large sales weeks at the end of March when Covid really took hold.
You had a disproportionate way disproportionate I mean.
Our typical sales week as $30 to $35 million in sales you had $60 million sales weeks at the end of March last year.
Youre not going to match that this year, but you are going to continue I think to be well ahead double digit ahead of 2019 sales so.
We definitely see that.
Because 2020 wasn't Super strong in January and February like the rest of the year was youre seeing on West pacing ahead of 2020 as well in.
In the first part of this quarter, but there's a there's a very very high wall at the end of March that we have to get over somehow.
Understood and then.
I guess, maybe this is.
Dave when when you were on but I guess I can ask this because when you were on the board when Chris go deal with sort of announced and approved.
<unk>.
I am trying to get a sense. If you on the board sort of viewed view this deal as as more typical of a sort of asset that P&G likes to acquire right ones with strong margins and cash flows even if it's not necessarily like a growth brand per se.
Or if it was really more of a doubling down on the possibility that some portion of consumers that have come back to brands like Chriscoe will stick around longer term, which obviously would benefit from other BMG brands as well I guess I'm trying to get a sense of how much conviction you have on the stickiness of demand and if Chris goes away to sort of double down on that.
<unk>.
Or.
It's really just more consistent with the type of deals P&G has done historically and if it is sticky then thats just gravy on top of it.
So a little bit of both I mean.
Covid hadn't happened and we were looking at Chris go I think we would've been very attracted to it for the reasons. You just said very good margins very good free cash flow out of those margins and.
An asset deal that gives us tax advantages in a fairly modest purchase multiple all on.
All basics in the BMG formulary for acquisitions.
Where sales declining yes, but we we bought any number of brands like that improve that we can stabilize sales if not grow sales by paying more attention to the brand. So it fits that formula now.
As Covid a bonus if you will in terms of buying a brand like this absolutely Covid has reinvigorated the brand and reinvigorated what the brand is used for in terms of cooking and baking and we think we can hang on to that.
And are going to work hard as I said in the remarks to really foster I mean, some of our great brands that are very profitable.
Are things like Clabber girl and co and Chris go and about 20% of our sales are involved in that kind of business. So it behooves us to go out there and convince consumers that aimed at fund of vacant homes and.
And keep that trend going on.
Okay, maybe I'll sneak one last quick one and I'm, sorry, just real quick.
I can understand why there is a lot of dynamics at play in giving a full year sort of guide at this point a lot of companies that have chosen and been able to feel confident enough to give sort of a on next quarter Guide you are two months into the first quarter.
It started off well per your comments, yes, you've got a.
That still has some volatility associated with it coming up but I would've thought at least at a minimum you could provide maybe some more particulars around guidance for the first quarter. So is there is there a reason you guys chose maybe not to do that is there still some level of uncertainty somewhere that you just don't have a handle on or I'm trying to get a sense of again visibility at this stage. Thank you.
It's all about the end of March I mean, we're comfortable.
What we're basically saying for the year is we're going to be up about 10% versus 2019 on our base business sales and net.
But Chris go is incremental to that now.
Our best estimate I won't use the word guests, but thats, our best estimate does nobody knows exactly how this is going to play out.
But.
To try and nail down the quarter is very very challenging given those last few weeks.
<unk>.
Yes.
I think we can tell you that the quarter's off to a very good start and if you compare us to 2019, we're going to be comfortable saying, we're going to do much better than 2019.
Don't know that we're going to be able to.
Totally match those last few weeks of sales in 2020, yes. Thank you.
And our next question is from Tim <unk> with Stephens Inc. Please proceed with your question.
Thanks for the question guys.
Could you just stuff provide a little bit more detail about how youre thinking about gross margin. This year more specifically just kind of what you expect for inflation and what youre expecting on do from a price mix standpoint, I know you've already announced some of the pricing actions on green giant Ortega, but should we be expecting to see any more of that this year.
Yes, youll definitely see more of that we are reviewing all.
All brands and looking at price opportunities and trade and trade opportunities on a lot of times, it's much more efficient.
To rationalize your trade spending than it is to take price. So everything is on the table because we see substantial inflation.
It's already here and a number of places and.
Brands like Chris go you can see just go look at what the price of vegetable oil or soybean oil has done in the last number of months and you can see that all of these commodities are ramping up very quickly and frankly I don't expect any any relief until the new crop rolls in.
The market will do what the market will do obviously, so we're looking at.
Substantial inflation.
Even with even with the positions we've taken on a number of things and we're definitely looking at.
Doing what we can in terms of price and trade and cost reduction at the facilities.
To mitigate that so.
I think our gross profits are going to be fairly consistent.
But it's going to take some work to do that.
Okay and on actually on the critical business.
About how far out have you guys forward bought your edible oil needs and can you talk about how the pricing typically works on your products. There like how long is like the lag between the pass through is that a pretty formulaic or do you have to go to the retailer to request their price update.
Yes, well I'll start with the back end there.
Pricing. These days takes 60 to 90 days.
And you can push it to 60 days, but then you have a bunch of retailers that will just deduct off the invoice until you hit the 90 day so.
It's 90 days.
We've already.
On that work with Chriscoe and there should be a price increase effective at the end of April on Chriscoe.
So as far as a position on oil goes we have our cost locked in well into the summer right now.
Hopes that the new crop will will take take the pricing off of extraordinary high on that it's at right now.
Okay. Thanks, I'll pass it along.
Yes.
And our next question is from Brian Holland with D. A Davidson. Please proceed with your question.
Yes, thanks, good evening.
I think you have done a better job of getting price or in the past and perhaps is realized or appreciated but this time around can you cover both cost headwinds and what presumably will be an increasingly promotional environment.
So can you talk about that added layer two.
Maybe the gross to net adjustment next year.
Well I don't know excuse me I don't know how much trade will increase in the specific.
Areas, where we compete.
I mean for instance, a very large brand obviously is green giant the.
The green giant shelf stable business.
Frankly, I'd be surprised if canned vegetable see any trade promotions in the first half of the year nobody has enough inventory to meet demand.
And.
Other competitors have already announced they are not going to do trade promotions and there has been some other allocation work done as well just like we did so it's.
It's crazy to Sellier Youre.
Youre limited inventory at a lower price as fast as you can because then you don't have any inventory and there is nothing available until late this summer. So that's that's over $600 million in sales with Green giant that I think the trade promotion activity by and large will be limited on the <unk>.
<unk> side and virtually nonexistent on the shelf stable side.
So it's the same story on a number of our other so sizable brands our <unk> brand frankly, we don't the.
The demand is huge out there.
General Mills has announced that they were having trouble supplying I think they've gotten past a bunch of that.
We have supply issues still and we're working hard to increase capacity and meet those those demands again, it's crazy to promote in that environment and it'll be a while before that all seasonings same thing.
Don't think our competitors have worked gotten out of the woods yet in terms of supplying the demand they're seeing.
Our supply has been relatively good but again, there are spots, where we're having issues, especially from packaging suppliers and getting the containers to due to the sales we want to do.
So I think if anything people are going to be retrenching on trade early in the year and this is I'm talking about the business, we do not necessarily every part of the food business.
And I think there'll be limited trade and that's the kind of thing we're looking at right now is what.
Even where we have product what is an effective trade promotion and this is an exercise you need to go through every year. What is working what's not and why are we spending money, where it is not working so well be doing a lot of that and.
That's where you get a lot of a lot of your <unk>.
Effective price increase without again, taking a list price increase.
Yes, thanks for the color dividend and queuing up my next question. So the prior CEO had mobile marketing background loosely translates to more brand investment bank under your stewardship.
Going back.
Several years <unk> prioritize maximizing cash generation I presume your focus will be the same as it ever was I think you alluded to that in your prepared remarks. So can you talk about to what extent improving free cash flow.
At <unk> as an opportunity and specifically.
Where they are.
Okay.
Well, there's a number of ways to improve cash flow I mean, if you sell more profitable more of the more profitable brands you can improve your free cash flow and that's certainly a priority as far as my background versus my predecessor.
We're not lowering our marketing spend we increased our marketing spend in 2020, we're going to continue to do that we're going to continue to rollout new products.
The opportunities afford themselves, we haven't reached the point, where retailers are all reestablishing resets and things like that so thats early on in the year. That's that's still more limited.
But.
Improving cash flow Theres, a whole bunch of levers I mean, with the addition of Chris go our inventories are going to top out around the half a billion dollars of inventory. There is there is cash to be had in those inventories and thats.
That's the kind of thing that my background lends itself to as challenging why why do we have the inventory we have to do the service that we do can we continue to do good service with lower inventories.
Things like that things like.
What are we doing with Capex.
What are we doing.
And a variety of expenses.
There's a lot of things that we can do to continue to improve our cash profile, which by the way isn't bad.
I'd say, we have a very good cash generation out of our EBITDA.
It can always be better.
I think Tom and I'll leave it there.
Our next question is from William Reuter with Bank of America. Please proceed with your question.
Hi, I just have two quick ones I hope that's a relatively quick do you know what amount of sales from the fourth quarter would have been.
I guess kind of reduced based upon the supply chain disruption that you experience do you have a number for that.
That's a very hard number to extract partly because if you were able to ship a full order this week would.
Would you see the same size order next week, where when you don't ship a full order you get a bigger order next week, because you didnt ship at the prior week. So it's a very hard number to extract.
Yes, I won't even guests added I'm, sorry, it's a real number but are the equipment on it.
All I know is things like Ortega only grew 12% for the year I think per tag. It could have been double that had we had the supply easily on green giant is another one where youre green giant didn't have enough from green giant we were seeing.
Very significant increases in sales in second and third quarter.
And fourth quarter was flat because we put customers on allocation so.
That's the kind of thing.
Okay.
My second question is do you have any.
Kind of a midpoint of expectations in terms of inflation for this year based upon your outlook or do you have a range that you could say, we think cost of goods sold will be up between X and y percent.
Now again, that's very hard to do.
Yeah.
Youre seeing youre seeing cost increases that we hope for somewhat temporary for the first half of the year.
It's a matter of how much are we how much can we reduce cost in our in our manufacturing and on our distribution that would all come out of inventory.
To offset the cost savings so.
Can't I can't.
Nail down what the what the net effect would be part of this is operating in the world of Covid. It just makes some of these things so much more challenging right now.
But as Dave said the point is to cover these costs.
With price increases both list trade and cost savings.
Okay, Alright, just thought I'd try thanks a lot.
Good try.
Okay.
Yes.
Operator, I am assuming there are no more questions is that correct.
Or are we lost the line.
<unk> are you still there.
Correct.
Okay.
Hello.
Yeah.
Okay.
Okay.
Are we still on.
On that one.
Yeah.