Q1 2021 B&G Foods Inc Earnings Call

May 11, 2021

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Yes.

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Good day and welcome to the BG Foods first quarter 2021 earnings call.

Today's call, which is being recorded and is scheduled to last about one hour, including remarks by BG Foods management and the question and answer session.

I would now like to turn the call over to Sarah Jerome Senior director of corporate strategy and business development for BG Foods Sara.

Good afternoon, and thank you for joining us.

With me today are Dave Winter, our interim President and Chief Executive Officer, and Bruce Barker, Our Chief Financial Officer.

You can access detailed financial information on the quarter and the earnings release, we issued today, which is available at the Investor Relations section of BG Foods Dotcom.

Before we begin our formal remarks I need to remind everyone that part of the discussion today includes forward looking statements. These.

These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them.

We refer you to P&G foods. Most recent annual report on form 10-K, and subsequent SEC filings for a more detailed discussion of the risks that could impact our company's future operating results and financial condition.

P&G foods undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise.

We'll 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 release.

Dave will begin the call with opening remarks, and discuss various factors that affected our results selected business highlights and his thoughts concerning the outlook for the remainder of fiscal 2021.

Bruce will then discuss our financial results for the first quarter as well as expectations for 2021, I would now like to turn the call over to Steve.

Thank you Sarah good afternoon, everyone and thank you for joining us today on the first quarter earnings call.

Assessing our results for the quarter. My overall comment is that the quarter played out much as we expected.

And total we achieved record first quarter net sales of $505 1 million or 12, 4% increase from Q1 and 2020.

Net sales on our base business, which excludes the Chriscoe acquisition completed in December were approximately $447 million virtually flat versus first quarter 2020 at a modest <unk>, 6% decline.

Within that number U S base business net sales were up two 1% while international base business net sales were down 31, 8% virtually all of that Green giant sales in Canada to two severe allocation of the brands there.

Compared to fiscal 19, 2019, our base business net sales.

For purposes of the two year comparison also exclude clabber girl and farm wise net sales increase.

Increased $16 $6 million or 4% for the quarter.

Our $447 million of base business net sales were supplemented by the $58 million of Chris go net sales, bringing our total net sales up to the $505 million figure.

Adjusted EBIT for the quarter also set a first quarter record at $92 $9 million or 15, 2% increase the result of solid base business volume and earnings and a fulsome chriscoe benefit and our first few months of ownership.

Those are the highlights I will turn the call over to Bruce now for more detailed comments on the quarterly performance after which I will add additional color on our performance Bruce.

Thank you Dave good afternoon, everyone.

And as Dave just discussed we had very strong financial performance during our first quarter delivering company record first quarter net sales and adjusted EBITDA.

We reported net sales of $505 1 million and the first quarter and increase of $55 7 million or 12, 4% compared to the prior year first quarter and an increase of nearly $95 million or 22, 4% compared to the first quarter of 2019.

As you know the Chriscoe acquisition closed on December one 2020, providing us with a full quarter of net sales and the first quarter.

Chris Good generated approximately $58 1 million and net sales for the quarter, which is slightly ahead of our internal model.

Base business net sales, which excludes the benefit of Chriscoe were essentially flat to last year's first quarter were down 0.6%.

Excluding the benefit of Frisco net sales were up approximately $34 4 million or.

Eight 3% from Q1 2019.

Approximately $17 $7 million of which was due to the May 2019 acquisition of Clabber girl and the February 2021, 2020, formalized acquisition and approximately $16 $7 million of which was due to base business net sales growth.

We.

<unk> adjusted EBITDA before COVID-19 expenses of $95 8 million.

And the first quarter of 2021 and.

And increase of $15 million or 18, 5%.

During the first quarter of 2021, we incurred approximately $2 $9 million.

And incremental COVID-19 costs at our manufacturing facilities, which primarily included temporary enhanced compensation for our manufacturing employees.

Compensation, we continue to pay to manufacturing employees, while in quarantine and expenses related to the precautionary health and safety measures.

As discussed on our fourth quarter and full year 2020 call. We expect to see a continued reduction and these costs, which average one $5 million per month during the height of the pandemic.

Inclusive of these costs, we reported adjusted EBITDA of $92 $9 million, which and.

Increase of $12 2 million or 15, 2% compared to last year's first quarter.

Yes.

Adjusted EBITDA before COVID-19 expenses as a percentage of net sales was 19% and the first quarter of 2021.

Adjusted EBITDA as a percentage of net sales was 18, 4%.

Adjusted EBITDA before COVID-19 expenses as a percentage of net sales and adjusted EBITDA as a percentage of net sales were 18% and the first quarter of 2020 as COVID-19 expenses did not fully kick in until the second quarter of 2020.

We reported 52 and adjusted diluted earnings per share and the first quarter of 2021 and increase of <unk> <unk> per share or 13% compared to the prior year first quarter.

Leading our brand performance, where our spices and seasonings net sales of 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 million or 41, 2% for the quarter.

Net sales of spices, and seasonings were up by $17 1 million or 20% compared to the first quarter of 2019.

Net sales of spices, and seasonings reached $397 $7 million for the 12 months ended March 2021.

The retail side of this business continues to show strong momentum that began last summer 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 this business has also begun to show some momentum with a budding recovery and the away from home channel as many Americans have begun to emerge from a year more of Lockdowns and shelter at home safety precautions.

Despite the recovery foodservice net sales of spices, and seasonings remained below pre pandemic levels for the quarter, but did have an increase for the month of March.

Other major brands contributing to the net sales growth include Maple Grove farms, Las Palmas and Ortega.

Maple Grove farms generated approximately $27 million and net sales during the first quarter of 2021 and increase of $2 3 million or 12, 1% compared to Q1, 2020, and an increase of $2 8 million or 15, 5% compared to Q1 2019.

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Las Palmas generated $10 7 million and net sales during the first quarter of 2021 and increase of <unk> 2 million from.

A one 8% compared to Q1, 2020, and an increase of $1 3 million or 14, 4% compared to Q1 and 2019.

Ortega generated $39 million and net sales during the first quarter of 2021 and increase of <unk> $2 million or 0.4% compared to Q1, 2020, and an increase of one seven or four 6% compared to Q1 2019.

Green giant which was one of the largest beneficiaries of COVID-19 pandemic binding of the past year and our portfolio had approximately $639 million and net sales during fiscal 2020 and increase of $112 2 million or 21, 3% compared to the prior year and.

As we discussed during our last earnings call Green giant as well as its competitive brands will have supply constraints until we reach the new pack season later this year.

As a result, we were forced to make tough decisions and place the brand on allocation with our customers, which will limit sales of green giant products until this year's third quarter. So that we don't sell out before the pack season.

Primarily as a result of those decisions Green giant net sales were just $132 5 million and the quarter, a decrease of $25 9 million or 16, 4% compared to the prior year quarter.

However demand for Green giant remains strong and we expect a strong second half of the year and we expect full year net sales of green giant products to exceed the brands' fiscal 2019 net sales of approximately $525 million.

While demand has remained strong and net sales have generally remained elevated when compared to fiscal 2019. Many of our other brands were unable to surpass Q1 2020 net sales.

Cream of wheat for example generated $18 2 million and net sales during the first quarter of 2021 and.

Decrease of <unk> 7 million or 4% compared to Q1 2020.

And increase of <unk> 8 million.

And were four 3% compared to Q1 2019.

Libra girl generated $17 4 million.

And net sales during the first quarter of 2021 and.

And decrease of $1 3 million or six 8% compared to Q1 2020.

But significantly greater than the estimated $15 million or so of net sales generated.

During the Q1 2000 1919 period under prior ownership.

Our gross profit was $117 8 million for the first quarter of 2021 or 23, 3% of net sales.

Excluding the negative impact of approximately $5 5 million of acquisition divestiture related expenses, the amortization of acquisition related inventory fair value step up and non recurring expenses, including the cost of goods sold.

Our gross profit would have been $123 3 million from.

And were 24, 4% of net sales.

Gross profit was $104 9 million for the first quarter 2020, with 23, 3% of net sales.

Excluding the negative impact of approximately $2 3 million of acquisition divestiture related expenses and non recurring expenses included in cost of goods sold or gross profit would have been $107 2 million or 23, 9% and sales.

Yes.

As discussed on our fourth quarter and full year call.

We are certainly seeing inflationary pressures in 2021.

So far this year. The first quarter has largely played out as expected with low to mid single digit inflation on a blended basis across our basket of goods with significant increases and agricultural products and commodity related input costs as well as corrugate steel and aluminum.

We are also seeing meaningful increases and freight costs.

And COVID-19 related customer fines.

Our procurement policy has led us to be somewhat aggressive when covering costs and a rising environment and we have locked in cost for many of our inputs through the first three quarters of the year.

We have also continued to be aggressive with our cost cutting initiatives and we are taking revenue enhancing actions across many of the brands that have been impacted by cost inflation when appropriate and attempt to maintain margins.

Selling general and administrative expenses for the year were $54 million per 10% of net sales.

This compares to $40 million or eight 9% from the prior year.

The dollar increase in SG&A is primarily composed of an incremental $4 million investment and consumer marketing.

$1 9 million and incremental acquisition related costs, and nonrecurring expense, which primarily relates to the acquisition and integration of the Chriscoe brand and $4 1 million and increased warehousing costs.

The increase and warehousing costs was primarily driven by the Chriscoe acquisition and COVID-19 related customer funds.

General and administrative expenses increased by $1 3 million.

These costs were partially offset by decreased selling expenses of <unk> 9 million.

As I mentioned earlier, we generated $95 8 million and adjusted EBITDA before COVID-19 expenses.

And after the inclusion of $2 $9 million.

COVID-19 expenses adjusted EBITDA of $92 9 million.

This compares to adjusted EBITDA before COVID-19 expenses of $80 8 million and Q1, 2020, and $75 8 million and Q1 2019.

We generated 52 and adjusted diluted earnings per share and the first quarter of 2021 compared to <unk> 46 per share and Q1 2020 and.

<unk> 44 per share and Q1 2019.

We remain very encouraged by these trends.

We had another strong quarter of cash from operations, although it was impacted by the timing of one of our semiannual interest payments and the payout and increased incentive compensation related to the company's 2020 performance.

Net cash provided by operating activities was $26 million during the first quarter of 2021 compared to $57 6 million during Q1 2020.

The majority of the decrease was driven by the timing of and approximately $24 million interest payment for 2025 notes on April one.

And which happened to fall into our first quarter for this year and our second quarter last year.

The remainder of the decrease was driven by a $12 $6 million increase and incentive compensation paid in cash as a result of the company is very strong performance and fiscal 2020 relative to the prior year.

Our consolidated leverage ratio as defined by our credit agreement and which is calculated on a pro forma and net debt basis was 523 times and remains within our long term leverage target of four five to five five times and well below our credit agreement covenant threshold of seven times.

We are reaffirming our 2021 sales guidance that we provided in March as we continue to expect company record net sales of two 5% to $2 1 billion.

And fiscal 2021 and.

Inclusive of the benefit of a full year of the Chriscoe acquisition.

From a pacing perspective, we knew that we had a head start and the first quarter of this year with exceptional performance in the months of January and February debt would be coupled with a final month of March that would come in well short of last year. When we were at the beginning of the COVID-19 shutdown and relate and related pantry loading.

And that is exactly how the quarter played out.

Chris <unk> is purely incremental for us at this stage and it's performing in line with our expectations.

For the second quarter, we expect something similar with our base business net sales to trend much closer to two or 2019 net sales and our 2020 net sales maybe low to mid single digit percentage points higher than what we experienced in 2019.

Chriscoe will again be purely incremental for us and the second quarter historically chriscoe generated about 20% of its full year net sales and the April to June period.

And as we discussed earlier, we expect 2021 to present us with a different set of challenges and opportunities and we had last year demand for our products remain elevated but not quite as high as during the pandemic.

With the exception of Green giant and certain of our other brands.

We are also on a much better positioned from a supply standpoint across most of our portfolio than we were late last year, which should enable us to meet much of this demand.

We highlighted our concerns about inflation during our last earnings call and these concerns are certainly proving out as we are seeing inflation across a number of key input costs, including certain agricultural products other commodity products, such as oils as well as packaging and freight.

As in prior years, our experience and expectation is that we will manage these costs through a combination of revenue enhancing initiatives.

Including pricing and trade spend optimization, where appropriate as well as certain cost savings activities to preserve our margin profile and our cash flows.

As a result, we expect to generate adjusted EBITDA as a percentage of net sales of approximately 18% to 18, 5%.

Which is generally consistent with our performance and recent fiscal years.

I'll now turn the call back over to Dave for further remarks.

Thank you Bruce.

As I said at the beginning of the call the quarter played out much as we expected a substantial sales gains and the first 10 weeks and then tough comparisons and the last few.

The first two weeks.

The first two weeks of.

Excuse me the last two weeks of Q1 2020, essentially saw four weeks of normal sales volume compressed into two as COVID-19 driven panic buying commenced.

Really all of our brands benefited from this phenomenon as consumers loaded their pantries with anything and everything and in our case, especially can goods and frozen vegetables.

So it's no surprise that the most challenging comparison, we have for the quarter is in the canned goods brands.

As first described the largest dollar decline, we saw and quarter to quarter sales was and green giant down 16, 4%.

Virtually all of that happened and the final two weeks of the quarter, making total brand sales for the full quarter similar to first quarter 2019.

And additional handicap is that we have supply constraints on the <unk> side of the Green giant brand due to unprecedented demand late last year, but even with those constraints. We expect brand sales to continue to track 2019 levels until the new crop arrives.

Excluding the green giant brand and a remarkable swing in that brand net sales for the remainder of our base business increased by eight 1% over first quarter 2020.

Sales remained broadly strong, especially in areas, such as baking and spices and seasonings from.

On service sales strengthened as well, helping the overall performance.

First quarter was our first full quarter of ownership of the Chriscoe brand and we were very pleased with its performance.

At $58 1 million and net sales, it's tracking to our expectations and margins were accretive to our overall results.

We do have faced temporary cost challenges with the brands as the cost of oils used and the products has more than doubled since this time last year.

But we view these very high levels as an anomaly that the market will work through over time.

And while we own what we see is an iconic brand that fits well with our portfolio of products related to baking at home.

Revitalized consumer behavior.

With the addition of Chris go we estimate that our baking at home brands will be approximately 20% of our net sales.

While much of our business has started shifting back to more normal performance one area, where we see continued continuation of new consumer behavior is and e-commerce.

And while there are no complete or precise measures of net sales through this means we are able to estimate that retail sales of our brands through these various E. Commerce venues grew by over 60% to $50 million and the first quarter.

At this point, we estimate that e-commerce retail sales for the full year, we will continue to grow at that rate and reached $275 million. This year.

I should emphasize that this is not necessarily growth and our factory sales, but instead and noteworthy shift and how consumers are buying our products.

We are investing significantly in this area to ensure that we are well represented and the phenomenon, which shows no signs of leveling off and the near future. If anything retailers are upping. The ante with one recent article, citing plans for two hour delivery of orders to consumers' homes.

Our household penetration has grown substantially in the past year ends up almost 10 percentage points versus 12 years ago.

Months ago excuse me.

At the same time consumer purchase frequency and size has also grown.

Our job is to retain these new and revitalized consumers as the pandemic eases.

We believe the potential to do that exist, primarily because work from home is here to stay in one form or another.

Our own experience as we return to normalcy is that employees want flexibility and their schedules and workdays.

Given that we are orienting, our marketing to reinforcing behavior adopted during the pandemic and.

An example is the new website and created for our baking demands, making it home dot com, where consumers can find a wealth of recipes and banking tips. Many of course, featuring BMG foods brands Sim.

Similar efforts will be taking place across the business as we use the efficiency and cost effectiveness of social media to reach consumers.

And as encouraging as first quarter results are there are certainly risks and unknowns to deal with for the remainder of 2021.

Rising costs are a significant issue and one that will not be resolved anytime soon.

As Bruce noted freight cost have increased steadily.

Capacity issues, and the trucking industry and both labor and equipment will continue for the foreseeable future.

Packaging and raw materials are seeing widespread cost increases as well.

We have insulated ourselves in many cases with forward buying positions, but even with these and place. We have also had to announce pricing and manage our trade spending to compensate for these cost pressures.

Some of these increases are already in effect and others will take effect of shortly.

On the positive side, we are seeing reduced expenses related to COVID-19 as vaccination of our work from work force expands.

While this was a $2 $9 million negative and the first quarter, we should save much of the $13 $3 million, we spend on COVID-19 related measures and the last three quarters of 2020.

As we continue to grow larger we are investing more resources towards meeting our responsibilities as a corporate citizen.

The corporate social responsibility committee of the board of Directors is charged with the overall direction of these efforts and has initiated a broad array of efforts and diversity equity and inclusion as well as environmental and sustainability.

During the first quarter, we worked with the culinary Institute of America to establish a scholarship program for diverse students.

The program will fully support tuition for five students as they pursue careers and the food industry.

This effort joins the extensive work BMG foods is already doing with St. Jude Children's Research Hospital.

We are also developing further programs around environmental and sustainability goals at our manufacturing facilities and distribution centers and are working towards increasing our public disclosures regarding our environmental and sustainability programs and goals.

With the pandemic easing we are working hard to return to the <unk> foods evolve our company and has delivered steady reliable results on a regular basis with exceptional margins and strong free cash flow.

That is the model that has served our shareholders well over the years and delivered superior returns.

As stated started my remarks by stating that the first quarter played out much as we expected and that's very encouraging.

But we do expect second quarter and it'd be the most challenging quarter of the year and the largest unknown.

Our net sales increased by 38% and the second quarter of 2020 over 2019.

And the height of the pandemic pantry loading.

We obviously won't match that increase but we believe that our business will perform favorably versus fiscal 2019 and continue to produce solid results.

As a final note I would mentioned that press release went out just before this call.

Introducing everyone to my replacement since I am in fact, the interim CEO of the company.

Casey Keller, who as you will read in the press release is extremely well qualified and well rounded and should do a fantastic job leading the company when.

And when he starts next month.

We are all looking forward to welcoming KFC here and I hope to return over a company that is rare and to go when he arrives.

With that.

We will conclude our remarks, and we'd like to and.

Again, the Q&A portion of the call operator.

Thank you ladies and gentlemen at this time, we will begin ducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is and the question queue. You May Press Star two if you would like to remove your question from the queue.

For participants using speaker equipment and may be necessary to pick up your handset before pressing the star team on.

Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.

Good evening, How're, you doing Dave and Bruce.

Andrew Good afternoon afternoon.

Couple of things first I wanted to start off just with the new CEO announcement.

I think Dave you mentioned here and there that here the focus in terms of the skill set you were looking for and a new CEO and getting back to sort of maybe what would have been <unk> core DNA right around focus around margin and cash flow capital allocation and such and.

And so I'm trying to get a sense of what you saw and the board saw and Casey and his skill set and how you see it sort of fitting that mantra as opposed to just the pure like classical and marketer.

Debt, perhaps some other food companies have been more and.

And more interested in and then have you on a follow up.

Well I wouldn't I wouldn't say that Casey just a classical marketer.

And he's had full P&L responsibility and a number of companies.

And certainly and the interview process.

A thorough understanding of the operations part of the business as well as as well as marketing and sales.

And I think he brings and international flavor to the business that we really havent had before.

And so that should be and interesting aspect of his background.

I was fascinated to hear that piece actually runs a store door business with supermarkets and things like that which.

To run a company that does that kind of thing you need to be a pretty strong operations guy as well as a marketing guy so.

That was certainly we certainly considered all of that.

We understood that that was a very strong need and the company and we felt Casey could deliver that.

And then I may have missed if I did I'm sorry did you say what you expected.

Full year inflation to look like so it sounded like you've got decent visibility through the first three quarters in terms of what you've locked in.

And so theres still some exposure and <unk>, but knowing what you have got ahead of you for the first three quarters can you give us a sense of what that sort of all in on average inflation and inflation looks like I think of that first quarter was up I think it was low single digit.

How does that track from here.

Well it should stay fairly much at low single digits and the first part of the year, just because we've locked in a lot of our purchasing positions.

But the wildcard really is how much are things going to continue to ramp up and what's going to happen when those positions were on out.

And what will the effect of the new crop on things like commodities be.

Freight we think for instance, which is a very big inflator will actually all things being equal start leveling off as we get to the last three four months of the year, because we saw those increases last year and.

And the final quarter, So I think that's.

That's the good news if you want to call it that.

But commodities to me of the wildcard the packaging industry just continues to get worse.

And.

And so.

Even and when you have purchasing.

Hedges and things like that.

Those run out sooner or later and it really is a matter of how does it play out and the final four or five months of the year, what will happen and I don't think anybody knows.

My personal opinion on the on the agricultural commodity side is that this is more than a one year phenomenon that this crop is not going to fix the problem, even if it's a good crop and.

And that we will see elevated costs going into 2022.

Thanks for that and then just lastly, it would be.

I think you mentioned that base business sales and the first quarter versus 19 were up about 4%.

Got you anticipate sort of low single digit or maybe a little better base business sales versus <unk> 19 and <unk>.

And then yes cash right.

If I've done the math right and the full year sales expectation.

Yes.

Business growth again on a two year basis up maybe closer to 10% or so.

And kind of.

Ramp up and acceleration and the back half on a two year basis, maybe you can go through.

And what gives you confidence and thats going to happen and I assume some of that is capacity constraints on lifting.

And for Green giant but.

We'd love to hear your thoughts on that if I could.

Not just green giant there are a number of brands, especially.

Especially in the meal solutions type of brands like Ortega.

And a few other places where we still have capacity constraints. So we do expect sales to expand as we as we fix those things and we'll have them fixed.

Mid summer or so so we expect to be able to meet some of the demand that we are still unable to meet and of course green giant Green giant is huge and the whole thing I mean, the the $25 million decline, we saw on green giant and the first quarter.

Could have been a much better number had would've been able to not have allocation on the canned goods side and even on the even on the frozen side and some and some areas.

So we definitely have unmet demand.

And that will help the other the other thing that should play out is that fourth quarter actually was a fairly flat quarter in 2019, so to the extent we can.

Exceed 2019, and the fourth quarter that should help a lot in terms of up and the performance.

As we go forward and and we really work very constrained and the fourth quarter.

The way the year played out last year was the inventory positions, we had helped tremendously and.

On the in the second quarter to meet the huge demand. We saw but then we started having capacity issues and the third quarter and the fourth quarter and hopefully we can flip that around as the year plays out here.

And Andrew Chris go purely incremental.

And all the way through up until December of last year. So also has a substantial amount of that.

Very much tracking in line with our expectations and our plans.

Thank you.

Our next question comes from the line of William Reuter with Bank of America. Please proceed with your question.

Hi, good afternoon.

My question is.

The 18% to 18, 5%.

EBITDA margin I think thats for fiscal year, 'twenty, one and total.

Next on making sure that that's okay.

Does that imply do you have any I guess when you were just speaking about some of these.

Agricultural commodity inflation challenges. It sounds like you think those are going to go into the fourth quarter as well is that whats priced into those margins because I guess that was impressed at the margin declines margin better on higher given inflation, we're saying yes.

Yes.

And the margins would be inclusive of those cost increases.

We have taken price we continue to examine our trade promotions to increase net pricing. If you will out of that we do have a.

Decent cost reduction effort underway that should help mitigate some of the cost increases we're seeing.

And we reserve the right to increase price further depending on how different costs go.

We're seeing more of that and the industry and I think youre going to continue to see it.

Just because it's the drumbeat continues on cost increases and it just seems to be getting worse.

The low to mid single digit inflation that you're expecting.

For the remainder of the year for the next couple of quarters.

And if you had not have hedges in place do you know on a spot basis, what that would be.

No I don't think I've ever looked at debt because it would be just to hopefully to look at frankly.

I mean, I mean oil alone for a chriscoe, we have insulated ourselves from the cost of oil which is by far the biggest piece of the cost of goods of the of that line, we've insulated ourselves from that caused doubling not entirely but to a great degree.

And that's a huge number that's tens of millions of dollars.

Okay, and then just lastly from me with regard to green giant being on allocation and the supply disruption there have there been any conversations with customers, where you feel like they have reallocated shelf space based upon the supply chain challenges.

No not reallocated shelf space now.

Great to hear Okay, I'll pass to others. Thank you.

Our next question comes from the line of Guru Martinsen with Jefferies. Please proceed with your question.

Hi, this is actually Oliver growth and on for Peru.

I was wondering if you could expand on your outlook for the food services business as we start to see the easing of restrictions and higher vaccination rates.

And we're pleasantly surprised at how much it's recovered so far but it's one of those things are feeling their way through as far as how how much the restaurants are going to open up how fast consumers are going to switch to going out to eat.

I don't think we have any magic Crystal ball tells us exactly what's going to happen there like I said, we're encouraged by how it's gone I think.

So we think it's going to be fully recovered towards the end of the year, that's certainly possible, but theres all sorts of.

I mean, it's not and it's not even all of US just economic conditions and everything its about the restrictions that government places on these things too.

Okay and then.

What are you seeing on the M&A front I was wondering are valuations in line with what you've seen historically.

Now.

A lot of what we see is people.

Taking the sales from the COVID-19 bump, which is significant and a lot of cases and applying a very significant multiple to them and then saying Oh and by the way Im going to continue to grow like that going forward and.

Yeah. So.

We're very patient and acquirers and we'll wait for the market that goes back to reality before we before we would execute on something like that.

Okay. It sounds good and then just lastly, what are your thoughts on the current capital structure, given that the five and a quarter of 'twenty fives are callable in June.

Yeah, We love our current capital structure, right now and we're benefiting with.

With the substantial portion and term loan and a little bit and revolver that are very very low rates, just given where LIBOR is.

And we've got our two tranches of bonds, one of which you mentioned is callable.

We're fine with the capital structure and until we do something different and benign.

Sure if they were closer and so on the call premium wasn't so high and I would.

Would love to do some long term financing at these rates, but that premium is too high at this point.

Okay. Thank you very much and I'll pass it on.

Our next question comes from the line of Michael operating with Piper Sandler. Please proceed with your question.

Thank you and good afternoon.

And Michael.

Just wondering if you could give a little more color on how youre positioned for input costs and.

I guess, specifically can you start with just some of your assumptions for what sounds like mostly the fourth quarter on.

And what Youre planning stances that supports the 18 to 18 five.

Debt referred from the hedges to current spot prices.

And make any prediction about where they go how should we think about your approach there.

I think the assumption is that we'll be able to save or price to hold our own depending on where it goes I don't.

I don't pretend to know where it's going to go and the last three four months of the year, because I don't know what the crops going to be on the case and commodities.

I don't know what demand is going to be for packaging.

Yes.

There are so many unknowns and I think we're just we're looking at it and saying we will continue to execute on savings and we will continue to execute on pricing and trade as we need to to hold our margins.

So I just want to make sure if I'm hearing that correctly youre, obviously give visibility on the debt.

Costs that you've hedged and locked in.

And then after those beyond that you're assuming.

No headwinds that you can do and it's just a manageable environment is that right, yes, but we're assuming that there's going to be elevated costs throughout the remainder of the year like I said and the only thing that we're that we're looking at and saying well we're going to be flat.

On our last year results is freight.

We don't think freight is going to expand beyond where it was and the fourth quarter of last year and.

So that will give us.

Good year to year comparison.

From that point of view and hopefully Thats, one where economics, one on one might work.

And.

And <unk>.

People get higher wages and can make more money doing trucking there'll be more trucking capacity come on I can see that solving itself a lot more quickly than IC commodity solving themselves right now.

Okay and.

The second.

Second question on so I guess it flows right out of that because if I'm hearing you right, you're you're assuming the elevated costs, but with offsets from from savings and pricing.

Are your pricing assumptions higher and.

Yeah.

The green giant and allocation.

It's worse than you had been expecting and wood.

Seem to suggest a reduction on your sales guidance is the offset that keeps you holes from the pricing from.

From a greater level of pricing to cover.

Stronger inflation.

Well green giant allocation isn't worse than we expected it's a it's actually a little better than we expected and we're we're easing the allocation and we're getting very close to the first of the crops piece.

He has come in and June and Thats, one of the bigger lines that we sell and the and the brand.

So we don't foresee as I said earlier, we even with allocation we saw green giant will be at the 2019 level and we're easing the allocation more quickly than we thought we would.

So the demand situations clearing up from that point of view.

Part of Thats, because we reduced trade promotions and and actually are making more profitable sales from that point of view.

So I don't I don't really see that as compromising our forecast.

Okay. That's helpful. Maybe just.

And sort of clarify the thinking on on the topline.

Is there more pricing some assumed in your guide and.

And if so how do you think about the elasticity and.

To that of demand and.

And is it just a weird environment with stimulus and things that make it maybe hard to predict or just better than normal.

Well I guess, we're counting on our competitors' price as well, which would help solve any elasticity issues.

But we have pricing and place on a broad array of products thats going to take place and June we've already done pricing on green giant and the Underwood brands early on this year because of cost.

Briscoe, we did pricing on.

And it was effective just a couple of weeks ago. So we anticipated that and took that and announced that early this year. So we've been we've been pretty proactive on the pricing front and as things develop.

We would certainly continue to be and I'd be surprised if our competition didn't follow.

Or lead hopefully.

Yeah.

Alright, thanks, so much.

Yes.

Our next question comes from the line of Ken Zaslow with Bank of Montreal. Please proceed with your question.

Good afternoon, everyone.

Hi, Ken.

And just have two questions one is.

And when Youre on allocation and then you get your crop that how easy is it to get your shelf space back what happens to your shelf space and what is the process to which you get at that.

I'm not sure what's shelf space, you're referring to I mean, we've lost.

Mid loss small amounts of distribution here and there.

Mostly because we discontinued products to make our manufacturing more efficient where we had shortages.

I would expect the retailers would be more than happy to let us pay on slotting to put those products back in.

They were a decent selling products.

From a green giant from our Green giant perspective, we're not suggesting that we put people on allocation and therefore went dark on the shelf and lost shelf space the purpose.

So that didnt happen.

Okay.

And your shelf space is completely unchanged at that point no I wouldn't I wouldn't go as far as to say, it's completely unchanged as I said, we've actually and some brands discontinued some products flanking products. If you will so that we could make enough of the large selling.

<unk> volume products and.

Maintain sales on them on the most important products and.

And the case of Green giant as Bruce said the allocation was purely intended if we had left.

Retailers by unconstrained, we would've had several months of nothing on the shelf.

And this way, we maintain a shelf presence and so.

So I think we did the allocation to prevent that scenario that you were referring to.

I see Okay and then the second thing is on the commodity side.

You said two different point and I'm not sure, which one you believe you've talked that it's an anomaly that should get reversed, but then you said.

Debt.

It may that beyond this year.

How do you think about it is it and.

And then an anomaly or how do you think about it going into <unk>.

And this year, but go out there what's your hedges roll off how do I think about that.

Okay.

You can think about it as I said this would be a multi year high.

Inc. And this is me and if I knew if I knew everything about commodities that'd be home trading commodities instead of.

Doing this but.

I think that the crop this year is not going to completely solve the problem.

But if you look at the history of things like the.

Soy and corn oil and things like that this kind of thing happens every eight to 10 years.

And it takes a year or two of good crops to shake it out back to normalized levels. There is a long term normalized level of pricing in the market for these kind of commodities shortages drive those up and and May drive it up for more than one year, but at the end of the.

A day it is an anomaly that writes itself and gets to a more normal level, which was the assumption when we bought chriscoe for instances at this this business is going to have cost of this level because on average over 20 years thats the level they've been.

Okay.

Perfect. Thank you very well and you talk about that inflation theres, obviously different pieces theres. The agricultural piece. There is the freight piece there is packaging and so things have different cycles.

Okay. Thank you.

Okay.

Our next question comes from the line of Dana G&A Ali on Ken.

<unk> <unk> with Goldman Sachs. Please proceed with your question.

Alright, thanks, so much and I just had a follow up question around your cost reduction efforts and can.

Can you just speak a little bit more active and nature of some of those efforts is it headcount is it marketing related and are you thinking of the mid sort of more permanent and structural or maybe just kind of temporary to help offset some of the inflationary pressures and then I have a followup Inc.

It's very much oriented towards manufacturing and distribution, we're not looking at head count right now.

But it's all about rationalizing where we manufacture products, we've repatriated some products into our facilities.

A good example would be Las Palmas, we.

He used to co pack the enchilada sources, the Red and Green Enchilada sources, there and our factory and Maryland now that's our factory, we reduce cost and doing it lowered the operating cost of the total plant and doing that.

We've consolidated some facilities and we will continue to do that.

<unk>.

And the case of transportation and in response to the higher freight rates, we've started using more intermodal and we were unable to do that last year simply because everything was rush rush rush to get it to the consumer or the customer's path that you can.

Now with things slowing down some and we can we can do better in terms of using intermodal, which is a significant cost savings.

Variety of things, but very much oriented towards manufacturing and distribution.

Marketing is not going to be cut our plan is to spend as much marketing. This year as we spent last year as I said on the call and the script, we are orienting more of it towards E Commerce, and we did last year.

Great. Thanks for that color and then I just had one more on.

And that kind of product innovation pipeline and just generally speak to that how it might compare to 2021. Thank you from maybe a little bit more.

And just a little slower in terms of innovation and as net perhaps and opportunity to drive sales higher this year later from mix and more value added products.

And just how you see that evolving in 'twenty, one and.

For sure there will be increased innovation and 2021 first because a lot of the innovation. We had slated for 2020 is rolling into 2021, either in terms of absolutely launching it at all or.

Expanding the distribution, which was very modest and 2020 as most retailers, we're not resetting shelves and we're not really accepting new products. So there's a lot of things that are rolling in from last year and there is innovation that was in the works to do and 2021 that will be done as well.

We're looking at something that would generate probably three 4% of sales if it succeeds in.

In terms of incremental selling with with innovation this year.

Thank you.

Yes.

Our next question comes from the line of David Palmer with Evercore ISI. Please proceed with your question.

And thanks, just a clarification on I think it was Andrew's earlier question on revenue guidance.

And that back half improvement and your organic sales trends ex Chriscoe is that basically can green giant and coming back and that's.

Basically it and or is there another factor or two that are giving you confidence and that improvement and the second half and add follow up.

Well, the green giant and definitely will hopefully turn from a.

On negative to a positive, especially in the last quarter of the year.

Where it didnt it didnt perform very very well and was part of the reason we were missing.

Basically flat to 2019.

But we're very encouraged by what's going on on the portfolio.

As Bruce was sent our seasonings businesses is just rock and enrolling.

Our our baking business is doing extremely well and and.

And our meal solutions and types of brands like Ortega and <unk> polymers.

And I will like Bear Creek.

Will we hope we would hope.

And do do even better as we saw some of the bottlenecks, we have and in those brands, we are not able to meet the demand and in some areas and those brands. So there's a lot of positives as we look at the rest of the year now I'm not saying, we're going to match 2022nd quarter is a tough quarter from a 2020 point of view.

Our sales and second quarter or up darn near 50% and the quarter and you're just not going to match the kind of performance, but we should do well versus 2019.

Thank you for that and a question on free cash flow or just how we should be thinking about free cash flow conversion this year after chriscoe.

Any thoughts on that.

In terms of on actual guidance number we didnt have but it should be pretty sharp.

And I'm thinking just perhaps the close and our sales and <unk>.

Yes, yes.

It won't be a big year of inventory increase.

And taxes from a cash tax we are usually pretty efficient.

And it should be typical BG strong cash from operations and what we like to produce.

Great and then just one just general comment there is there is obviously people that invest in the food space that saw for 2017 and 18 cycle of inflation.

And wonder if it's if it's foolish to think that things are going to be different. This time in terms of and inflation cycle. Perhaps you can talk about that Dave a little bit about why it does feel different now in terms of price receptivity and perhaps preserving gross margins and so.

Over time, perhaps with a little bit of a timing risk.

<unk> debt would be different than 2017 and 18.

I think this this inflation cycle is broader and deeper.

And what you saw a few years ago.

That was that was not a.

This is pretty dramatic.

And.

It doesn't seem to be any having any hope of abating anytime soon so.

I just and.

In fact every article I read it and just getting worse I mean, neither and other with the latest one I read was wood pulp now a problem and theyre going to have to increase prices and toilet paper and things like that.

It's kind of remarkable because.

And I don't.

And we didn't have supply issues before COVID-19 and now suddenly we have broad supply issues.

And Martin a part of it certainly and agriculture are a lot of it's driven by demand from China and places like that so.

I just think it's a much broader deeper inflationary cycle that is not going to go away.

Very quickly.

And that is making me and conversations with retail different.

Well no retailer like should it come in with a price increase let me say that but usually they also have <unk>.

One of their people responsible for purchasing private label and all of that with them.

As a logic check for what you are telling them.

And.

I think they're hearing from their own people that yes. This is a problem.

And then what they are telling you is right and we've actually had one customer asked US can you take positions for me on my private label oil business, because and we need coverage.

So I just.

It's it's.

As I said customers don't like price increases, but the reality is a very strong reality right now.

Thank you.

Our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question.

Great. Thanks, so much.

A lot of questions over that and keep this short.

I guess just.

Yeah.

Our commentary today.

Lot of it is kind of based off of debt.

2019 level.

Or at least my reference to Q to Q2 19.

And I feel like historically.

At least on the base business. It seems like maybe Q2, there is some seasonality like Q2 years and comes in a little bit lower relative to Q1.

Speaking of sales and also the EBITDA.

So.

And look at Q2 19, REIT debt came in a little bit relative to Q1 19, but obviously like.

We're lapping the big Q2 from last year.

We think about that Q1 and Q2 like do you want us all to kind of go back to that.

More traditional seasonality and cadence that we usually see from Q1 to Q2 or is there.

And there is stuff on there let's say.

That may not cash.

Cause that standard cadence.

No I think I think it's appropriate to say it is kind of.

The sales are going to pace.

More similar to 2019, I mean, you're talking about 2019 first because that's the last normal we had.

And you can't even start from 2020 and say, okay, well here I can make judgments versus 2020, you can it was just it's shown extraordinary a year.

You have to go back to what were some firm ground I can stand on to start doing this.

And I think 2019 and the pace of sales of 2019 is probably as good a place as any.

And as we said earlier earlier on the call.

Expectation would be that Q2 looks like 2019, probably low to mid single digits as a percentage higher.

Plus Chriscoe Chris go.

Typically that period is about 20% of a full year's net sales and EBITDA margins I think return on you're generally going to look similar than what they have and the past and and.

And it's a little bit of it on an informed decision because we have four weeks under our belt.

Right.

Got it okay cool.

And then just in terms of.

The SG&A line.

And you call up some.

And then.

COVID-19 related costs and finds from retailers.

But kind of overall restaurant and restaurant <unk>.

Almost flattish, let's say relative to.

Q4 is there anything within that SG&A line.

That would cause SG&A to kind of be up or down.

I'm just speaking to the near term because again traditionally sometimes its up sometimes it's down on a sequential basis, just try and get a CLO two <unk>.

Some of these levers you can pull.

Are they also potentially SG&A related and such debt.

And that may have been up a little bit and Q1, but maybe it gets better from here.

SG&A was SG&A and was up in Q1 to some degree because.

Versus in 2019, we hadn't done a lot of accruals for incentive bonuses and.

Long term incentives and things like that and we basically accrued at target levels and 2020, and that's worth a couple million dollars year to year difference.

And so thats, one thats, one factor and then advertising and marketing were going to be flat is the expectation on a full year basis.

But the pacing of that as a little bit different and so if you look last year.

Were higher and the first quarter.

This year than we were last year will be higher and the second quarter of this year than we were last year and to get to the same number and it's a little bit lower so the PC there'll be a little bit more even this year, whereas last year's backend weighted.

And when you look at when you look at that.

The EBIT swings year to year.

There is about $9 million of these kind of factors and the first quarter that was and in 2019 EBITDA. One is the marketing as Bruce said.

Spent about $4 million more in 'twenty and 2021 than we did in 2020.

I Misspoke and said 2019, I'm sorry two.

2020, the comps another couple million dollars and then the COVID-19 expenses of two eight which really is more on our manufacturing and from distribution and to some extent.

SG&A, but more and more and the cost of goods area, but that was that was $2 8 million. So it's a better part of $9 million of things that we incurred in 2021 first quarter that we didnt incur in 2020.

All of which will fade away as the year goes on because we're still we're still at normalized levels of marketing comp.

Compensation will come back.

The accruals were much heavier in the latter part of the year than they were and the early part of the year last year and the COVID-19 expenses are bleeding down rapidly as people get backs and <unk>.

Got it perfect. Thank you so much and yep.

Yep.

We have time from one last question that comes from Eric Larson with Seaport Global Securities. Please proceed with your question.

Yes. Thanks, good afternoon, everyone I'll make this really quick one question.

Maybe you've answered part of this but obviously.

Your inventories are depleted for sure it at Green giant and I'm.

I'm curious if you were able to actually get more acreage planted this year procure some higher supply and rebuild those inventory.

And then with that being said are there other product lines.

And your shipment.

<unk> shipments.

<unk> greater.

Right now versus retail takeaway, because you've got to rebuild some of this.

Retail and.

And then.

Whats the cash impact, obviously, that's probably been a cash tailwind.

If you start rebuilding of inventories that might be a bit of a headwind. So if theres a way to characterize that whole idea of concept would be great. Thanks.

Okay that was not a short question.

[laughter], but on the Green giant front, we don't we don't and contract the acreage our co Packer does but we have certainly worked with the co packer.

Envision and rebuilding inventories to appropriate levels as the crops come in and that would imply more acreage where will it end up.

Only god knows because it's so dependent on things like weather.

And that we're hoping there's a good crop, but frankly, we haven't had a good crop on.

On the Green giant side for three years.

We're kind of hope and we do this year that would help a lot.

There really isn't a lot of pipeline can be done and most of the products we're talking about.

Short of capacity on yes, there is theres, some theres some inventory that needs to be rebuilt, but not remarkably a lot.

They are products that we're making every day unlike the seasonal pack.

And youre going to see an increase and inventory on green giant.

And of the year on.

All things being equal.

But there's also a lot of work being done to reduce inventory and a lot of other areas because thats another area of opportunity for us to free up working capital and we would hope that we would end the year.

And as Bruce said earlier at least flat year over year.

Okay. Thank you Dave.

Yep.

We will take one more question from Ryan Bell with consumer Edge Research. Please proceed with your question.

Yeah.

Great Thanks for sliding and.

I know you touched upon this a little bit and your planned remarks.

Could you highlight from the initiatives that you've taken to retain the incremental households, and kind of force.

Talk about the importance of incremental work from home in terms of longevity of expectation around 18 and cooking increases.

All right.

Well, we've done a lot of work with a company called numerator to try and very specifically identify.

Who are these households are and try and reach them through social media and other means to communicate with them.

And as I said, we're really trying to use social media and the Internet and web.

Websites and things like that.

To provide people with solutions.

I've been working for a long time and I'm trying to get used to the whole work from home kind of thing that is really blossomed and the last year, but there is no doubt the sentiment.

And our in our office work force is that people want to have.

X number of days a week.

That they can work from home and that implies they're going to eat at home, they're going to cook at home.

And implies continued demand.

That will be higher than it was pre COVID-19.

And so we just need to make sure that we are part of that with our brands like Ortega Bear Creek.

Like Green giant and all of our seasonings that are used at cooking at home and.

<unk>.

Digging as hard as we can to figure out okay. How do we do that how do it and ecommerce as a good example of how you do that because these people are using e-commerce to buy the products more and more so you want to be first and foremost on the retailer's site sites that they go to the order the products.

And you want to work with that part of the business you want to work with all the all the various delivery services and everything that go out and pick those orders from the retailers.

That to me is how you how you track the household penetration and and hopefully hold serve with it.

And that.

Helpful and.

And your expectations private label landscape.

Over the balance of 2021, and do you have any comments on that.

Hi.

I really don't know what private label is going to do as a brand as a brand and business, where we're working as hard as we can to have them not do well, but.

And frankly, a little surprised at how how badly private label has done during the COVID-19 era.

People have come back the brands and.

And that makes us very happy hopefully, we can prove to them that that was the right decision.

Okay. Thanks, a lot profit from it.

I'd like to hand and call back to management for closing remarks.

Okay. Thank you.

And I appreciate everyone's interest and the company.

We think we had a very solid first quarter.

And with very good results given the the added expenses.

<unk> talked about that will.

Mitigated as the as the year goes on and it's certainly a challenging year on comps to last year and as I said before we're trying to just use the firm footing of 2019 and make progress versus that as we go through the year, but again. Thank you very much for your interest and support.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.

[music].

Good day and welcome to the BG Foods first quarter 2021 earnings call.

Today's call, which is being recorded is scheduled to last about one hour, including remarks by BG Foods management and the question and answer session.

I would now like to turn the call over to Sarah Jerome Senior director of corporate strategy and business development for BG Foods Sara.

Good afternoon, and thank you for joining us.

With me today are Dave Weiner, our interim President and Chief Executive Officer, and Bruce Walker, Our Chief Financial Officer.

You can access detailed financial information on the quarter and the earnings release, we issued today, which is available at the Investor Relations section of BG Foods Dot com.

Before we begin our formal remarks I need to remind everyone that part of the discussion today includes forward looking statements.

These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them.

C and Chi foods undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise.

And we'll also be making references on today's call to the non-GAAP financial measures adjusted EBITDA. Adjusted EBITDA was 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 release.

Bruce will then discuss our financial results for the first quarter as well as expectations for 2021, I would now like to turn the call over to Dave.

Thank you Sarah good afternoon, everyone and thank you for joining us today on the first quarter earnings call.

Assessing our results for the quarter. My overall comment is that the quarter played out much as we expected.

In total we achieved record first quarter net sales of $505 1 million or 12, 4% increase from Q1 2020.

Net sales on our base business, which excludes the Chriscoe acquisition completed in December were approximately $447 million virtually flat versus first quarter 2020 at a modest <unk>, 6% decline.

Within that number U S base business net sales were up two 1% while international base business net sales were down 31, 8% virtually all of that green giant sales and Canada too.

And two severe allocation of the brands there.

Compared to fiscal 19, 2019, our base business net sales, which for purposes of the two year comparison also exclude clabber girl and farm wise net sales.

Increased $16 6 million or 4% for the quarter.

Our $447 million of base business net sales were supplemented by the $58 million of Chris go net sales, bringing our total net sales up to the $505 million figure.

Adjusted EBIT for the quarter also set a first quarter record at $92 9 million or 15, 2% increase the result of solid base business volume and earnings and a fulsome chriscoe benefit and our first few months of ownership.

Those are the highlights I will turn the call over to Bruce now for more detailed comments on the quarterly performance after which I will add additional color on our performance Bruce.

Thank you Dave good afternoon, everyone.

And as Dave just discussed we had very strong financial performance during our first quarter delivering company record first quarter net sales and adjusted EBITDA.

We reported net sales of $505 1 million and the first quarter and increase of $55 7 million or.

Or 12, 4% compared to the prior year first quarter, and an increase of nearly $95 million or 22, 4% compared to the first quarter of 2019.

As you know the Chriscoe acquisition closed on December one 2020, providing us with a full quarter of net sales and the first quarter.

Chris go and generated approximately $58 1 million and net sales for the quarter, which is slightly ahead of our internal model.

Base business net sales, which excludes the benefit of Chriscoe were essentially flat to last year's first quarter were down 0.6%.

Excluding the benefit of Frisco net sales were up approximately $34 $4 million or eight 3% from Q1 2019.

Approximately $17 7 million of which was due to the May 2019 acquisition of Clabber Girl and the February 2021, 2020, formalized acquisition and approximately $16 $7 million of which was due to base business net sales growth.

We generated adjusted EBITDA before COVID-19 expenses of $95 8 million and the first quarter of 2021 and increase of $15 million or 18, 5%.

During the first quarter of 2021, we incurred approximately $2 9 million and incremental COVID-19 costs at our manufacturing facilities, which primarily included temporary enhanced compensation for our manufacturing employees compensation, we continue to pay to manufacturing employees.

While in quarantine and expenses related to the precautionary health and safety measures.

As discussed on our fourth quarter and full year 2020 call we.

To see a continued reduction and these costs, which averaged $1 $5 million per month during the height of the pandemic.

Inclusive of these costs, we reported adjusted EBITDA of $92 $9 million, which is an increase of $12 2 million or 15, 2% compared to last year's first quarter.

EBITDA before COVID-19 expenses as a percentage of net sales was 19% and the first quarter of 2021.

Adjusted EBITDA as a percentage of net sales was 18, 4%.

We reported <unk> 52, and adjusted diluted earnings per share and the first quarter of 2021 and increase of <unk> <unk> per share or 13% compared to the prior year first quarter.

Leading our brand performance, where our spices and seasonings.

Net sales of 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 million or <unk> 41, 2% for the quarter.

Net sales of spices, and seasonings were up by $17 1 million or 20% compared to the first quarter of 2019.

Net sales of spices, and seasonings reached $397 $7 million for the 12 months ended March 2021.

The retail side of this business continues to show strong momentum that began last summer as more and more Americans begin to fully embrace cooking and seasoning their meals at home.

And which continues in 2021.

Despite the recovery foodservice net sales of spices, and seasonings remains below pre pandemic levels for the quarter, but did have an increase for the month of March.

Other major brands contributing to the net sales growth include Maple Grove farms, Las Palmas and Ortega.

Las Palmas generated $10 7 million and <unk>.

Net sales during the first quarter of 2021 and increase of $2 million or one 8% compared to Q1, and 2020 and an increase of $1 3 million or.

And were 14, 4% compared to Q1 and 2019.

Ortega generated $39 million and net sales during the first quarter of 2021 and increase of $2 million for 0.4% compared to Q1, 2020, and an increase of one seven or four 6% compared to Q1 2019.

Green giant which was one of the largest beneficiaries of COVID-19 pandemic buying of the past year and our portfolio had approximately $639 million and net sales during fiscal 2020 and increase of $112 2 million or.

And were 21, 3% compared to the prior year.

As we discussed during our last earnings call Green giant as well as its competitive brands will have supply constraints until we reach the new pack season later this year.

Yes.

Primarily as a result of those decisions Green giant net sales were just $132 5 million and the quarter, a decrease of $25 9 million or 16, 4% compared to the prior year quarter.

While demand has remained strong and net sales have generally remained elevated when compared to fiscal 2019 and many of our other brands were unable to surpass Q1 2020 net sales.

Cream of wheat for example generated $18 2 million and net sales during the first quarter of 2021, a decrease of <unk> 7 million or 4% compared to Q1, 2020, but an increase of <unk> 8 million or four 3% compared to Q1 2019.

And <unk>.

Clabber girl generated $17 4 million and net sales during the first quarter of 2021.

And decrease of $1 3 million or six 8% compared to Q1 2020.

But significantly greater than the estimated $15 million or so of net sales generated.

During the Q1 2000 1919 period under prior ownership.

Our gross profit was $117 8 million for the first quarter of 2021 or 23, 3% of net sales.

Excluding the negative impact of approximately $5 5 million of acquisition and divestiture related expenses, the amortization of acquisition related inventory fair value step up and nonrecurring expenses, including the cost of goods sold.

Our gross profit would have been $123 3 million or 24, 4% of net sales.

Gross profit was $104 $9 million from the first quarter 2020 were 23, 3% of net sales.

Excluding the negative impact of approximately $2 3 million of acquisition divestiture related expenses and nonrecurring expenses included in cost of goods sold or gross profit would have been $107 2 million or 23, 9% of sales.

As discussed on our fourth quarter and full year call.

We are certainly seeing inflationary pressures in 2021 so.

We are also seeing meaningful increases and freight costs and.

And COVID-19 related customer fines.

Our procurement policy has led us to be somewhat aggressive when covering costs and a rising environment and we have locked in and costs for many of our inputs through the first three quarters of the year.

Selling general and administrative expenses for the year were $54 million per 10% of net sales.

This compares to $40 million or eight 9% for the prior year.

The dollar increase in SG&A is primarily composed of an incremental $4 million investment and consumer marketing.

$1 9 million and incremental acquisition related costs, and nonrecurring expense, which primarily relate to the acquisition and integration of the Chriscoe brand and $4 1 million and increased warehousing costs.

And the increase and warehousing costs was primarily driven by the Cristal acquisition and COVID-19 related customer funds.

General and administrative expenses increased by $1 $3 million.

And these costs were partially offset by decreased selling expenses of <unk> 9 million.

As I mentioned earlier, we generated $95 8 million and adjusted EBITDA before COVID-19 expenses.

And after the inclusion of $2 $9 million of COVID-19 expenses adjusted EBITDA.

Of $92 9 million.

This compares to adjusted EBITDA before COVID-19 expenses of $80 8 million and Q1 and 2020.

And $75 $8 million and Q1 2019.

We.

<unk> 52, and adjusted diluted earnings per share and the first quarter of 2021 compared to <unk> 46 per share and Q1, 2020, and 44 per share and Q1 2019.

We remain very encouraged by these trends.

Net cash provided by operating activities was $26 million during the first quarter of 2021 compared to $57 $6 million during Q1 2020.

The majority of the decrease was driven by the timing of and approximately $24 million interest payment for 2025 notes on April one.

Which happened to fall into our first quarter for this year and our second quarter last year.

We are reaffirming our 2021 sales guidance that we provided in March as we continue to expect company record net sales of two 5% to $2 1 billion and.

In fiscal 2021 inclusive of the benefit of a full year of the Chriscoe acquisition.

From a pacing perspective, we knew that we had a head start and the first quarter of this year with exceptional performance in the months of January and February that would be coupled with a final month of March that would come in well short of last year. When we were at the beginning of the COVID-19 shutdown and.

And related pantry loading.

And that is exactly how the quarter played out Chris.

Chris <unk> is purely incremental for us at this stage and it's performing in line with our expectations.

For the second quarter, we expect something similar with our base business net sales to trend much closer to two or 2019 net sales and our 2020 net sales may be low to mid single digit percentage points higher than what we experienced in 2019.

Chriscoe will again be purely incremental for us and the second quarter historically chriscoe generated about 20% of its full year net sales and the April to June period.

With the exception of Green giant and certain of our other brands.

We are also on a much better positioned from a supply standpoint across most of our portfolio than we were late last year, which should enable us to meet much of this demand.

As in prior years, our experience and expectation is that we will manage these costs through a combination of revenue enhancing initiatives Inc.

<unk> pricing and trade spend optimization, where appropriate as well as certain cost savings activities to preserve our margin profile and our cash flows.

As a result, we expect to generate adjusted EBITDA as a percentage of net sales of approximately 18% to 18, 5%.

Which is generally consistent with our performance and recent fiscal years.

I'll now turn the call back over to Dave for further remarks.

Thank you Bruce.

As I said at the beginning of the call the quarter played out much as we expected the substantial sales gains and the first 10 weeks and then tough comparisons and the last few.

The first two weeks.

The first two weeks of.

Excuse me the last two weeks of Q1 2020, essentially saw four weeks of normal sales volume compressed into two as COVID-19 driven panic buying commenced.

Really all of our brands benefited from this phenomenon as consumers loaded their pantries with anything and everything and in our case, especially can goods and frozen vegetables.

So it's no surprise that the most challenging comparison, we have for the quarter is in the canned goods brands.

As first described the largest dollar decline, we saw and quarter to quarter sales was and green giant down 16, 4%.

Virtually all of that happened and the final two weeks of the quarter, making total brand sales for the full quarter similar to first quarter 2019.

Excluding the green giant brand and the remarkable swing in that brand net sales for the remainder of our base business increased by eight 1% over first quarter 2020.

Sales remained broadly strong, especially in areas, such as banking and spices and seasonings.

Service sales strengthened as well, helping the overall performance.

First quarter was our first full quarter of ownership of the Chriscoe brand and we were very pleased with its performance.

At $58 1 million and net sales, it's tracking to our expectations and margins were accretive to our overall results.

We do have faced temporary cost challenges with the brands as the cost of oils used and the products has more than doubled since this time last year.

We view these very high levels as an anomaly that the market will work through over time.

Meanwhile, we on what we see is an iconic brand that fits well with our portfolio of products related to baking at home or even.

Vitalize consumer behavior.

With the addition of Chris go we estimate that our baking at home and brands will be approximately 20% of our net sales.

While much of our business has started shifting back to more normal performance one area, where we see continued continuation of new consumer behavior is and e-commerce.

While there are no complete or precise measures of net sales through this means we are able to estimate that retail sales of our brands through these various E. Commerce venues grew by over 60% to $50 million and the first quarter.

At this point, we estimate that e-commerce retail sales for the full year, we will continue to grow at that rate and reached $275 million. This year.

I should emphasize that this is not necessarily growth and our factory sales, but instead and noteworthy shift and how consumers are buying our products.

We are investing significantly in this area to ensure that we are well represented and the phenomenon, which shows no signs of leveling off and in the near future. If anything retailers are upping. The ante with one recent article side and plans for two hour delivery of orders to consumers' homes.

Our household penetration has grown substantially in the past year ends up almost 10 percentage points versus 12 years ago 12 months ago excuse me.

At the same time consumer purchase frequency and size has also grown.

Our job is to retain these new and revitalized consumers as the pandemic eases.

We believe the potential to do that exist, primarily because work from home is here to stay in one form or another.

And our own experience as we return to normalcy is that employees want flexibility and their schedules and workdays give.

Given that we are orienting, our marketing to reinforcing behavior adopted during the pandemic and.

Similar efforts will be taking place across the business as we use the efficiency and cost effectiveness of social media to reach consumers.

And as encouraging as first quarter results are there are certainly risks and unknowns to deal with for the remainder of 2021.

Rising costs are a significant issue and one that will not be resolved anytime soon.

As Bruce noted freight costs have increased steadily.

Capacity issues, and the trucking industry and both labor and equipment will continue for the foreseeable future.

Packaging and raw materials are seeing widespread cost increases as well.

Some of these increases are already in effect and others will take effect of shortly.

On the positive side, we are seeing reduced expenses related to COVID-19 as vaccination of our work from work force expands.

While this was a $2 $9 million negative and the first quarter, we should save much of the $13 $3 million, we spend on COVID-19 related measures and the last three quarters of 2020.

As we continue to grow larger we're investing more resources towards meeting our responsibilities as a corporate citizen.

During the first quarter, we worked with the culinary Institute of America to establish a scholarship program for diverse students.

The program will fully support tuition for five students as they pursue careers and the food industry.

This effort joins the extensive work P&G foods is already doing with St. Jude Children's Research Hospital.

With the pandemic easing we are working hard to return to the <unk> foods evolve a company that delivered steady reliable results on a regular basis with exceptional margins and strong free cash flow.

That is the model that has served our shareholders well over the years and delivered superior returns.

As stated started my remarks by stating that the first quarter played out much as we expected and thats very encouraging.

But we do expect second quarter and it'd be the most challenging quarter of the year and the largest unknown.

Our net sales increased by 38% and the second quarter of 2020 over 2019.

And the height of the pandemic pantry loading.

We obviously won't match that increase but we believe that our business will perform favorably versus fiscal 2019 and continue to produce solid results.

As a final note I would mentioned that press release went out just before this call.

Introducing everyone to my replacement since I am in fact, the interim CEO of the company.

Casey Keller, who as you will read in the press release is extremely well qualified and well rounded and should do a fantastic job leading the company when.

And when he starts next month.

We're all looking forward to welcoming Casey here and I hope to return over a company that is rare and to go when he arrives.

That.

We will conclude our remarks and we'd like to.

Again, the Q&A portion of the call operator.

Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is and the question queue.

You May press Star two if you would like to remove your question from the queue core participants using speaker equipment and may be necessary to pick up your handset before pressing the star King.

Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.

Good evening, How're, you doing Dave and Bruce Andrew.

Hey, Andrew Good afternoon afternoon.

Couple of things first I wanted to start off just with the new CEO announcement.

So I'm trying to get a sense of what you saw and the board saw and Casey and his skill set and how you see it fitting that mantra as opposed to just the pure like classical marketer.

And perhaps some other food companies have been more and.

And more interested in and then maybe on a follow up.

Well I wouldn't I wouldn't say that Casey just a classical marketer.

He has had full P&L responsibility and a number of companies.

And certainly and the interview process.

A thorough understanding of the operations part of the business as well as as well as marketing and sales.

And I think he brings and international flavor to the business that we really havent had before.

So that should be and interesting aspect of his background.

I was fascinated to hear that piece actually runs a store door business with supermarkets and things like that which.

We're on a company that does that kind of thing you need to be a pretty strong operations guy as well as the marketing guy so.

That was certainly we certainly considered all of that we understood that that was a very strong need and the company and Lee felt Casey could deliver that.

And then I may have missed this if I did I'm sorry did you say what you expected.

Full year inflation to look like so it sounded like <unk> got decent visibility through the first three quarters in terms of what you've locked in.

So theres still some exposure and <unk>, but knowing what you've got ahead of you for the first three quarters can you give us a sense of what that sort of all in on average inflation inflation looks like I think in that first quarter was up I think it was low single digit.

How does that track from here.

Well it should stay fairly much at low single digits and the first part of the year, just because we've locked in a lot of our purchasing positions.

But the wildcard really is how much are things going to continue to ramp up and what's going to have on when those positions were on out.

And what will the effect of the new crop on things like commodities be.

And the final quarter. So I think that's the good news if you want to call it that.

But commodities to me of the wildcard the packaging industry just continues to get worse.

And so.

Even and when you have purchasing.

Hedges and things like that those run out sooner or later and it really is a matter of how does it play out and the final four or five months of the year, what will happen and I don't think anybody knows.

My personal opinion on the on the agricultural commodity side is that this is more than a one year phenomenon that this crop is not going to fix the problem, even if it's a good crop and.

And that we will see elevated costs going into 2022.

Thanks for that and then just lastly, it would be.

I think you mentioned that base business sales and the first quarter versus 19 were up about 4%.

Got you anticipate sort of low single digit or maybe a little better base business sales versus <unk> 19 and <unk>.

And then cash right.

If I've done the math right and the full year sales expectation suggest base business growth again on a two year basis up maybe closer to 10% or so so that suggests kind of.

Our ramp up and acceleration and the back half on a two year basis.

And if you can go through.

What gives you confidence and thats going to happen and I assume some of that is capacity constraints lifting.

For Green giant.

I would love to hear your thoughts on that if I could not.

Not just green giant there are a number of brands, especially.

Especially in the meal solutions type of brands like Ortega.

And a few other places where we still have capacity constraints. So we do expect sales to expand as we as we fix those things and we'll have them fixed.

Mid summer or so so we expect to be able to meet some of the demand that we are still unable to meet and of course green giant Green giant is huge and the whole thing.

The $25 million decline, we saw on green giant and the first quarter.

Could have been a much better number hasnt been able to not have allocation on the canned goods side and even on the even on the frozen side and some and some areas.

So we definitely have unmet demand.

And that will help the other the other thing that should play out is that fourth quarter actually was a fairly flat quarter in 2019, so to the extent we can.

Exceed 2019, and the fourth quarter that should help a lot in terms of up and the performance.

As we go forward and then and we really work very constrained and the fourth quarter.

And the way the year played out last year was the inventory positions, we had helped tremendously and the in the second quarter to meet the huge demand. We saw but then we started having capacity issues and the third quarter and the fourth quarter and hopefully we can flip that around as the year plays out here.

And Andrew Chris go purely incremental.

And all the way through up until December of last year. So also has a substantial amount of that and.

Very much tracking in line with our expectations and our plans.

Thank you.

Our next question comes from the line of William Reuter with Bank of America. Please proceed with your question.

Hi, good afternoon.

Question is.

The 18% 18, 5%.

EBITDA margin I think thats for fiscal year, 'twenty, one and total.

And making sure that that's okay.

Does that imply do you have any I guess when you were just speaking about some of these.

Agricultural commodity inflation challenges. It sounds like you think those are going to go into the fourth quarter as well is that whats priced into those margins because I guess I was impressed at the margin declines work better on higher given inflation, we're saying yes.

Yes.

And the margins would be inclusive of those cost increases.

We have taken price we continue to examine our trade promotions to increase net pricing. If you will out of that we do have a.

Decent cost reduction efforts underway that should help mitigate some of the cost increases we're seeing.

And we reserve the right to increase price further depending on how different costs go.

We're seeing more of that and the industry and I think youre going to continue to see it.

Just because it's the drumbeat continues on cost increases and it just seems to be getting worse.

The low to mid single digit inflation that you're expecting.

For the remainder of the year for the next couple of quarters.

And if you had not have hedges in place do you know on a spot basis, what that would be.

No I don't think I've ever looked at that because it would be just to hopefully to look at frankly.

I mean oil alone for Chris go we have insulated ourselves from the cost of oil which is by far the biggest piece of the cost of goods of the of that line, we've insulated ourselves from that caused doubling not entirely but to a great degree.

And that's a huge number that's tens of millions of dollars.

No not reallocated shelf space now.

Great to hear Okay, I'll pass to others. Thank you.

Our next question comes from the line of Carew Martinsen with Jefferies. Please proceed with your question.

Hi, This is actually Oliver growth from an on for Peru.

I was wondering if you could expand on your outlook for the food services business as we start to see the easing of restrictions and higher vaccination rates.

I don't think we have any magic Crystal ball tells us exactly what's going to happen there like I said, we're encouraged by how it's gone I think.

So we think it's going to be fully recovered towards the end of the year, that's certainly possible, but theres all sorts of.

I mean, it's not and it's not even all of US just economic conditions and everything its about the restrictions that government places on these things too.

Okay and then.

What are you seeing on the M&A front I was wondering are valuations in line with what you've seen and historically.

Now.

A lot of what we see is people.

Taking the sales from the COVID-19 bump, which is significant and a lot of cases and applying a various significant multiple to them and then saying Oh and by the way Im going to continue to grow like that going forward and.

Yes, so and it.

We're very patient and acquirers and we'll wait for the market that goes back to reality before we before we would execute on something like that.

Okay. It sounds good and then just lastly, what are your thoughts on the current capital structure, given that the five and a quarter of 'twenty fives are callable in June.

Yeah, We love our current capital structure, right now and we're benefiting with.

With the substantial portion and term loan and a little bit and revolver that are very very low rates, just given where LIBOR is.

And we've got our two tranches of bonds, one of which you mentioned is callable.

We're fine with the capital structure and until we do something different.

And I stress they were closer and so the call premium wasn't so high and.

I'd love to do some long term financing at these rates, but that premium is too high at this point.

Okay. Thank you very much and I'll pass it on.

Our next question comes from the line of Michael operating with Piper Sandler. Please proceed with your question.

Thank you and good afternoon.

And so.

Just wondering if you could give a little more color on how youre positioned for input costs and.

I guess, specifically can you start with just some of your assumptions for what sounds like mostly in the fourth quarter on.

And what Youre planning stances that supports the 18% to 18 five.

Net debt.

Referred from the hedges to current spot prices.

Make any prediction about where they go how should we think about your approach there.

I think the assumption is that we'll be able to save or price to hold our own depending on where it goes I don't.

I don't pretend to know where it's going to go and the last three four months of the year, because I don't know what the crops going to be on the case and commodities.

I don't know what demand is going to be for packaging.

So I just want to make sure if I'm hearing that correctly Youre, obviously, you get visibility on the debt.

Costs that you've hedged and locked in.

And then after those beyond that you're assuming.

No headwinds that you can do and it's just a manageable environment is that right.

But we're assuming that there's going to be elevated costs throughout the remainder of the year like I said and the only thing that we're that we're looking at and saying well we're going to be flat.

On our last year results is freight.

We don't think freight is going to expand beyond where it was and the fourth quarter of last year and.

So that will give us.

Good year to year comparison.

From that point of view and hopefully Thats, one where economics, one on one might work.

And.

<unk>.

Okay and.

The second.

Second question on flows right out of that because if I'm hearing you right, you're you're assuming the elevated costs, but with offsets from from savings and pricing.

Are your pricing assumptions higher and.

Yeah.

The green giant and allocation.

It's worse than you had been expecting and wood.

Seem to suggest a reduction on your sales guidance is the offset that keeps you holes from the pricing from.

From a greater level of pricing to cover that.

Stronger inflation.

Well green giant allocation isn't worse than we expected it and it's actually a little better than we expected and we're we're easing the allocation and we're getting very close to the first of the crops piece.

<unk> come in and June and Thats, one of the bigger lines that we sell and the and the brand.

So we don't foresee as I said earlier, we even with allocation we saw green giant will be at the 2019 level and we're easing the allocation more quickly than we thought we would.

So the demand situations clearing up from that point of view.

Part of Thats, because we reduced trade promotions and and actually on making more profitable sales from that point of view.

So I don't I don't really see that as compromising our forecast.

Okay. That's helpful. Maybe just.

And sort of clarify the thinking on on the topline.

Is there more pricing that's on.

Assumed in your guide and if so how do you think about the elasticity and the <unk>.

To that demand and.

And is it just a weird environment with stimulus and things that make it maybe hard to predict or just.

Better than normal.

Well I guess, we're counting on our competitors' price as well, which would help solve any elasticity issues.

But we have pricing and place on a broad array of products thats going to take place and June we've already done pricing on green giant and the Underwood brands early on this year because of cost.

Chris go we did pricing on and.

We would certainly continue to be and I'd be surprised if our competition didn't follow.

Or lead hopefully.

Yeah.

Alright, thanks, so much.

Yes.

Our next question comes from the line of Ken Zaslow with Bank of Montreal. Please proceed with your question.

Good afternoon, everyone.

Afternoon.

And just a few questions one is.

When you were on allocation and then you get your crop that how easy is it to get your shelf space back what happened to your shelf space. What is the day process to which you get it back.

I'm not sure what's shelf space, you're referring to I mean, we've lost.

Mid loss small amounts of distribution here and there.

Mostly because we discontinued products to make our manufacturing more efficient where we had shortages.

I would expect the retailers would be more than happy to let us pay them slotting to put those products back in if they were a decent selling products.

From a green giant and from a green giant perspective, we're not suggesting that we put people on allocation and therefore went dark on the shelf and lost shelf space the purpose.

So that didnt happen.

Okay.

On your shelf space is completely unchanged at that point no I wouldnt.

And as far as to say, it's completely unchanged as I said, we've actually and some brands discontinued some products flanking products. If you will so that we could make enough of the large selling large volume products and.

Maintain sales on them on the most important products.

And the case of Green giant as Bruce said the allocation was purely intended if we had left.

Retailers by unconstrained, we would've had several months of nothing on the shelf.

This way, we maintain a shelf presence.

So I think we did the allocation to prevent that scenario that you were referring to.

Okay and then the second thing is on the commodity side.

You said two different point and I'm not sure, which one you believe you've talked that it's an anomaly that you get.

But then you said.

<unk>.

It may that beyond this year.

How do you think about it and.

And then an anomaly or how do you think about it going into not just this year, but go out there what's your hedges roll off how do I think about that.

Okay.

You can think about it as I said this would be a multi year I think and this is me and if I knew if I knew everything about commodities that'd be home trading commodities instead of.

Doing this but.

I think that the crop this year is not going to completely solve the problem.

But if you look at the history of things like the.

And soy and corn oil and things like that this kind of thing happens every eight to 10 years.

A day it is an anomaly that writes itself and gets to a more normal level, which was the assumption when we bought chriscoe for instances that this this business is going to have cost of this level because on average over 20 years thats the level they have been.

Yes.

And we thank you very much and you talk about that inflation theres, obviously different pieces theres. The agricultural piece. There is the freight piece there is packaging and so things have different cycles.

Okay. Thank you.

Okay.

Our next question comes from the line of Gina Gina and early on.

<unk> <unk> with Goldman Sachs. Please proceed with your question.

Alright, thanks, so much and I.

Just had a follow up question around your cost reduction efforts and can.

Can you just speak a little bit Morrison and nature of some of those efforts is it headcount is it marketing related and are you thinking of them and sort of more permanent and structural or maybe just kind of temporary to help offset some of the inflationary pressures and then I have a follow up thanks.

It's very much oriented towards manufacturing and distribution, we're not looking at head count right now.

But it's all about rationalizing where we manufactured products, we have repatriated some products into our facilities.

A good example would be Las Palmas, we.

We've consolidated some facilities and we will continue to do that.

<unk>.

And the case of transportation and in response to the higher freight rates, we've started using more intermodal and we were unable to do that last year simply because everything was rush rush rush and get it to the consumer or the customer as fast as you can.

Now with things slowing down some and we can we can do better in terms of using intermodal which is a.

<unk> cost savings.

Variety of things, but very much oriented towards manufacturing and distribution.

Marketing is not going to be cut our plan is to spend as much marketing. This year as we spent last year as I said in the call and the script.

We are orienting more of it towards E Commerce, and we did last year.

Great. Thanks for that color and then I just had one more on.

And that kind of product innovation pipeline and just generally speak to that how it might compare to 2020, when things were maybe a little bit more and still are.

It'll slower in terms of innovation and as net perhaps and opportunity to drive sales higher this year latter mixed and more value added products and.

How do you see that evolving in 'twenty, one and net debt.

For sure there will be increased innovation and 2021 first because a lot of the innovation. We had slated for 2020 is rolling into 2021, either in terms of absolutely launching it at all or from <unk>.

We're looking at something that would generate probably three 4% of sales if it succeeds.

In terms of incremental selling with innovation this year.

Thank you.

Yes.

Our next question comes from the line of David Palmer with Evercore ISI. Please proceed with your question.

Thanks, just a clarification on I think it was Andrew's earlier question on revenue guidance.

And that back half improvement in your organic sales trends ex Chriscoe is that basically can green giant coming back and that's basically it and or is there another factor or two that are giving you confidence and that improvement and the second half and I have follow up.

Well the green giant definitely will hopefully turn from a.

On negative to a positive, especially in the last quarter of the year.

It didn't it didn't perform very very well and was part of the reason we were.

Basically flat to 2019.

But we're very encouraged by what's going on on the portfolio.

As Bruce was sent our seasonings businesses is just rocking and rolling.

Our our baking business is doing extremely well and.

And and our meal solutions types of brands like Ortega and <unk> Palm us.

And I would like Bear Creek.

We hope we would hope.

And do even better as we saw some of the bottlenecks, we have and in those brands, we are not able to meet the demand and some areas and those brands. So there's a lot of positives.

And we look at the rest of the year now I'm not saying, we're going to match 2022nd quarter is a tough quarter from a 2020 point of view, our sales and second quarter or up.

Darn near 50% and the quarter and you're just not going to match the kind of performance, but we should do well versus 2019.

Thank you for that and a question on free cash flow or just how we should be thinking about free cash flow conversion this year after chriscoe.

Any thoughts on that.

In terms of and actual guidance number we didnt have but it should be pretty sharp.

And I'm thinking perhaps that goes on there is closing.

Yes.

We'll be a big year of inventory increase.

And <unk>.

Taxes from a cash tax we are usually pretty efficient.

And munis that should be typical BG strong cash from operations and what we like to produce.

Great and then just one just general comment there is there is.

And people that invest in the fleet space that saw for 2017 and 18 cycle of inflation.

Wonder if it's if it's foolish to think that things are going to be different this time in terms of and inflation cycle.

Perhaps you can talk about that Dave a little bit about why it does feel different now in terms of price receptivity and perhaps preserving gross margins and so over time, perhaps with a little bit of a timing risk and a wide debt would be different than 2017 and 18.

I think this this inflation cycle is broader and deeper.

And then what you saw a few years ago.

That was that was not a.

This is pretty dramatic.

And.

It doesn't seem to be any having any hope of abating anytime soon so.

I just and.

In fact every article I read it and just getting worse.

And <unk> and other with the latest one I read was wood pulp now a problem and theyre going to have to increase prices and toilet paper and things like that.

It's kind of remarkable because.

I don't.

We didn't have supply issues before COVID-19 and now suddenly we have broad supply issues.

And Martin part of it certainly and agriculture, a lot of it's driven by demand from China and places like that so.

And I, just think it's a much broader and deeper inflationary cycle, that's not going to go away.

Very quickly.

And that is making the conversations with retail different.

Well no retailer like should it come in with a price increase let me say that but usually they also have one of their people responsible for purchasing private label and all of that with them.

<unk> is a logic check for what you are telling them and.

I think they're hearing from their own people that yes. This is a price point.

And then what they're telling you is right and we've actually had one customer asked US can you take positions for me on my private label oil business, because we need coverage.

So I just.

It's it's.

As I said customers don't like price increases, but the reality is a very strong reality right now.

Thank you.

Our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question.

Great. Thanks, so much.

A lot of questions over that so I'll keep this short.

I guess just.

Our commentary today.

It's kind of based off of that.

2019 level.

Early sale of restaurants to Q to Q2 19.

And I feel like historically.

At least on the base business. It seems like maybe Q2. There is some seasonality that Q2, usually comes in a little bit lower relative to Q1.

Speaking of sales and also the EBITDA.

So.

And look at Q2 19, REIT debt came in a little bit relative to Q1 19, but obviously like.

We're lapping the big Q2 from last year. So as we think about that Q1 and Q2 like do you want us all to kind of go back to that.

More traditional seasonality and cadence that we usually see from Q1 to Q2 or is there.

And theres stuff and there let's say.

That may not cash.

Cause that standard cadence.

No I think I think it's appropriate to say, it's going to be.

The sales are going to pace.

More similar to 2019, I mean, you're talking about 2019 first because that's the last normal we had.

And you can't even start from 2020 and say, okay, well here I can make judgments versus 2020, you can it was just on extraordinary a year.

You have to go back to what were some firm ground I can stand on to start doing this.

And I think 2019 and the pace of sales of 2019 is probably as good of places and it.

And as we said earlier earlier on the call.

Expectation would be that Q2 looks like 2019, probably low to mid single digits as a percentage higher.

Plus chriscoe chriscoe.

Typically that period is about 20% of a full year's net sales and.

And EBITDA margins I think return on you're generally going to look similar than what they have and the past and and it's a little bit of and informed decision because we have four weeks under our belt.

Right.

Got it okay cool.

And then just in terms of.

The SG&A line.

And you call out some.

On.

COVID-19 related costs and finds from retailers.

But kind of overall <unk>.

And almost flattish, let's say relative to.

Q4 is there anything within that SG&A line.

That would cause SG&A to kind of be up or down.

I mean, I've just speaking to the near term because again traditionally sometimes its up sometimes it's down on a sequential basis, just try and get a feel as to.

Some of these levers you can pull.

Are they also potentially SG&A related and such debt.

And that may have been up a little bit and Q1, but maybe it gets better and I guess on a year.

That's all SG&A was SG&A was up in Q1 to some degree because.

Versus in 2019, we hadn't done a lot of accruals for incentive bonuses and.

Long term incentives and things like that and we basically accrued at target levels and 2020, and that's worth a couple million dollars year to year difference.

And so thats, one thats, one factor and then advertising and marketing we're going to be flat is the expectation on a full year basis.

But the pacing of that as a little bit different and so if you look last year.

Were higher and the first quarter.

This year than we've ever last year will be higher and the second quarter of this year than we were last year and to get to the same number and it's a little bit lower so the PC will be a little bit more even this year, whereas last year's packing and weighted.

And when you look at when you look at day.

The EBIT swings year to year.

There is about $9 million of these kind of factors and the first quarter that was and in 2019 EBITDA. One is the marketing as Bruce said.

Spent about $4 million more in 'twenty and 2021 than we did in 2020.

I Misspoke and said 2019, I'm sorry two.

<unk> 2020, the comps another couple million dollars and then the COVID-19 expenses of $2, eight which really is more on our manufacturing and from distribution and to some extent.

SG&A, but more and more and the cost of goods area, but that was that was $2 $8 million. So it's the better part of $9 million of things that we incurred in 2021 first quarter that we didnt incur in 2020.

All of which will fade away as the year goes on because we're still we're still at normalized levels of marketing comp.

Compensation will come back.

The accruals were much heavier in the latter part of the year than they were and the early part of the year last year and the COVID-19 expenses are bleeding down rapidly as people get backs unaided.

Got it perfect. Thank you so much and yep.

Yep.

So we have time from one last question that comes from Eric Larson with Seaport Global Securities. Please proceed with your question.

Yes. Thanks, good afternoon, everyone I'll make this really quick one question.

Maybe you've answered part of this but obviously.

Your inventories are depleted for sure it at Green giant and.

I'm curious if you were able to actually get more acreage planted this year procure some higher supply as we build those inventory.

And then with that being said are there other product lines.

And your shipment.

<unk> shipments.

And greater.

Right now versus retail takeaway, because you've got to rebuild some of this.

Retail and.

And then.

What's the cash impact obviously, that's probably been a cash tailwind, whereas if you start rebuilding of inventories that might be a bit of a headwind. So if theres a way to characterize that whole idea concept would be great. Thanks.

Okay that was not a short question.

[laughter], but on the Green giant and front, we don't we don't contract the acreage our co Packer does but we have certainly worked with the co packer.

Envision and rebuilding inventories to appropriate levels as the crops come in and that would imply more acreage where will it end up.

Only god knows because it's so dependent.

Dependent on things like weather.

And that we're hoping there's a good crop, but frankly, we haven't had a good crop.

On the Green giant side for three years.

And we're kind of hope and we do this year that would help a lot.

There really isn't a lot of pipeline can be done and most of the products we're talking about.

And we're short on capacity on yes.

And theres, some theres, some inventory that needs to be rebuilt, but not remarkably a lot because there are products that we're making every day. Unlike the seasonal pack, so youre going to see an increase and inventory on green giant at the end of the year all things being equal.

And as Bruce said earlier.

At least flat year over year.

Okay. Thank you Dave.

Yes.

We will take one more question from Ryan Bell with consumer Edge Research. Please proceed with your question.

Great Thanks for sliding and.

I know you touched upon this a little bit and your final remarks.

Could you highlight from the initiatives that you've taken to retain the incremental households, and.

Kind of talk about the importance of.

Incremental work from home in terms of longevity of expectations around 18 and cooking increases.

Okay.

Well, we've done a lot of work with a company called numerator to try and very specifically identify.

Who are these households are and try and reach them through social media and other means to communicate with them.

And as I said, we're really trying to use social media and the Internet and.

Websites and things like that to.

And to provide people with solutions.

I've been working for a long time and I'm trying to get used to the whole work from home kind of thing that is really blossomed and the last year, but there is no doubt the sentiment.

And our in our office work force is that people want to have.

X number of days a week.

That they can work from home and that implies they're going to eat at home, they're going to cook at home.

And implies continued demand.

That will be higher than it was pre COVID-19.

And so we just need to make sure that we are part of that with our brands like Ortega Bear Creek.

Like Green giant and all of our seasonings that are used at cooking at home and.

<unk>.

Digging as hard as we can to figure out okay. How do we do that how do it and ecommerce.

E Commerce is a good example of how you do that because these people are using e-commerce to buy the products more and more so you want to be first and foremost on the retailer's site sites that they go to the order the products.

And you want to work with that part of the business you want to work with all the all the various delivery services and everything that go out and pick those orders from the retailers.

That to me is how you how you track the household penetration and.

And hopefully hold serve with it.

And that's.

Helpful and.

In terms of your expectations private label landscape.

Over the balance of 2021 do you have any comments on that.

Hi.

I really don't know what private label is going to do as a brand as a brand and business, where we're working as hard as we can to have them not do well, but.

And frankly, a little surprised at how how badly private label has done during the COVID-19 era.

And I'll come back to brands and.

And that makes us very happy hopefully, we can prove to them that that was the right decision.

Okay. Thanks, a lot thats it from me.

I'd like to hand, the call back to management for closing remarks.

Thank you.

I appreciate everyone's interest and the company.

We think we had a very solid first quarter.

With very good results given the added expenses.

Talked about that will.

Mitigated as the as the year goes on it's certainly a challenging year on comps to last year and.

As I said before we're trying to just use the firm footing of 2019 and make progress versus that as we go through the year, but again. Thank you very much for your interest and support.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.

Q1 2021 B&G Foods Inc Earnings Call

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