Q3 2023 B&G Foods Inc Earnings Call

November 8, 2023

[music].

Yeah.

Good day and welcome to the PNG Foods third quarter 2023 earnings call.

Today's call, which is being recorded.

So last about one hour, including remarks, maybe energy food stamps.

And answer session I would now like to turn the call over to Amy Schwalm associated corporate strategy.

Hey, Jay.

Good afternoon, and thank you for joining us.

Today, our KC Kelley, our Chief Executive Officer, and Bruce Walker, our Chief Financial Officer.

You can access detailed financial information on the quarter in 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 statements are not guarantees of future performance and therefore undue reliance should not be placed upon them.

We refer you to BMG 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 will also be making references on today's call to the non-GAAP financial measures adjusted EBITDA adjusted net income adjusted diluted earnings per share and base business net sales.

Reconciliations of these financial measures to the most directly comparable GAAP financial measures are provided in today's earnings release.

Casey 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 2023.

Bruce will then discuss our financial results for the third quarter 2023, and our guidance for fiscal 2023.

I would now like to turn the call over to Casey.

Good afternoon, Thank you a J and <unk>.

You all for joining us today for our third quarter 2023 earnings call.

<unk> third quarter results continued strong margin recovery with adjusted EBITDA as a percentage of net sales, increasing 80 basis points versus last year to 16%.

Gross profit as a percentage of net sales excluding items affecting comparability increased 230 basis points versus last year to 22, 7%.

Demonstrating continuing recovery of higher inflationary costs through pricing and productivity efforts.

During the third quarter, we lapped most of the pricing actions taken in 2022.

Turning to sales performance base business net sales, which excludes the divested back to nature of business were down 3% versus last year.

I lay up or roughly flat without the Chriscoe brand, where we proactively reduced pricing to reflect lower soybean oil commodity costs, while maintaining gross profit.

Overall, many of our brands delivered solid performance, despite the uncertain environment of higher pricing and pandemic normalization.

The exception was the green giant business across frozen and canned vegetables, which was down significantly versus last year.

Green giant and Chris go the remaining businesses increased net sales plus four 7% versus third quarter of last year.

Some more detail on our business performance across brands and categories.

Spices and seasonings, the high margin spices, and seasonings portfolio increased net sales plus six 1% versus last year.

Trends were particularly strong on the foodservice and members Mark Sam's label business, which largely served out of home and small business customers.

The core retail branded trends Dash Weber Spice Island et cetera were mixed impacted by temporary service and production issues at our Anthony spices, and seasonings factory, which has now been resolved.

We also launched new seasoning and grilling blends under the Buffalo trace fireball and southern comfort brands in select customers, which are performing very well and initial distribution.

Chris go.

The Chriscoe net sales decline resulted from a 15% list price reduction in August.

Distant with our commodity pricing model on the brand.

Soybean oil costs are down significantly about 20 per pound versus Q3 last year, which we pass through to consumers, while maintaining gross profit dollars.

Chris go while key bottle size unit price has now largely below the key $5 and six dollar thresholds in market and we are seeing healthy unit volume increases in recent weeks scanner data.

Green giant.

Green giant canned and frozen vegetable trends were the weakest in the portfolio during Q3 can.

Canned vegetables price promotion activity has increased with excess industry wide supply prior to the new season pack and we have increased trade spend to remain competitive.

The frozen vegetable category has been impacted by a compression of price differential between frozen and fresh vegetables.

As the result of improved fresh supply and cost.

Further although the green giant frozen portfolio has improved product margins and mix the rice vegetable skus face increased competition and price pressure from private label entrance.

Supply and service on a companywide basis customer service and fill rates continued to improve averaging 97% during the quarter.

The one exception with spices and seasonings with some temporary disruption we are on track to deliver a 97%, 98% CFR our long term target before year end.

Inventory.

Turning to inventory as of the end of the third quarter compared to the end of the third quarter of last year total inventory decreased by $79 million to $726 million before the impact of the reclassification to assets held for sale and partial impairment of Green giant U S shelf stable inventory.

<unk>.

We are well on track to deliver lower inventories year on year at the end of Q4. The major drivers are union efficiencies lower soybean oil costs and a smaller seasonal pack on the lesser of shelf stable.

Versus last fall.

Cash flow.

Cash generation continues to be strong in Q3 net cash from operations was $23 $3 million in Q3, increasing from negative $69 $5 million or use of cash last year.

With year to date net cash from operations of $155 $7 million.

Pro forma adjusted net leverage was $6 five two times down from $6 seven four times at the end of Q2, we are on track to continue to reduce our leverage ratio by the end of 2023, driven by adjusted EBITDA recovery, lower working capital and inventory needs and debt reduction from available cash flow.

Year to date, we have reduced net debt by over $210 million.

For the full year, we remain on track to deliver within the previously communicated guidance range of adjusted EBITDA between $310 million to $330 million inclusive of the divestiture of the green giant canned product line.

For fiscal year net sales, we are revising guidance to remove November December green Giant U S can sales recognized lower chriscoe oil pricing as well as reflect a slower recovery on that green giant frozen business.

Bruce will provide more specifics on sales guidance.

Finally pertaining to green giant we announced the sale and divestiture of the U S Green giant canned vegetable product lines to Seneca foods earlier today.

The sale does not include Green giant frozen Green giant, Canada, or the lesser brand and we are retaining the green giant trademarks, which we are licensed to Seneca for use with the divested product lines.

This divestiture is a critical step in our efforts to focus the portfolio on categories and brands, where we can drive valuation growth.

With our choices resources and capabilities.

And vegetables are mature category with high working capital needs. The seasonal crop inventory is packed in held for the entire year.

The can business required us to increase debt to finance evil inventory build with almost no synergies with the green giant frozen portfolio.

We expect that the green giant canned vegetable divestiture will modestly increase overall margins and modestly reduce leverage.

Beyond this transaction, we continue to evaluate existing businesses that have lower margin and cash flow higher working capital complexity or do not fit with our core capabilities and business unit structure.

The divestitures of back to nature, and Green giant canned vegetables are critical steps on that journey, we have a target of less being actively worked to reshape and focus the portfolio with the expectation that the proceeds from any divestitures would primarily be used to reduce long term debt.

Thank you and I will now turn the call over to Bruce for more detail on our quarterly performance and outlook for the year.

Thank you Casey and good afternoon, everyone. Thank you for joining us on our third quarter 2023 earnings call.

As you can see we had another strong quarter actually our fourth consecutive quarter of increased year over year, adjusted EBITDA and adjusted EBITDA as a percentage of net sales when compared to the prior year quarter.

As we told you when we began the year, we expected to see large year over year increase in adjusted EBITDA and adjusted EBITDA as a percentage of net sales in the first two quarters of this year followed by a more modest increase in adjusted EBITDA and adjusted EBITDA as a percentage of net sales in the third quarter.

And that is pretty much where we stand today through the first nine months of the year.

In the third quarter of 2023, we generated $502 $7 million of net sales.

$84 million and adjusted EBITDA adjusted EBITDA as a percentage of net sales at 16% and adjusted diluted earnings per share of 2007.

Base business net sales, which excludes the back to nature brand decreased by approximately $15 6 million or 3% in the third quarter of 2023 compared to the year ago period.

Base business net sales, excluding Chris go where we have lowered price due to decreases in soybean oil costs were up $6 million or 0.2%.

Our base business net sales remain robust despite the year over year declines.

And we are essentially flat to the third quarter of 2021.

We have now lapped many of the larger price increases while also reducing price on our chriscoe vegetable oil and shortening products and increasing trade spend on green giant and the sore canned vegetable products.

As a result, the impact of pricing was a reduction to net sales of $1 1 million.

FX added another $1 $3 million reduction in volumes contributed to the remaining $13 2 million of the decrease.

Our pricing strategy for both Chris going Green giant shelf stable appears to be working as both of the businesses saw increased volumes in the back half of the quarter.

Driven in large part by our previously executed pricing initiatives and a moderation in the pace of inflation, our third quarter 2023, adjusted EBITDA as a percentage of net sales increased by approximately 80 basis points to 16% compared to 15, 2% in the prior year period.

Adjusted EBITDA increased slightly to $84 million in the third quarter of 2023 from $80 2 million in the prior year period.

Net sales were mixed across the portfolio.

Clabber Girl has continued its strong showing this year as we head into the banking system.

With some really incredible momentum.

Clabber girl increased net sales by approximately $8 1 million or 31, 5% in the third quarter of 2023 compared to the prior year period.

New York style is continuing to have an excellent year and was up by $1 2 million or 18, 5% in the third quarter of 2023 compared to the prior year period.

Our spices and seasonings business is off to a strong start in the second half of the year.

And was up $5 3 million or six 1% in the third quarter of 2023 compared to the year ago period.

Improving fill rates and strong demand had been drivers of performance in our spices and seasonings business and we've now lapped some of the noise in the early portion of this year.

We are back to basics in our core space business with strong execution across the portfolio. While also generating some real excitement in the category through our new licensed brand launches such as Einstein's Avocado test, Texas, Roadhouse, SaaS, <unk> Weber flavors, Buffalo trees, firebaugh and southern comfort.

Stay tuned as we look to build off this momentum with additional launches in 2024.

Victoria.

Strong second quarter in a row and increased net sales by.

$5 6 million or four 7% in the third quarter of 2023 compared to the prior year period.

Net sales of Maple Grove farms were up by approximately $5 million or two 4% in the third quarter compared to the prior year period.

Net sales of cream of wheat were down <unk> 6 million or three 5% in the third quarter compared to the prior year period, but were up $2 5 million or 16, 1% compared to the third quarter of 2021.

Ortega was down $1 7 million or four 3% in the third quarter of 2023 compared to last year after being up in the first half of the year Ortega is one of our marquee brands and we expect better for this business.

Net sales of Chriscoe were down $16 1 million or 16, 4% in the third quarter compared to the prior year, but were up $11 2 million or 15, 7% compared to the third quarter of 2021.

As a reminder, extreme input cost increases led to large price increases for Chris go during 2022.

Although this led to increased sales for Chris go during the first three quarters of 2022, including a 38, 3% increase in net sales for Chriscoe during the third quarter of last year. Those large price increases eventually led to decreases in net sales for Chriscoe beginning earlier this year.

However, we were able to reduce prices for Chris go during the back half of the third quarter.

Which led to increased volumes in the month of September for Christa.

More importantly, despite the decrease in net sales chriscoe remains on pace to achieve prior year and target profitability, which is really what this business is all about.

Net sales of Green giant were down $13 2 million or 10, 7% in the third quarter compared to the prior year.

Decreased promotions for the holidays led to improved volumes for our shelf stable green giant and <unk> businesses with just a $1 $5 million decrease in net sales compared to the prior year period.

Meanwhile, the frozen vegetable set continues to be challenged for our green giant frozen business as well as our competitors.

Base business net sales of all other brands in the aggregate increased by $5 million or 0.6% for the third quarter of 2023 as compared to the third quarter of 2022.

Gross profit was $113 8 million for the third quarter of 2023 or 22, 6% of net sales <unk>.

Excluding the negative impact of <unk> 3 million of acquisition divestiture related expenses and nonrecurring expenses included in cost of goods sold during the third quarter of 2023. The company's gross profit would have been $114 1 million or 22, 7% of net sales.

Gross profit was $105 8 million for the third quarter of 2022 or 20% of net sales.

Excluding the negative impact of $2 2 million of acquisition divestiture related expenses and nonrecurring expenses included in cost of goods sold during the third quarter of 2022, the company's gross profit would have been $108 million or 24% of net sales.

Gross profit as a percentage of net sales excluding the impact of acquisition divestiture related and nonrecurring expenses was up by approximately 230 basis points in the third quarter of 2023 compared to last year's third quarter.

The improved margins were largely driven by a moderation in input costs and logistics inflation represented a continued turnaround compared to the first half of fiscal 2022, where we suffered from the severe input cost inflation that we've seen industry wide and which led to declines in our gross profit and margins.

Selling general and administrative expenses increased <unk> 7 million or one 4% to $48 2 million for the third quarter of 2023 from.

From $47 $5 million for the third quarter of 2022.

The increase was composed of increases in general and administrative expenses of $3 2 million and consumer marketing expenses of <unk> $3 million partially.

Offset by decreases in warehousing expenses.

A $1 $3 million acquisition divestiture related and nonrecurring expenses of $1 $2 million and selling expenses of <unk> 3 million.

Expressed as a percentage of net sales selling general and administrative expenses increased by 60 basis points to nine 6% for the third quarter of 2023 as compared to 9% for the third quarter of 2022.

As I mentioned earlier, we generated $84 million and adjusted EBITDA in the third quarter of 2023 compared to $82 million in the third quarter of 2022.

The increase in adjusted EBITDA is primarily attributable to a moderation in industry wide input cost inflation and logistics inflation that began in the fourth quarter of 2021.

Adjusted EBITDA as a percentage of net sales was 16% in the third quarter of 2023.

Baird to 15, 2% in the third quarter of 2022, an increase of approximately 80 basis points.

Net interest expense was $35 $9 million in the third quarter of 2023 compared to $31 9 million in the third quarter of 2022.

The increase was primarily attributable to higher interest rates on our variable rate borrowings, partially offset by a reduction in our average debt outstanding.

And a zero point $6 million gain on extinguishment of debt as a result of the senior note repurchases.

Interest expense was $35 8 million in the second quarter of 2023.

Depreciation and amortization was $17 3 million in the third quarter of 2023 compared to $20 8 million in the third quarter of last year.

We generated 27.

And adjusted diluted earnings per share in the third quarter of 2023 compared to 31 last year.

We remain very encouraged by the progress we have made over the past year in terms of restoring our P&L.

And in addition to our P&L improvements. We're also continuing to make progress in the improvement of our cash flows and our balance sheet.

We generated $23 $3 million in net cash from operations in the third quarter of 2023, and $155 $7 million and net cash from operations. During the first three quarters of 2023 compared to net cash used in operations of $69 5 million.

In the third quarter of 2022.

Net cash used in operations of $48 4 million in the first three quarters of 2022.

Increased operating profits improved margins and more favorable working capital were the primary drivers of the improved cash from operations performance, which was offset in part by increased interest expense.

As a reminder, the third quarter is typically a seasonal drag.

And third quarter cash from operations as we build inventory in the pack season, and head of the baking and dry soup businesses for example.

So we are very happy with the net cash from operations, so far this year and especially in the third quarter.

We have also reduced net debt by $67 $3 million during the third quarter and by $212 $5 million in the first month nine months of the year to $2 1 billion.

We reduced our pro forma adjusted net leverage ratio as defined by our credit agreement to approximately six five times at the end of the third quarter 2023 compared to seven six times at the end of fiscal 2022, and seven eight times at the end of the third quarter 2022.

We expect to continue to reduce our net leverage and our pro forma.

Adjusted net leverage ratio throughout the remainder of the year as we work toward achieving our long term target of four five to five five times.

During the third quarter, we completed two important financing transactions the.

The first was the issuance and sale of approximately $75 million.

Of equity before fees and expenses through our ATM program at an average price of $11 90 per share.

The second was the issuance of $550 million principal amount of senior secured notes due 2028 at a coupon of 8%.

The equity issuance funded the repurchase of approximately $20 million of our senior unsecured notes due 2025 in the open market during the quarter had an average price of 96, 9% of face value.

And was also used to.

To reduce other long term debt.

Subsequent to the close of the quarter, we redeemed approximately $555 million of our senior unsecured notes due 2025.

Which leaves a remaining balance of $300 million of the 2025 notes.

And now with just one quarter remaining in the year, we feel very good about the progress that we've made in terms of improving our P&L, our margin profile and our capital structure.

We have reduced our net debt and our pro forma adjusted net leverage ratio. Despite the many industry wide challenges that we're facing.

Our reaffirmed adjusted EBITDA guidance and revised net sales and adjusted diluted earnings per share guidance include the impact of the sale of the U S Green giant canned vegetable product lines.

The U S Green giant canned product line was on pace to generate approximately $75 million to $85 million in net sales for 2023.

We have adjusted our net sales target to $2 5 billion.

To point out 7 billion for fiscal 2023.

Through nine months, our base business net sales are down approximately one 4%.

Our updated guidance reflects base business, which excludes back to nature and the final two months of the year.

Or about $23 $5 million of U S Green giant canned vegetable net sales.

Excluding the impact of the divestitures, we expect fourth quarter net sales to be between flat and down 4% compared to the fourth quarter of last year.

And as a reminder, the recently divested back to nature brand contributed.

Approximately $10 2 million of net sales in the third quarter of 2022.

And $11 $9 million of net sales in the fourth quarter of 2022.

Meanwhile, we are reaffirming our adjusted EBITDA guidance of $310 million to $330 million.

Adjusted diluted earnings per share is somewhat dependent on movements in interest rates.

And we are adjusting our fiscal year guidance for.

For the adjusted diluted earnings per share range.

Of 93 to $1 13, largely driven by the equity issuance described earlier.

The majority of the heavy lifting and our adjusted EBITDA margin and dollar recovery has already happened this year and as we mentioned on our previous calls we expect improvements in the fourth quarter of the year to be somewhat more modest.

For full year fiscal 2023, we also expect interest expense of $145 million to $150 million, including cash interest of $138 million to $143 million.

Depreciation expense of 47, 5% to $52 $5 million.

Amortization expense of 20 million to $22 million.

An effective tax rate of $26 five to 27, 5%.

And capex of approximately $35 million to $40 million.

Now I'll turn the call back over to Casey for further remarks.

Thank you Bruce and closing Q3 results demonstrated strong year over year improvement with pricing covering inflationary costs improved margins and a reduction in leverage.

We remain on track to achieve fiscal year 'twenty three guidance of adjusted EBITDA.

We've also made significant progress against reshaping the portfolio with today's announced divestiture of Green Giant U S canned vegetables.

This concludes our remarks and now we would like to begin the Q&A portion of our call.

Operator.

We will now begin the question and answer session.

He joined the question Keith.

One on your telephone keypad, you'll hear me too and acknowledging your request if you're using a speakerphone. Please pick up your handset before pressing Inc.

Your question, Please press star and chip.

From a woman is coalition.

Your first question comes from Michael Melby Piper Sandler. Please go ahead.

Thank you good afternoon.

Hey, Michael.

Some of the color on the sales run rate or the green giant shelf stable they can.

Okay.

I know you are not disclosing the terms of the deal.

Can you just help us figure out some of the proceeds will look like for the debt repayment and NP $765 million for that business.

It looks like from our data that can people at the time I've been around a third of that.

That $265 million sort of allocation, which it can be a starting point and if we took the 133 million impairment that you recorded in conjunction with the sale.

About half that's left 130 company proceeds is that about the right way to think about it or.

Yeah.

Like you said, we didn't disclose.

With the terms of the transactions, where this business is about 75 plus million dollars of net sales out of a total of $500 million plus.

Plus for Green giant so it's a small piece. So I wouldn't suggest that this is a significant portion of what we paid for the business.

So as a reminder, within green giant we've got in the U S that green giant frozen business.

<unk> got these green giant canned business, which has just been under pressure for years. We also have a nice business with <unk>, which is a premium canned vegetable business and then we've got our green giant frozen business and can business in Canada.

Okay. So this is Jonathan just the green giant canned business.

Okay, Yes that makes sense and in the U S.

Yes.

And Canada is alright.

Yes, okay.

Yes.

And just a quick housekeeping one on the share count with I know you mentioned some of the proceeds from the ATM and the coking and <unk>.

<unk>.

With the timing of that means that even without doing any further.

<unk> says, we should bump up the share count for <unk> or put another way with share count it at the very end of Q2.

So you'll see it on our Q when it's filed I think it was approximately $78 6 million shares.

Okay, great. Thanks, so much.

Okay.

The next question comes from William Blair.

Eric Please go ahead.

Hey, Thanks for taking my question. This is Ron <unk> on for Bill.

So I guess.

Are you guys thinking about pursuing additional asset sales and kind of how how we should be thinking about that in terms of size do you think that they are going to be a more transformative in nature or smaller and then if you can speak to just the general divestiture market and what that looks like thank you.

Yeah sure so part one.

We've now divested back to nature and this green giant.

<unk> can business.

Which as we laid out sort of vision business unit strategy go forward from an M&A standpoint.

The divestiture strategy, including identifying businesses that we Didnt think we are positioned to win over the long term.

Potentially growth challenged margin challenged in this case working capital.

We've now divested two of those businesses, we haven't really talked publicly about other brands that we may be considering although we've identified things internally.

Nor do we typically talk about things.

I'm a brand standpoint that we're going to sell.

So we're going to continue to evaluate that.

And again this is two of others probably to come.

Casey has talked recently in the past of looking to divest between 10 and 15% of our total net sales and so for context, I think that maybe that could help you out as far as the overall M&A environment, it's been relatively quiet over the last two years, but it has shown spurts of Av.

Some big deals getting done in some some other deals like this transaction.

Getting done and so we're going to continue to monitor.

Enact at the appropriate time.

And then also very much stick to our process from what we think fits in our portfolio and what we think someone else has a better owner of them.

Okay. Thank you.

The next question comes from Hale Holden of Barclays. Please go ahead.

Hey, Bruce Congrats on a sale.

That Cam business is always kind of kind of.

Working capital hogs.

I think in our view.

Particularly as Youre coming to <unk> and <unk>. So maybe you could talk about.

Our cash efficiency.

If youre looking into next year, we're kind of working capital swings you wouldn't have with Cam business I think it would be helpful.

Yes, so you highlighted it overtime.

This business is it.

A very competitive.

<unk>.

With high private label.

We are not the manufacturer of this business. So our counterpart in this transaction Seneca was the manufacturer that they are a great owner for this business.

And as you pointed out this is a seasonal working capital business, where you are basically buying at least a year in advance of all of yourselves that inventory during the period between July and October which means that you're planning is starting some 18 months.

Before that pack.

Pack season.

Which puts a lot of pressure and so as we've owned this business virtually every year.

Has been either a high working capital our low working capital as we've tried to adjust to the right size pack. We just haven't gotten it right. It's just a challenging business, it's closer to the agricultural team and a lot of our other businesses.

Even though it is a can.

Packaged food business, it's just tough we're not in the agricultural food Gabe.

There's a better owner for it and this is really going to simplify our business going forward.

And the reality is this is a very very very high inventory intensity business. So we bought the entire year supply at one time during the year and held it for the entire year. So we think about the intensity of that on the sales profile, it's pretty high. So we obviously will not have to finance that.

That additional kind of inventory going forward in the future, particularly in the Q3 Q4 timeframe.

When you actually start working capital out of it before the sale closes.

So that's kind of baked into the proceeds our proceeds plus and invest in working capital because you should have.

Nice quarter every day everything will come out so we sold the business in all of the inventory.

Okay, great. Thank you.

Yes.

Okay.

The next question comes from Robert Dickerson Jefferies. Please go ahead.

Great. Thanks, so much.

Yes.

Quick one for me.

So.

I guess in the quarter organic volumes were down 2%.

Seemed like they were doing tracking a little bit worse in all the tracked channel data that we all looked at CIBC.

Maybe just kind of.

And consequently, just explain what the Delta is I'm not sure.

We are currently selling in non tracked channels or there was any inventory dynamics or what have you.

So our track channel that we see and I think it's pretty similar for most of the analysts I know there are a couple that were way way off in terms of what they were saying what's going on in consumption versus what we actually saw but I think we were down about three 5% and consumption with the data that we see and that compares to <unk>.

Down 3% net sales for the quarter.

We do have.

Some non tracked channels. So our Canadian business is obviously not tracked here, that's a little bit less than 10% of our business and we've got some foodservice foodservice than member's mark in Sam's it wouldn't necessarily be tracked in the general data. So there are some there are some differences and we've seen strength in our kind of out of home business, particularly in spices evenings.

Right, Okay. Okay got it that's helpful.

And then I guess just Q4.

I think you said sales will be down.

4% again.

I just didn't catch it I'm, assuming that's organic and then secondly, sir.

Like what gets you to flat and we'll continue down for like two months left.

One of the Falcon variable.

Yeah, that's a that's a base business sales calculation, so exclude the divestitures in that in that fourth quarter period.

Honestly.

The main thing that we're watching and we know what the Chriscoe price decline here. So.

The price decline is depressing sales, but again whats.

Lower oil costs, we're doing just fine on the gross profit line.

So it's really a matter of I would say, how we come through our seasonal kind of merchandising period, how well are we getting lift in the kind of in November and December time period on our holiday merchandising, particularly in the baking season. So and then I think it's just do we start to see some.

Recovery in our frozen portfolio as we've taken some actions to compress the price premium too.

On a rice vegetables, and some other places where we need to act on that portfolio. So we're.

That range is kind of what we're just we have out there now we will watch it obviously pretty carefully and see where our trends are but I feel I feel pretty comfortable that we're in the middle of that range right now.

Alright, and then I guess.

Also.

With respect to the share issuance.

Capital structure are you kind of went through a lot in the call.

I mean do you feel at this point.

And clearly a much better position with respect to capital structure.

That we shouldn't really expect more kind of opportunistic issuance or is that kind of to be determined.

The biggest thing from our capital structure over the last two years or maybe the biggest two things have been to leverage and then this first tranche of 2025 notes.

Certainly we would love to go back in time to 2021, and refinance something like sub 5% are crazy like that.

Knowing knowing the environment that we've been in we've been very focused on solving.

That maturity.

And then also bringing our leverage down so the equity issuance this quarter or third quarter really helped accelerate our debt reduction.

I think these two asset sales will help bring that down marginally beneficial from a leverage standpoint.

But all in we think we solve that capital structure issue and so.

Things are improving dramatically, but certainly if there are questions around capital structure earlier, this year or a good summer.

I think there should be largely answered.

Alright.

I'll pass it on thanks.

The next question comes from Karl just tells J P. Morgan. Please go ahead.

Hi, This is Mike on for Carla Thanks for taking our question.

Two quick ones from us the first being that we see.

In the balance sheet for this quarter.

$69 million assets held for sale is that the right way to assume with the proceeds on the sale of Green.

Green giant canned and better yet.

And the second part of that the FY guide.

<unk> EBITDA does that kind of imply that.

EBITDA for this business that you saw was kind of minimal this year.

<unk> just better improvement in the base business, that's offsetting that.

Yes, so on the EBITDA part just a reminder, that this is $75 million to $85 million of annual net sales.

Two months left in the year that we won't have this business for so.

That's 10 months that we had the business so.

It will impact what our EBITDA is by by a few million Bucks, but.

But we're largely through the year, we'll come back next year, when we give our fourth quarter and full year update to talk more detail about the full year impact and then as far as the other piece, we didn't disclose the transaction details.

Okay.

That's helpful.

The bottom line is that this is the.

The shelf stable in the U S with Green giant canned business is.

The lower margin than our average and so we feel like we can cover within our EBITDA guidance range. We can cover this at a week impact of that coming out.

On a sales basis, that's obviously a little bit larger so we're disclosing what kind of <unk>.

The thing that in terms of our sales guidance.

Got it yep. Thank you.

That's all from us.

Yes.

Your next question comes from <unk> Martinson.

Jefferies. Please go ahead.

Good afternoon, I, just summarize that the asset has been divested divested we're not waiting on any kind of.

Approval.

Complete compressors complete this cynical base.

Okay and today.

With the sale like when we look at lists or Canada can and does this change anything in terms of having.

A more difficult time going to market with scale, a more difficult time with sourcing product or how do you look at the remaining can side of the business.

Honestly the can business in Canada is a completely different business not the same supplier not the same products not the same formulas.

It's really nothing to do with the U S business.

We have a Canadian supplier that supplies everything labeled differently packaged differently, there's no synergies between our U S and Canadian can business.

<unk> is a different business, we actually source that from Seneca.

<unk>.

The green giant canned business.

So we will continue to manage and market that that's actually a nice margin business.

Very differentiated.

It's held up very nicely. So we'll we'll keep we'll keep that business for now I mean in the future maybe that's something that we could divest but it's a reasonably good business I think we can run.

And continues that source.

Thank you very much guys I appreciate it.

Thanks Kurt.

The next question comes from David Palmer of Evercore ISI. Please go ahead.

Thanks, Congrats on the sale.

Casey I would love to get your thoughts about how your strategic vision on Green giant has maybe changed over time it sounds like.

Youre thinking frozen is a bigger part of your future than maybe you might have been thinking in the past and that's.

That's leading to this.

We're selective sale so any thoughts about your future with the category and maybe how you might've warmed up to the green giant frozen side and I thought it was interesting point made before about the <unk>.

Perhaps the smoothing out on inventory.

Effects to your to your free cash flow from this part of the Green giant being sold.

Any can you maybe give us a sense about how much your free cash flow might be smoothed out versus what it was prior thanks. So thanks so much.

DSO on that on that last question.

We should see a significant impact from the smoothing our cash flows without having to finance the inventory as Bruce said, it's gone up and down with how much we bought each year and sometimes we end up buying a lot sometimes we end up by a little but this will make we'll look to make our inventory profile would be a lot smoother, we'll still have some <unk>.

<unk> build to our inventory in Q3, just thinking about moving into the seasonality of it.

Critical oils for Christmas shortening for baking.

Bear Creek dry soup will still have some build but we won't have this inventory from having to buy everything on a seasonal pack once a year that that impact was largely in the can business.

Yeah.

I'm.

This doesn't imply a change in my view of Green giant frozen.

This what this implies an opportunity to divest the green giant canned business.

I don't think we're the good fit with US long term, where we had to carry all this inventory we had in a high interest rate environment and a category that kind of.

As mature and slightly declining and we were the second branded player.

I still have the same questions that we've talked about on frozen.

Our business going forward I believe that we're going to have to fix the economics, which we are making some progress doing right now the category overall is a little soft as you've heard from other other frozen players and we need scale in distribution logistics and our frozen network to make this work because our cost of going to market.

Now I'll, probably a little bit higher than people, who have larger scale and you need that scale to make make it efficient.

So I haven't changed my view on frozen honestly I mean, just to me was the natural buyer for this business makes sense made our balance sheet a little bit cleaner.

Gave us a little bit stronger focus on trying to fix some of the fundamentals on frozen in the meantime, but look I've been pretty clear that where we're driving right now is first and foremost focus on spices and seasonings.

Are you seeing a higher margin business with good trends you saw us we're innovating we're driving that business. We've got good sales growth this quarter good margins.

We've got good plans to keep going on that business. So that's the first place that we want to focus as a company. The second place I've talked about is the.

The meals category, specifically kind of Mexican meals will be highly ortega brands, the Las Palmas brand <unk>.

Driving that getting start renovation, we've kind of upgraded our focus on that business now that Bruce talked about.

That's the second place out of August.

And then third is the specialty business.

I define as businesses that we can run with good stable cash flows stabilizing margins and top lines.

The green giant canned business did not fit that model.

So keeping those kind of businesses and running them well chriscoe as part of that but we're managing that for kind of gross profit and stability over time, and I think doing a good job at that but it looks a little bit different but the specialty business. We would look at that as how do we run those efficiently and well and maybe even acquire some more of those business that we can plug in and run efficiently with good stable cash flow.

<unk>.

And I'll, let high leverage environment.

The question Mark for me is frozen is frozen because I think we have to improve the final economics on the business, we have to figure out how to improve our distribution and frozen network and get a little bit more efficient in order for me to say that's a long term focus for the company. So hopefully that that's clear.

If we if we kind of implied anything else, maybe that maybe that kind of helps you think about the way we drive the portfolio.

That is super helpful. I think I was piecing together some comments you made at a conference previously in the fall and then ran with this what you are doing here and thought maybe you were shifting.

Shifting a little bit more than you were so my apologies for missing separating those two things.

I just wanted to ask Bruce.

And Casey.

Any early.

Read for 2024 that you feel like sharing with us in terms of the key gross margin drivers pricing productivity inflation anything that we should be thinking about for our models, particularly in the first half.

Yes, I mean, I think we'll give you more formal guidance after the fourth quarter release, but I would say right now.

There are some signs that we're picking up already so one is that our our read on inflation right now is like 1% to 2%.

<unk>.

I'm almost doing backflips because given the last two years, that's quite that's quite an improvement. So we have about 1%, 2% inflation. We don't think we'll have a lot of pricing, but there may be some tactical pricing on certain commodities that might be disproportionately going up but broadly I don't think we'll have a ton of pricing, we will a little bit as I.

On the places, where we need to only a good justification.

I personally will also have good we have we are ramping up our productivity.

So we're getting much stronger cost savings, we kind of started that formally last year to really track and measure how much we're driving we're stepping up our expectations next year and we're getting good delivery on that so I expect to see some margin improvement from productivity and I expect to see productivity offset some of that 1% and 2% inflation that we can't cover with pricing.

Yeah.

Honestly I feel pretty good about the track of our businesses most of our businesses.

Chris go honestly I don't know how to call it because it depends on how much oil goes up or down which is where we'll price accordingly.

I would say the only place we got to see kind of.

Improvement in the business to get good solid kind of top line progress, where we want to be in.

Kind of that 1%, 2% range, we need to kind of get the frozen business.

Performing at.

Better than it is now but.

That's kind of what I'm seeing I'm seeing kind of a.

Step more steady state environment that we're heading into next year inflation moderating down to one 2%.

More limit much more limited pricing actions getting back to kind of the fundamentals of driving some of our brands in our portfolio and.

And doing and doing the right things to drive cost savings in the business.

Thank you very much.

Okay.

This concludes the question and answer session I would like to turn the conference back over to Keith Taylor for any closing remarks.

Yeah.

Thank you all for joining us today.

Appreciate your attention to the Q3 results in.

And the announcement of our divestiture of the U S Green giant canned vegetable business.

And we'll talk to you next quarter.

Okay.

This concludes today's conference call you may disconnect. Your lines, Thank you for participating and habits.

[music].

Yes.

Continued P&G foods third quarter 2023 earnings call.

Today's call, which is being recorded.

So that's about one hour, including remarks by BMG Foods' management.

<unk> and answer session I would now like to turn the call over to Amy Schwalm associated corporate strategy and business development from BMG.

<unk>.

Good afternoon, and thank you for joining us.

With me today are Casey Keller, our 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 <unk> 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.

We refer you to BMG for its 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.

<unk> 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 will also be making references on today's call to the non-GAAP financial measures adjusted EBITDA adjusted net income adjusted diluted earnings per share and base business net sales.

Reconciliations of these financial measures to the most directly comparable GAAP financial measures are provided in today's earnings release.

Bruce will then discuss our financial results for the third quarter 2023, and our guidance for fiscal 2023.

I would now like to turn the call over to Casey.

Good afternoon, Thank you a J.

And thank you all for joining us today for our third quarter 2023 earnings call.

<unk> third quarter results continued strong margin recovery with adjusted EBITDA as a percentage of net sales, increasing 80 basis points versus last year to 16%.

Gross profit as a percentage of net sales excluding items affecting comparability increased 230 basis points versus last year to 22, 7% demonstrating continuing recovery of higher inflationary costs through pricing and productivity efforts.

During the third quarter, we lapped most of the pricing actions taken in 2022.

Turning to sales performance base business net sales, which excludes the divested back to nature of business were down 3% versus last year, but slightly up or roughly flat without the chriscoe brand, where we proactively reduced pricing to reflect lower soybean oil commodity costs, while maintaining gross profit.

Overall, many of our brands delivered solid performance, despite the uncertain environment of higher pricing and pandemic normalization.

The exception was the green giant business across frozen and canned vegetables, which was down significantly versus last year.

Excluding green giant and Chris go the remaining businesses increase net sales plus four 7% versus third quarter of last year.

Some more detail on the business performance across brands and categories.

Spices and seasonings.

High margin spices, and seasonings portfolio increased net sales plus six 1% versus last year.

Trends were particularly strong on the foodservice and members Mark Sam's label business, which largely served out of home and small business customers.

The core retail branded trend Dash Weber Spice Island et cetera were mixed impacted by temporary service and production issues in our Anthony spices, and seasonings factory, which has now been resolved.

We also launched new seasoning and grilling blends under the Buffalo trades, Fireball and southern comfort brands in select customers, which are performing very well and initial distribution.

Chris go.

Chriscoe net sales decline resulted from a 15% list price reduction in August.

Distant with our commodity pricing model on the brand.

Soybean oil costs are down significantly about 20 per pound versus Q3 last year, which we pass through to consumers, while maintaining gross profit dollars.

Chris go while key bottle size unit price has now largely below the key $5 and $6 thresholds and market and we are seeing healthy unit volume increases in recent weeks scanner data.

Green giant.

Green giant canned and frozen vegetable trends were the weakest in the portfolio during Q3.

Canned vegetables price promotion activity has increased with excess industry wide supply prior to the new season pack and we have increased trade spend to remain competitive.

The frozen vegetable category has been impacted by a compression of price differential between frozen and fresh vegetables, as the result of improved fresh supply and cost.

Further although the green giant frozen portfolio has improved product margins and mix the rice vegetable skus face increased competition and price pressure from private label entrance.

Supply and service on a companywide basis customer service and fill rates continued to improve averaging 97% during the quarter.

One exception with spices and seasonings with some temporary disruption we are on track to deliver a 97%, 98% CFR our long term target before year end.

Inventory.

Turning to inventory as of the end of the third quarter compared to the ended the third quarter of last year total inventory decreased by $79 million to $726 million before the impact of the reclassification to assets held for sale and partial impairment of Green giant U S shelf stable inventory.

We are well on track to deliver lower inventories year on year at the end of Q4 the.

The major drivers are union inefficiencies, lower soybean oil costs and a smaller seasonal pack on the lesser of shelf stable.

Versus last fall.

Cash flow.

Cash generation continues to be strong in Q3 net cash from operations was $23 $3 million in Q3, increasing from negative $69 5 million or a use of cash last year.

With year to date net cash from operations of $155 $7 million.

Pro forma adjusted net leverage was $6 five two times down from $6 seven four times at the end of Q2.

We are on track to continue to reduce our leverage ratio by the end of 2023, driven by adjusted EBITDA recovery lower working capital inventory needs and debt reduction from available cash flow year.

Year to date, we have reduced net debt by over $210 million.

For fiscal year net sales, we are revising guidance to remove November December green giant use can sales recognized lower critical oil pricing as well as reflect a slower recovery on that green giant frozen business.

Bruce will provide more specifics on sales guidance.

Finally pertaining to green giant we announced the sale and divestiture of the U S Green giant canned vegetable product lines to Seneca foods earlier today.

This divestiture is a critical step in our efforts to focus the portfolio on categories and brands, where we can drive valuation growth consistent with our choices resources and capabilities.

Canned vegetables are mature category with high working capital needs. The seasonal profit inventory is packed in held for the entire year.

The can business required us to increase debt to finance evil inventory build with almost no synergies with the green giant frozen portfolio.

We expect that the green giant canned vegetable divestiture will modestly increase overall margins and modestly reduce leverage.

The divestitures of back to nature, and Green giant canned vegetables are critical steps on that journey, we have a targeted list being actively worked to reshape and focus the portfolio with the expectation that the proceeds from any divestitures would primarily be used to reduce long term debt.

Thank you and I will now turn the call over to Bruce for more detail on our quarterly performance and outlook for the year.

Thank you Casey and good afternoon, everyone. Thank you for joining us on our third quarter 2023 earnings call.

As we told you when we began the year, we expected to see large year over year increase in adjusted EBITDA and adjusted EBITDA as a percentage of net sales in the first two quarters of this year.

<unk> by a more modest increase in adjusted EBITDA and adjusted EBITDA as a percentage of net sales in the third quarter.

And that is pretty much where we stand today through the first nine months of the year.

In the third quarter of 2023, we generated $502 $7 million of net sales.

$84 million and adjusted EBITDA adjusted EBITDA as a percentage of net sales of 16% and adjusted diluted earnings per share of <unk> 27.

Base business net sales, which excludes the back to nature brand decreased by approximately $15 6 million.

Or 3% in the third quarter of 2023 compared to the year ago period.

Base business net sales, excluding Chris go where we have lowered price due to decreases in soybean oil costs were up $6 million or 0.2%.

Our base business net sales remain robust despite the year over year declines.

And we are essentially flat to the third quarter of 2021.

We have now lapped many of the larger price increases while also reducing price on our chriscoe vegetable oil and shortening products and increasing trade spend on green giant in Luzon canned vegetable products.

As a result, the impact of pricing was a reduction to net sales of $1 1 million.

<unk> added another $1 $3 million reduction in volumes contributed to the remaining $13 2 million of the decrease.

Our pricing strategy for both Chris going Green giant shelf stable appears to be working as both of the businesses saw increased volumes in the back half of the quarter.

Baird to 15, 2% in the prior year period.

Adjusted EBITDA increased slightly to $84 million in the third quarter of 2023 from $82 million in the prior year period.

Net sales were mixed across the portfolio.

Clabber Girl has continued its strong showing this year as we head into the banking system.

Some really incredible momentum.

<unk> increased net sales by approximately $8 1 million or 31, 5% in the third quarter of 2023 compared to the prior year period.

New York style is continuing to have an excellent year and was up by $1 2 million or 18, 5% in the third quarter of 2023 compared to the prior year period.

Our spices and seasonings business is off to a strong start in the second half of the year and was up $5 3 million or six 1% in the third quarter of 2023 compared to the year ago period.

Improving fill rates and strong demand have been drivers of performance in our spices and seasonings business and we have now lapped some of the noise in the early portion of this year.

We are back to basics in our core space business with strong execution across the portfolio. While also generating some real excitement in the category through our new licensed brand launches such as Einstein's avocado dosed, Texas Roadhouse, SaaS, <unk> Weber flavors, Buffalo trees, fireball and southern comfort.

Stay tuned as we look to build off this momentum with additional launches in 2024.

Victoria had a strong second quarter in a row and increased net sales by.