Q1 2024 B&G Foods Inc Earnings Call
[music].
Good day and welcome to the PNG Foods first quarter 2024 earnings call.
Today's call is being recorded.
Scheduled to last about one hour including remarks.
Drew its management and the question and answer session.
I'd now like to turn the call over to AG Schwab.
AJ Schwabe: <unk> corporate strategy and business development will be in Japan, Hey, Jay.
AJ Schwabe: Good afternoon, and thank you for joining us.
AJ Schwabe: With me today are Casey Keller, our Chief Executive Officer, and Bruce Walker, Our Chief Financial Officer.
AJ Schwabe: You can access detailed financial information on the quarter and the earnings release, we issued today.
AJ Schwabe: Which is available at the Investor Relations section of BGC Dot com.
AJ Schwabe: Before we begin our formal remarks I need to remind everyone that part of the discussion today includes forward looking statements.
AJ Schwabe: These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them.
AJ Schwabe: We refer you to <unk>. Most recent annual report on Form 10-K, and subsequent SEC filings for more detailed discussion of the risks that could impact our company's future operating results and financial conditions.
<unk> undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise.
AJ Schwabe: We will also be making references on today's call to the non-GAAP financial measures adjusted EBITDA.
AJ Schwabe: <unk> adjusted EBITDA.
AJ Schwabe: Adjusted net income adjusted diluted earnings per share.
AJ Schwabe: Adjusted gross profit.
AJ Schwabe: Adjusted gross profit percentage and base business net sales.
AJ Schwabe: 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 the various factors that affected our results selected business highlights and his thoughts concerning the outlook for the remainder of fiscal 2024.
AJ Schwabe: Bruce will then discuss our financial results for the first quarter 2024.
Bruce C. Wacha: Our guidance for fiscal 2024.
Speaker Change: I would now like to turn the call over.
Speaker Change: Okay.
Casey: Good afternoon. Thank you a J and thank you all for joining us today for our first quarter 2024 earnings call.
Bruce: In my remarks, I will address three topics on the call today.
Speaker Change: First an overview of first quarter results.
Speaker Change: Bruce will provide more detail and color later in the presentation.
Speaker Change: Second the reporting segment results for the first time by our four business units.
Speaker Change: And third an update on our portfolio reshaping plans and activity.
Speaker Change: Quarter one results.
Speaker Change: First quarter net sales of $475 $2 million and adjusted EBITDA of $75 million were slightly below expectations.
Speaker Change: Base business net sales adjusted to exclude the year over year impact of lower critical oil pricing.
Speaker Change: Creased by approximately $17 million or three 4% compared to the year ago period.
Speaker Change: Much of the decline within our foodservice and industrial businesses across spices and seasonings.
Speaker Change: Maple Grove farms, Europe's banking patterns and oils and <unk>.
Speaker Change: Tigger cheese and other sources.
Speaker Change: The declines reflect an overall slowdown in adequately traffic and volumes compared to fiscal year 'twenty three trends.
Speaker Change: Net sales to retail customers across the business units were slightly down approximately one 5% with relatively flat volumes offset by a modest increase 90 basis points in trade and promotional spending.
Speaker Change: Adjusted EBITDA for the first quarter decreased by $7 4 million compared to the first quarter of 2023.
Speaker Change: The divestiture of the Green giant shelf stable product line with responsible for approximately $1 $5 million of the year over year decline.
Speaker Change: Adjusted EBITDA as a percentage of net sales for the first quarter was 15, 8%.
Speaker Change: Largely in line with the $16, 1% achieved in the prior year period.
Speaker Change: On a consolidated basis gross profit as a percentage of net sales for the quarter was up 60 basis points versus last year.
Speaker Change: We continue to see moderating inflation and some favorability in transportation and warehousing.
Speaker Change: Although these were offset by increased G&A cost for insurance and salary wages as well as higher advertising and marketing investment in the quarter versus last year.
Speaker Change: Yes.
Speaker Change: Segment reporting.
Speaker Change: This is the first quarter P&G foods is reporting results by operating segments, providing greater visibility into the underlying performance of the Companys business units.
Speaker Change: The segments represent the four operating business units that we recently reorganized the company structure into.
Speaker Change: Business units are now fully established running their businesses and actively managing the business unit P&l's.
Speaker Change: Across the four business units, we maintain a lean corporate structure, approximately 4% to 5% of net sales to maintain oversight inefficiency and trend and share transactions or operations are you sales distribution order processing et cetera.
Speaker Change: The four business units are.
Speaker Change: Spices and flavor solutions.
Speaker Change: This segment represents approximately 20% of our consolidated net sales and has our highest segment adjusted EBITDA as a percentage of net sales at 30%.
Speaker Change: <unk> foods is a leader in the spices and seasoning category with key brands Dash wherever grilling Spice islands accident et cetera.
Speaker Change: During the first quarter spices that flavor solutions net sales were depressed by a significant decline in foodservice business with key distributors and customers.
Speaker Change: Sales to retail customers were up slightly in the quarter.
Speaker Change: We are also launching a new line of licensed seasoning and grilling glands under the four six as brand, which is the new show and ranch featured in the Yellowstone television franchise.
Speaker Change: Meals.
Speaker Change: The meal segment represents approximately 25% of our consolidated net sales with segment adjusted EBITDA as a percentage of net sales of 21, 4%.
Speaker Change: The key components of this business unit, our Mexican meals.
Speaker Change: They got lost Thomas and Hot breakfast cream of wheat, Mccann's Maple Grove farms as heroes.
Speaker Change: We see growth opportunities in Mexican meal preparation as consumers expand their Mexican cuisine options in the home.
Speaker Change: The first quarter meals segment net sales decline was driven by lower foodservice sales, while net sales to retail customers were roughly flat.
Speaker Change: Specialty the specialty segment represents approximately 33% of our consolidated net sales with segment adjusted EBITDA as a percentage of net sales of approximately 24%.
Speaker Change: The primary focus of this business unit is baking staples about 70% of business unit sales.
Speaker Change: With leading number one brands such as critical oil and shortening clabber girl baking powder Grandma's molasses et cetera.
Speaker Change: Taking both from scratch and mix has remained relatively stable over time with more consumers learning today from scratch during Covid lockdowns.
Speaker Change: Specialty segments key objective is to maintain strong stable cash flow and margins.
Speaker Change: Specialty segment adjusted EBITDA was up slightly in the first quarter.
Speaker Change: Frozen vegetables.
Speaker Change: The frozen and vegetable segment represents approximately 22% of our consolidated net sales with the lowest segment adjusted EBITDA margin as a percentage of net sales of seven 5%.
Speaker Change: The frozen vegetables business unit includes the U S Green giant frozen business.
Speaker Change: Canada Green giant frozen and canned business is a major portion of our company's consolidated candidate sales.
Speaker Change: And the Le Sueur canned vegetable product line the <unk>.
Speaker Change: <unk> focus of our frozen vegetable business unity is to improve gross profit margins strengthen the innovation pipeline streamline the frozen distribution network and grow volumes in <unk> Mexico.
Speaker Change: In Yuma, Arizona manufacturing facilities.
Speaker Change: First quarter frozen and vegetable segment net sales reflect overall softness in the frozen vegetable category with much of the segment adjusted EBITDA declined year over year attributed to the divestiture of the U S Green giant canned business last November.
Speaker Change: Portfolio shaping.
Speaker Change: P&G Foods has continued and will accelerate the reshaping and restructuring of our portfolio to sharpen focus.
Speaker Change: Prove margins and cash flow and maximize future value creation.
Speaker Change: The divestiture of the Green giant canned vegetable business was completed last fall following the sale of the back to nature brand in January 2023.
Speaker Change: As previously disclosed we have been evaluating and working on divestitures that represent between 10% to 15% of total company net sales.
Speaker Change: That process on smaller brands is proceeding and we expect to possibly sell some assets before the end of fiscal year 'twenty four.
Speaker Change: Beyond those efforts the larger decision on whether to remain in frozen long term has been an open question.
Speaker Change: After careful analysis, we are placing the frozen and remaining canned vegetable businesses under strategic review and are evaluating a possible divestiture and sale of some or all of the assets and the frozen and vegetable business unit.
Speaker Change: Green giant remains a strong brand with broad awareness and distribution in the frozen vegetables category is on trend with long term health and dietary trends.
Speaker Change: However, I believe the frozen vegetable business may not be the right fit with <unk> foods focus and capabilities.
Speaker Change: Particularly since we have no plans to add more assets in the frozen portfolio given the opportunities in our core shelf stable businesses and overall capital constraints.
Speaker Change: More to come as we further evaluate our options and plans.
Speaker Change: Thank you and I will now turn the call over to Bruce for more detail on our quarterly performance and outlook for the year.
Bruce C. Wacha: Thank you Casey good afternoon, everyone.
Bruce C. Wacha: As a reminder, and before I get into our results, we sold our green giant U S shelf stable product line last fall and so we are lapping the first quarter of 2023 results that had that business.
Bruce C. Wacha: The Green giant U S shelf stable.
Bruce C. Wacha: <unk> had $14 $6 million of net sales and approximately $1 million to $2 million of contribution in last year's first quarter.
Bruce C. Wacha: In the first quarter of 2024.
Bruce C. Wacha: We generated $475 $2 million in net sales.
Speaker Change: $75 million and adjusted EBITDA adjusted.
Speaker Change: Adjusted EBITDA as a percentage of net sales of 15, 8% and 18.
Speaker Change: And adjusted diluted earnings per share.
Speaker Change: Base business net sales, which excludes the green giant U S shelf stable product line decreased by $22 million or four 4% in the first quarter of 2024 compared to the year ago period.
Speaker Change: The decrease in base business net sales was driven by approximately $5 million from the execution of our Chriscoe pricing model that reflected a decrease in soybean oil costs and allowed us to pass this benefit back to consumers.
Speaker Change: In the form of lower pricing.
Speaker Change: Approximately $10 million was from lower foodservice and industrial net sales across multiple business segments and brands.
Speaker Change: And the remaining six plus million dollars of the decrease was partially driven by lower net sales to our retail customers that were largely the result of modest increases in promotional trade spend and relatively flat volumes.
Speaker Change: Gross profit was $108 9 million for the first quarter of 2024 or approximately 22, 9% of net sales.
Speaker Change: Adjusted gross profit, which excludes the negative impact of the $1 million of acquisition divestiture related expenses and nonrecurring expenses, including the cost of goods sold during the first quarter of 2024 was $109 $9 million or 23, 1% of net sales.
Speaker Change: Gross profit was $114 $2 million for the first quarter of 2023 or 22, 3% of net sales.
Speaker Change: Adjusted gross profit, which excludes the negative impact of $7 million of acquisition divestiture related expenses and nonrecurring expenses included in the cost of goods sold during the first quarter of 2023 was $114 9 million or 22, 4% of net sales.
Speaker Change: While we are continuing to see input cost inflation with regards to a material goods and our factory production the.
Speaker Change: The cost increases have been modestly flat thus far this year.
Speaker Change: And offset in part by continued moderation in certain costs like soybean oil and Tomatoes that saw the greatest increases in 2022 and 2023.
Speaker Change: Separately, we are also continuing to see favorability in our logistics costs. Although these benefits are much more modest on a rate basis than they were a year ago.
Speaker Change: Selling general and administrative expenses increased by $1 9, million% to 4% to $48 6 million for the first quarter of 2024 from $46 7 million for the first quarter of 2023.
Speaker Change: The increase was composed of increases in general and administrative expenses of $2 million.
Speaker Change: Consumer marketing expenses of $1 $6 million and.
Speaker Change: <unk> divestiture and nonrecurring expenses of $1 $1 million.
Speaker Change: Partially offset by decreases in selling expenses of $1 million and warehouse expenses of <unk> $8 million.
Speaker Change: Expressed as a percentage of net sales SG&A expenses increased by approximately 110 basis points or 10, 2% for the first quarter of 2024 as compared to nine 1% for the first quarter of 2023.
Speaker Change: The increase in general and administrative cost was largely driven by modest inflation in wages insurance and other professional services.
Speaker Change: As I mentioned earlier, we generated $75 million and adjusted EBITDA or 15, 8% of net sales in the first quarter of 2024 compared to $82 4 million or 16, 1% in the first quarter of 2023.
Speaker Change: Approximately $1 million to $2 million of the decrease in adjusted EBITDA was the result of the divestiture of the Green Giant U S shelf stable product line, which we sold last fall.
Speaker Change: The remainder was largely driven in proportion by a decline in our net sales.
Speaker Change: Net interest expense was $37 8 million in the first quarter of 2024 compared to $39 4 million in the first quarter of 2023.
Speaker Change: The decrease was primarily attributable to a reduction in average long term debt outstanding and the accelerated amortization of deferred financing costs related to long term debt prepayments during the first quarter of 2023.
Speaker Change: Partially offset by slightly higher interest rates on our long term debt compared to the first quarter of 2023.
Speaker Change: Depreciation and amortization was $17 2 million in the first quarter of 2024 compared to $18 million in the first quarter of last year.
Speaker Change: We had a net loss of $40 $2 million or <unk> 51.
Speaker Change: Per diluted share and adjusted net income of $14 $4 million or <unk> 18.
Speaker Change: Per diluted share in the first quarter of 2024.
Speaker Change: Compared to net income of $3 $4 million or <unk> <unk> per diluted share.
Speaker Change: And adjusted net income of $19 1 million or 27 cents per diluted share in the first quarter of last year.
Speaker Change: The net loss and diluted loss per share and our GAAP results were driven by a write down of goodwill that was allocated to our frozen vegetable business unit as part of our reorganization into four operating segments and as described further in our press release and 10-Q.
Speaker Change: Casey I already described the units and I recommend investors review, our press release and 10-Q for additional information.
Kenneth Charles Keller: I would like to now touch on the results.
Kenneth Charles Keller: Net sales for the specialty segment decreased $7 9 million or four 9% for the first quarter of 2024 to $154 $7 million.
Kenneth Charles Keller: From a $162 6 million in the year ago quarter.
Kenneth Charles Keller: The decrease was primarily due to lower chriscoe pricing.
Kenneth Charles Keller: Driven by softening commodity costs, coupled with declines in foodservice and industrial sales.
Kenneth Charles Keller: Specialty segment, adjusted EBITDA increased by $7 million or one 9% for the first quarter of 2024 compared to the first quarter of 2023.
Kenneth Charles Keller: Net sales for the meal segment decreased $1 $9 million or one 6% for the first quarter of 2000 $24 million to $120 million.
Kenneth Charles Keller: From $121 9 million for the first quarter of 2023.
Kenneth Charles Keller: The decrease was primarily due to lower net sales in foodservice.
Kenneth Charles Keller: The meals segment, adjusted EBITDA decreased by $6 million or two 3% compared to the first quarter of 2023, which was in line with the decrease in net sales.
Kenneth Charles Keller: Excluding the impact of the divestiture of the Green giant use shelf stable product line, which we sold last fall net sales of the frozen vegetables segment decreased by $6 7 million or 6%.
Kenneth Charles Keller: Although increased promotional trade.
Kenneth Charles Keller: Support helped grow our bag in a box or PID product line during the quarter some of the other parts of the frozen business fared less well.
Kenneth Charles Keller: Frozen and vegetable segment, adjusted EBITDA decreased by $2 $7 million compared to the prior year period.
Kenneth Charles Keller: Approximately $1 million to $2 million of that decline was due to the divestiture of the green giant U S shelf stable product line with the remainder driven by the decline in net sales.
Kenneth Charles Keller: Net sales for the spices and flavor solutions segment decreased by $5 $4 million or five 4% in the first quarter of 2024 to $95 6 million from $101 million in the first quarter of 2023.
Kenneth Charles Keller: The decrease was primarily due to lower net sales in foodservice.
Kenneth Charles Keller: The spices and flavor solutions segment, adjusted EBITDA decreased $2 million or six 6% in the first quarter of 2024 compared to the first quarter of 2023.
Speaker Change: Now I'd like to spend some time on our cash flows and balance sheet.
Speaker Change: We generated $35 $1 million of net cash from operations in the first quarter of 2024 compared to $69 $5 million of net cash from operations generated in the first quarter of last year.
Speaker Change: Our net cash from operations was actually quite strong despite the year over year decrease when compared to the first quarter of 2023.
Speaker Change: While we are continuing to bring inventory down our net cash from operations benefited from a more modest decrease in inventory of $8 $2 million. During this year's first quarter, while net cash benefited from a decrease in inventory of $28 $2 million in a year ago period.
Speaker Change: As a reminder, last year's first quarter benefited from a sell down of the seasonal pack for the Green Giant U S shelf stable business that we divested last fall.
Speaker Change: We finished the first quarter of 2024 with approximately $560.
Speaker Change: $6 million of inventory compared to $569 million of inventory at the end of 2023 and $700 $9 million at the end of the first quarter of 2023.
Speaker Change: The timing of interest payments also affected our cash flows for the quarter. The new senior secured notes that we issued last fall had an interest payment in Q1 of this year, while the 2025 unsecured notes, which were then partially refinance have an interest payment in Q2.
Speaker Change: We reduced debt by more than $10 million during the first quarter of 2024.
Speaker Change: And we have now reduced net debt by approximately $250 million since the end of the first quarter of 2023.
Speaker Change: Our pro forma adjusted net leverage ratio as defined in our credit agreement was approximately 635 times at the end of the first quarter of 2024.
Speaker Change: In line with our year end results and significantly better than the seven two times at the end of last year's quarter.
Speaker Change: We expect it to continue to reduce our net debt and pro forma adjusted net leverage ratio throughout fiscal 2024 and beyond as we diligently work toward achieving our long term target of four five to five five times.
Speaker Change: As noted in our earnings press release, we are revising our fiscal 2020 for guidance.
Speaker Change: 219 hundred 55 billion to $1 95 billion for net sales.
Speaker Change: $300 million to $320 million for adjusted EBITDA.
Speaker Change: And 75 to 95 for adjusted diluted earnings per share.
Speaker Change: We believe that the revised guidance better reflects the emerging challenges in foodservice and a more gradual recovery in net sales to retail customers.
Speaker Change: With improvement expected in the second half of this year.
Speaker Change: We do expect continued volume improvement throughout the year and ourselves to retail customers and less of a drag on net pricing as we will lap our increased trade promotional spending efforts beginning in Q3 of this year.
Speaker Change: Additionally, we expect for full year 2024 interest expense of $145 million to $150 million, including cash interest expense of $138 million to $143 million.
Speaker Change: Depreciation expense of 47, five to 52 and a half million dollars.
Speaker Change: Amortization expense of $20 million to $22 million.
Speaker Change: An effective tax rate of 26% to 27%.
Speaker Change: Capex of $35 million to $40 million.
Speaker Change: We expect to use approximately 50% of our excess cash to pay our dividends and the remaining 50% to pay down debt.
Speaker Change: Now I'll turn the call back over to Casey.
Kenneth Charles Keller: For further remarks.
Kenneth Charles Keller: Yeah.
Kenneth Charles Keller: Thank you Bruce.
Kenneth Charles Keller: In closing our first quarter results demonstrated consistent margins and moderating inflation.
Kenneth Charles Keller: With declines in net sales driven by foodservice trends and increased promotional spend.
Speaker Change: We expect foodservice trends to be soft through the first half of the year with a corresponding pickup pickup in at home consumption trends in the back half.
Speaker Change: We are also accelerating efforts to reshape and clarify the portfolio through the reporting our business unit segments and the strategic evaluation of the remaining green giant frozen and canned vegetable business in the U S and Canada.
Speaker Change: This concludes our remarks and now we would like to begin the Q&A portion of our call operator.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: Have a question. Please press the star followed by the one I know touched on filing you will hear today Telecom technology, you will request.
Speaker Change: <unk> will be taken into your order receipt.
Speaker Change: If you wish to cancel your request. Please press star followed line of Gela.
Speaker Change: Using a speaker phone please lift answered before pressing any case.
Speaker Change: Once again that is star one should you wish to ask a question.
Speaker Change: And your first question is from Rocky Mount Vernon Reuter from Bank of America. Please ask your question.
Speaker Change: Good afternoon.
Speaker Change: My first question is it sounds like really the majority of the weakness is in the foodservice component to the business what percentage of that.
Speaker Change: What percent is foodservice represent of total sales.
Speaker Change: About 14%.
Speaker Change: On average an average quarter would be about 14% of our sales foodservice.
Speaker Change: Okay.
Speaker Change: And I guess, you made some commentary about expectations.
Speaker Change: We'll kind of see improving trends in retail as the year goes on is is that on a unit basis or on a dollar basis and I guess is that from conversations with retailers are just expectations about economic recovery.
Speaker Change: So theres a couple of things going on on the retail side of the business.
Speaker Change: The first one is volumes have stabilized and so we're seeing in consumption kind of flattish volumes.
Speaker Change: We believe there will be a pickup over time, particularly if you see continued softness in foodservice and so that's part one and thats probably not as strong as initially expected it to be at this point, but it's hanging in there fine and then the other part.
Speaker Change: Pricing, which in this case is promotional trade spending people are re layering that spend back into the business. It's still below pre pandemic levels, but it's inching higher and we really started to dial that up last year, beginning in the third quarter and so we're lapping.
Speaker Change: First quarter and second quarter.
Speaker Change: This year, where we had very big pricing benefits last year, and now a higher level of traits that but we'll be lapping a lot of that activity.
Speaker Change: We layered in last year as we work towards the back half of this year.
Speaker Change: Got it and then just lastly for me.
Speaker Change: I don't think you've disclosed this thus far but the frozen and canned veggie businesses that remain in the U S and Canada.
Speaker Change: Evaluating.
Speaker Change: Can you share what the sales or EBITDA those are.
Speaker Change: Yes, essentially.
Speaker Change: Within the segment reporting it's essentially that.
Speaker Change: Almost the entire frozen vegetables business unit.
Speaker Change: So a little bit less than $400 million in annual net sales, we haven't disclosed profits for the full year. We're just rolling out in the segment profits as we execute quarter by quarter.
Speaker Change: So we reported basically $105 million of net sales for the frozen vegetables business unit in the first quarter.
Speaker Change: Got it I guess, where the first quarter margins representative of what they are for the year or is there seasonality.
Speaker Change: We disclosed the first quarter margins, we haven't disclosed for the remainder of the year, yet and part of this is we're not we haven't operated the business on a full year on these business units and so this is an evolution for us and we are.
Speaker Change: Sure the quarterly information at euros group, yes.
Speaker Change: It's not too far up being reasonably with represented within a certain range.
Speaker Change: Got it okay. That's all for me. Thank you.
Speaker Change: Thank you.
Speaker Change: Next question is from Michael Lavery from Piper Sandler. Please ask your question.
Michael Scott Lavery: Thank you and good afternoon.
Michael Scott Lavery: Tom.
Michael Scott Lavery: Just was.
Michael Scott Lavery: Curious how to think about.
Speaker Change: Canada.
Speaker Change: Hypothetically you were to divest.
Speaker Change: Frozen vegetables.
Speaker Change: Is there an upscale excluding that piece of the business is there.
Speaker Change: Some way that how you think about one gets tied to the other.
Speaker Change: It is sort of Canada get left after a potential.
Speaker Change: We've had we've had a Canadian business that predated green giant we continue to have one after this transaction, obviously green giant as a significant portion of the sales in Canada, but we still expect this Canadian business.
Speaker Change: We would probably not have maintained the same infrastructure.
Speaker Change: Okay makes sense, that's helpful and just at a high level on the portfolio.
Speaker Change: You've historically had a good track record of.
Speaker Change: Buying cash generative businesses.
Speaker Change: That seemed at least a little bit category agnostic.
Speaker Change: Identified now how frozen may not fit in.
Speaker Change: You've got a segment view, that's a little bit different.
Speaker Change: Maybe just.
Speaker Change: At the total portfolio high level is there sort of an end game of.
Speaker Change: How you want to evolve is it is it is it taking on a little bit more of a growth focus or.
Speaker Change: Still sort of value cash generative focus or.
Speaker Change: Somewhere in between maybe just the latest on that.
Speaker Change: <unk> strategy of the portfolio in its entirety.
Speaker Change: Yes so.
Speaker Change: Two or three.
Speaker Change: Remaining business units, if we were to sell off the frozen vessels.
Speaker Change: I think there are three different profiles here, so spices and seasonings. We said, we wanted that to be a high margin.
Speaker Change: Low single digit growth business, and we believe that we can get there the issues. This quarter were really more around the foodservice business, but we think for the year were going to be on track to driving growth in that business and maintaining strong margins.
Speaker Change: The meals business, we also want to see some low wells, we want to see low single digit growth on the top line and we're getting there again it was a little bit hampered by the foodservice trends this quarter, but our goal is to get that into low single digit growth as well the.
Speaker Change: The specialty business, which is largely focused around baking staples. We wanted to just whether that business is largely to maintain mode and making sure that we maintain.
Speaker Change: Cash flows stable margins et cetera, not expecting a lot of growth out of that portfolio, but.
Speaker Change: Stability over time, and if you think about those three business units.
Speaker Change: They fit our capabilities, we've got some scale whether it's in.
Speaker Change: Spices seasonings.
Speaker Change: <unk> with the Mexican focus or baking, we've got some scale.
Speaker Change: Think we could add acquisitions to those platforms and do good things with them and maintain strong cash flow and in the cases of the spices business unit and the meals business I think we can drive growth even with acquisitions over time, so it's a little bit of a mixed bag, but that's how we think about those three business units.
Speaker Change: Frozen vegetables, and the long term I think frozen vegetables.
Speaker Change: Is a decent category to be in the frozen category has historically been a good category has not recently the trend has recently been a little tougher but it is on trend as is vegetables I. Just don't believe that frozen is the right fit for our capabilities and focus going forward.
Speaker Change: Okay really helpful color. Thanks.
Speaker Change: Thank you. Our next question is from Jim.
Karru Martinson: <unk> Martinson from Jefferies. Please ask your question.
Karru Martinson: Good afternoon.
Karru Martinson: When we look at the flat volume with a modest step up in promotion you know is that the consumer just kind of coming to expect the promotional cadence.
Jim: To increase looking for value and kind of what's the private label response been for you guys.
Speaker Change: I think the step up in promotion and as Bruce said, its really going to be probably more of a first half phenomenon. Because we did begin to step up promotion activity or promotion spend in the back half of last year.
Karru Martinson: I think its two things one is a little bit more competitive promotion environment.
Karru Martinson: Out there I think you're probably hearing that from other players too it's not it's not higher than it was pre pandemic, but it's getting back to kind of a normal cadence of where it was there.
Karru Martinson: In some categories. There in some category is still a little bit lower than it was pre pandemic, but we're seeing the resumption of normal promotional activity that's been kind of gradually building over the last 18 to 24 months.
Karru Martinson: The second thing is that in that extreme pricing environment. We're also trying to manage in a couple of our categories.
Karru Martinson: Gap to private label, so like for instance, in Green giant frozen vegetables.
Karru Martinson: In our core bags and bag in box, we want to maintain a certain kind of.
Karru Martinson: GAAP or a price gap to private label. So we've been kind of refining it holding that and largely that <unk> been doing that with a little bit of trade spend to get to the right price points you either in promotion or end.
Karru Martinson: Everyday price. So I think it's really those two things kind of a resumption of normal promotional activity in the environment and second.
Karru Martinson: Managing our price gaps in a couple of categories principally.
Karru Martinson: Green giant frozen vegetables, and Chris go although Chriscoe, we're kind of just passing through the change in oil price up and down, but we watch that gap pretty closely and Chris go as well.
Karru Martinson: On the shorter side.
Karru Martinson: Okay.
Karru Martinson: When we look at the other potential divestitures that 10% to 15% of sales.
Karru Martinson: The kind of the time Horizon, you mentioned hopefully get some of those done.
Speaker Change: Just wanted to get a sense of the scale or magnitude of that youre looking at here.
Speaker Change: Yeah I think.
Speaker Change: Probably less is more here, we're working on a couple of things, but M&A is just always tricky to predict from a timing or exactly what so.
Karru Martinson: Stay tuned and it's probably.
Karru Martinson: Things that would make sense after after analysis, assuming that or anything just like the back to nature and again green giant business in the U S.
Karru Martinson: But we are working on it one or two smaller divestitures.
Karru Martinson: Net.
Karru Martinson: We would like to move along at some point, but that's a much smaller scale that not even the 10% to 15% probably even less of that beyond that.
Karru Martinson: Larger green giant discussion, we had today about putting it under review.
Speaker Change: Thank you very much guys I appreciate it.
Speaker Change: Thank you. Our next question is from Robert Moskow from Genie Cowen. Please ask your question.
Robert Moskow: Hey, Thanks for the question.
Robert Moskow: I just want to clarify that the back half of the year, you're assuming just easier comparisons on your pricing.
Robert Moskow: Youre not expecting any kind of change in the consumer.
Robert Moskow: Behavior like a stronger consumer that will boost volumes.
Robert Moskow: Just wanted to make sure.
Speaker Change: Yes, Rob on the margins, maybe yes, but not in a big way.
Speaker Change: Okay I think in the fall.
Speaker Change: What are the most for the most part we expect easier comps.
Speaker Change: We are.
Speaker Change: Historically, what's happened when foodservice traffic has gone down and you see a little bit of in home consumption pick up but we're not counting on it very much.
Speaker Change #147: Right Okay.
Speaker Change #148: And then the other question was I thought I heard you say that frozen.
Speaker Change: If $400 million in sales, maybe I misheard, but then the divestiture that you are evaluating is 10% to 15% of sales which is less than 400.
Speaker Change: Different things I think before we were talking about smaller divestitures.
Speaker Change: That represented about 10% to 15%, which would have been things like back to nature et cetera, and we're still working on a small list of those within that 10% to 15%.
Speaker Change: The news today is that we're considering a larger divestiture beyond that 10% to 15% pruning that would be the green giant are the frozen vegetables business.
Speaker Change #149: Okay. So I mean.
Speaker Change: When you are said and done it could be as much as.
Speaker Change: 30% of the portfolio that you use.
Speaker Change: The exit.
Speaker Change: Okay.
Speaker Change #150: Yes, okay.
Speaker Change: And one last quick one probably a little probably a little less than that but yes.
Speaker Change: Okay.
Speaker Change: And then last question within <unk> are there any specific channels to kind of call out restaurants versus institutions or schools that are causing the decline or is it just kind of a broad foodservice decline.
Speaker Change: We're just seeing a broad decline in traffic.
Speaker Change: And orders coming from largely go through distributors, we do have one or two direct customers that we get I don't want to specifically talk about some of our customers that we know they've had traffic declines and other things, but we're kind of following the general industry trend that you've probably seen about foot traffic being down a lot of out of home.
Speaker Change: Establishment.
Speaker Change: Yes.
Speaker Change: Great. Okay. Thank you.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question is from <unk>.
Speaker Change: <unk> from Jpmorgan. Please ask your question.
Jpmorgan: Hi, a couple of follow ups on that foodservice.
Speaker Change: Or is one segment.
Jpmorgan: Segments more concentrated in foodservice and then there are there any of that don't really participate in foodservice.
Jpmorgan: I think spices and seasonings is probably our largest cons.
Speaker Change: Concentration, but we also have some concentration in the meals segment with the Ortega Ortega cells.
Speaker Change: <unk> sources, that's a lot of sources, salsa et cetera, and that peppers.
Speaker Change: And then in our specialty segment, we do sell oils baking powders.
Speaker Change: The things that to foodservice.
Speaker Change: The largest concentration would be in spices, followed by those other two business units.
Speaker Change: Okay.
Speaker Change: And is it so much.
Speaker Change: Not so much no.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: You're going to recast your Sam.
Speaker Change: Recast sales on the website or and then we can kind of I guess summing up given the brands that you broke out in your older printing, but.
Speaker Change: Have you or will you recast it.
Speaker Change: So this would be going forward, we would be disclosing segment results sales and actually profitability, but not the brand sales.
Speaker Change: Okay and it looks to me like if I just add up the different brands that are included in France, and he said just under $400 million of net sales for the year I'm only getting like 365.
Speaker Change: Im wondering if youre going to recast like the historical into the new segment reporting alright, So great Green giant is just really the green giant brand plus the SOR.
Speaker Change: Okay great.
Speaker Change: The U S U S frozen plus Canada.
Speaker Change: So, Canada frozen and canned vegetable business and a little sort of business.
Speaker Change: Hey.
Speaker Change: Okay.
Speaker Change: Okay, Great and then on the trade spend you mentioned that it's kind of getting back to more normal levels is that retailers pressing more for it or is it being more driven by competition from.
Speaker Change: The brands trying to get.
Speaker Change: Better spacing products et cetera.
Speaker Change: I think it's a little bit of both I think everybody is kind of going back to normal competitive levels from where they were in a pandemic.
Speaker Change: So the price is higher so there's a little bit more pressure to have some promotional discounts to help consumers get back in the stores and drive volume.
Speaker Change: So that's a little bit of a okay.
Speaker Change: Okay and.
Speaker Change: We kind of.
Speaker Change: So that was work we also expected that was going to happen at some point.
Speaker Change: Because we've been seeing it gradually increase over time.
Speaker Change: I think that over the next couple of quarters yet.
Speaker Change: Yeah, I think that's pretty consistent.
Speaker Change: Larry just trying to get more of a sense, whether it's coming from the retailers pulling it or that manufacturers pushing it.
Speaker Change: It sounds like from that I, just talked to you as well.
Speaker Change: Yeah.
Speaker Change: Just on the.
Speaker Change: Okay.
Speaker Change: If you were to sell frozen how is that business.
Speaker Change: It's a different supply chain kind of it I mean is that integrated at all with your existing network for distribution or <unk>.
Speaker Change: Facilities.
Speaker Change: So from a.
Speaker Change: From a manufacturing standpoint no.
Speaker Change: Two main manufacturing facilities for Green giant, which is one in Mexico and one in Arizona.
Speaker Change: A fair amount of that is still co packed.
Speaker Change: So there might be overlap and some relationships with completely different from the manufacturers.
Speaker Change: Distribution distribution distribution logistics and manufacturing is completely distinct from the rest of the business for the rest of the company Okay.
Speaker Change: Okay great.
Speaker Change: Then.
Speaker Change: Working capital.
Speaker Change: Just you did give some color on it and I noticed that your payable days are a little bit higher is that a timing issue or is there any other working capital timing issues, we should consider.
Speaker Change: Remainder of the year.
Speaker Change: I think it will all balance out the couple of pieces that will be a little bit different right as we exited the green giant canned business and by the way I think I think maybe your confusion in rolling up the numbers if youre looking at our K for the sales.
Speaker Change #151: Yeah, so part of the shelf stable business, but not all of it right. We sold the U S part of it of the shelf stable business.
Speaker Change: Called Green giant, but not the Canada piece.
Speaker Change: That's probably just the small gap.
Speaker Change: Got you.
Speaker Change #152: Okay, Great. That's all I had thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question is from Hale Holden from Barclays. Please ask your question.
Hale Holden: Hi, Thank you I had two.
Hale Holden: On the foodservice decline.
Hale Holden: You gave sort of an aggregate percentage of what that was down across the portfolio of it sounded like mid single digits felt the way to think about it.
Hale Holden: Yes.
Speaker Change: No it's actually it is.
Speaker Change: More like.
Speaker Change: Yes somewhere.
Speaker Change: 12014%.
Speaker Change: Well right now.
Hale Holden: 13th the decline of 10%.
Hale Holden: Yes, and it's about 14% of our sales.
Hale Holden: And then further guide as you as you took the reduction for the year.
Hale Holden: Can you just kind of running that forward or do you assume that it stabilize towards the back half of the year.
Hale Holden: It's probably going to be a little bit challenged throughout the year hopefully not that bad.
Hale Holden: The real way to look at our top line guidance is we havent first quarter right. So we know what that is.
Hale Holden: And then if you were to take the remainder of our business for the last three quarters of the year as a reminder.
Hale Holden: Mind, you are in the Green giant canned business that you sold was about.
Hale Holden: $65 million of sales you strip that out theres, another $10 billion in pricing around Chriscoe normalization everything.
Hale Holden: And so you take that core base business for the remaining three quarters of the year, and we're assuming up or down a percent give or take.
Hale Holden: Okay.
Speaker Change: My second question was.
Speaker Change: Yeah.
Speaker Change: One company divisions up for review.
Speaker Change: Lots of different things can happen over.
Hale Holden: Long or short time horizon, but yes.
Hale Holden: Yes.
Hale Holden: This is an asset.
Hale Holden: You've been thinking about for some time I think and I was wondering.
Hale Holden: In a sale process.
Hale Holden: What inning are you in or.
Hale Holden: I don't want to pin you down on a timeline, but is it a short medium long term kind of a process to get to the other side of it.
Speaker Change: I'm going to politely duck that question and just say M&A is unpredictable.
Hale Holden: They are in the press release says we're evaluating.
Hale Holden: The strategic review of the business and will move forward and update as appropriate we have we have been working on the radio business before now.
Hale Holden: Okay. I mean, I gave you so many buckets for us, but I understand thank you.
Hale Holden: Yeah.
Hale Holden: Thank you. Our next question is from Rob Dickerson from Jefferies. Please ask your question.
Robert Frederick Dickerson: Hi, great. Thanks, so much.
Robert Frederick Dickerson: Bruce.
Robert Frederick Dickerson: Curious.
Robert Frederick Dickerson: We were talking about the directly potential of green giant frozen.
Robert Frederick Dickerson: Probably not a complete shock here.
Robert Frederick Dickerson: We've talked to $400 million in revenue the margin profile.
Robert Frederick Dickerson: And then let's say like maybe sort of its unpredictable there could be another 10% or smaller brands et cetera.
Robert Frederick Dickerson: But like at some point the EBITDA.
Robert Frederick Dickerson: It does kind of add up a little bit.
Robert Frederick Dickerson: Relative to what you are paying of a dividend.
Robert Frederick Dickerson: And I feel like it's always comes out there to enjoy and also leverage so I'm just curious.
Robert Frederick Dickerson: As we all think about.
Robert Frederick Dickerson: The portfolio reshaping and divestment potential.
Robert Frederick Dickerson: How would you kind of wallet than to be thinking about just overall capital structure. If you were to sell these.
Robert Frederick Dickerson: Pacific brands and businesses clearly you've got the cash in multiple contingent.
Robert Frederick Dickerson: But at the same time.
Robert Frederick Dickerson: I guess the theory, you still have like less free cash flow generation apps.
Speaker Change: Future acquisitions, so kind of the comprehensive and a question just kind of give you an opportunity to kind of talk about capital threshold, but that's all I have thanks.
Robert Frederick Dickerson: Yes.
Robert Frederick Dickerson: Talk a little bit of that other than to say, we are committed to a dividend.
Robert Frederick Dickerson:
Robert Frederick Dickerson: We are talking about potentially a couple more smallest dive.
Robert Frederick Dickerson: Divestitures and a potential larger one certainly that would accelerate from a capital structure our deleveraging.
Robert Frederick Dickerson: And bring us down.
Robert Frederick Dickerson: To that four five to five and at times that we want to get too and as part of that thinking through proceeds in and what the right capital structure. It looks like I think it's a little bit early to say.
Robert Frederick Dickerson: Exactly what that'll be and when but we are committed to a dividend.
Robert Frederick Dickerson: Very much contributed to bringing our leverage down.
Speaker Change #153: Alright, good enough I'll pass it on thank you Sir.
Robert Frederick Dickerson: Thank you and once again, please press star one should you wish to ask a question. Your next question is from David Palmer from Evercore. Please ask your question.
Robert Frederick Dickerson: Yeah.
Robert Frederick Dickerson: Hi.
David Sterling Palmer: Yeah, I'm curious just on the on the announced strategic review and potential sale.
David Sterling Palmer: It does feel like due to Rob's point before it does feel like this is a long time coming and for you to put them under review now I'm just wondering why.
David Sterling Palmer: Why this communication now and is there.
David Sterling Palmer: Something about the timing that.
David Sterling Palmer: It seems right for you to do this method.
David Sterling Palmer: Method of selling it now in this announcement.
David Sterling Palmer: And then separately I just wonder if you've done the pro forma math, how much better of a company would be in GB.
David Sterling Palmer: Not just with this.
David Sterling Palmer: And in the rest of the Camden in the frozen business, but also the sale of the 10% to 15% that you're also contemplating sound like how.
David Sterling Palmer: How much better of a company would this be.
David Sterling Palmer: What does that do to pro forma maybe historic revenue growth rates and margin structure.
Speaker Change: Sure. So a couple of things in there Brian and part one this is our first quarter with our new.
Speaker Change: Issued at our segment results, we've been talking about getting to the stage for some time and sort of.
David Sterling Palmer: Casey has made a point as he came on board we are talking about the strategy and how he wants to run the business and grow the business going forward and what areas, we want to invest in and what areas are maintained and drive cash and so this is a natural combination of that rework of the business segments that are our first time reporting segment results.
David Sterling Palmer: And I think the whole concept here is improving the business.
Speaker Change #154: So you're asking the right questions obviously.
Speaker Change: Not in a position to disclose.
Speaker Change: Yes.
Speaker Change: The outcome, but certainly you can see by the margins, we will improve our margin profile.
David Sterling Palmer: From an inventory standpoint, this is a more inventory and working capital intensive business, a little bit more seasonality less so since we already got rid of the can business, but more seasonality in working capital.
David Sterling Palmer: We certainly anticipate it accelerating our deleveraging of the business.
David Sterling Palmer: At the end of the day, we want to get back to strong commitment to the dividend.
David Sterling Palmer: Using those free cash flows to a combination of paying a dividend and reducing leverage and going back to acquiring businesses that makes sense for us and fit in our portfolio.
David Sterling Palmer: With a different strategy for each business unit cases.
David Sterling Palmer: I think in simple terms.
David Sterling Palmer: We want to get to a company that's capable of growing at one maybe 2% on the top line, we want to get to a company that has closer to a 20% EBITDA margin, we want to get to a company that has stronger cash conversion.
David Sterling Palmer: And we want a company with clear platforms that we can acquire on and drive value.
David Sterling Palmer: And that's what we're trying to do and that's what this.
David Sterling Palmer: The announcement and discussion is today, how do we get to that were pretty clear in those three other business units that we have platforms, we're pretty clear that we can get to that kind of performance that we're talking about in terms of growth and margins and this I think is just the culmination of a lot of work to say, what's the right structure long term for us to go back and acquire and build.
David Sterling Palmer: Green giant.
David Sterling Palmer: Great brand is iconic.
David Sterling Palmer: At a point in time it was one of the fastest growing brands in the grocery store. It's just very different from a lot of the other things that we own from a profile standpoint.
Speaker Change: We want to be a focus business.
Speaker Change: Okay.
Speaker Change: I wanted to just ask a follow up. Thank you. That's all great color by the way. Thank you I wanted to follow up on the foodservice side I mean, the industry was obviously pretty lousy in restaurants in the first quarter volume.
Speaker Change: <unk> was down 2% as an industry.
Speaker Change: In the first quarter.
David Sterling Palmer: Your number I think you said down 12 to 13 or so percent.
David Sterling Palmer: That's obviously not equipped equivalent but how much what.
David Sterling Palmer: Worse in a volume metric basis than the industry, where are you in.
David Sterling Palmer: Hi.
David Sterling Palmer: Why would it be worse.
Speaker Change: Not really sure.
David Sterling Palmer: I think it's just.
David Sterling Palmer: We see traffic numbers at least from our customer base, a little bit lower than what you just quoted.
David Sterling Palmer: So I think this is all really timing about people adjusting inventories when you think about spices right. So how much people are maintaining inventory at our distributors et cetera. So I just think it's a timing issue is reflecting the general slowdown.
David Sterling Palmer: We're going to keep watching it to see what we think the longer term trend is but I think we're going to have.
David Sterling Palmer: And we have a tough comp I think in the first quarter versus last year, but we think we'll be down in the second quarter, probably a little bit better in the third and the fourth based on that trend analysis, we're seeing.
Speaker Change: Yeah I mean.
David Sterling Palmer: Right.
David Sterling Palmer: I guess, you probably over indexed some.
David Sterling Palmer: Some players that had a really rough I mean, there were some there were some chains out there that had rough going in.
David Sterling Palmer: Yes, maybe offline I am wondering if you changed that we deal with directly that had that had much worse numbers. So.
David Sterling Palmer: And it is what it is the other part of it is some of this some of our food services markets through large distributors and sometimes that can be a little bit lumpy.
David Sterling Palmer: As opposed to followings.
Speaker Change #155: Yeah, I think but I think that's going to be the story, that's that stuff you're talking about there's much more mass. There then there will be for the industry trend is my comment back on that.
David Sterling Palmer: Great.
David Sterling Palmer: Thank you. Our next question is from Carla Casella from Jpmorgan. Please ask your question.
Carla Marie Casella Hodulik: Hi, I had a couple of follow ons.
Carla Marie Casella Hodulik: I think I'm not sure.
Carla Marie Casella Hodulik: In your prepared remarks, but I think you've paid down $20 million of the term loan b with the green giant presses in fourth quarter and there was another payment coming in first quarter was that is that do I have that correct I was assuming another 30.
Carla Marie Casella Hodulik: Something million in first quarter or with their payments.
Speaker Change: So there are two.
Carla Marie Casella Hodulik: The way the way it works through our covenants and now that we've got the senior secured notes, there's got to be a payment to the term loan and then an offer to the new senior secured noteholders.
Carla Marie Casella Hodulik: And then those new senior secured note holders don't have to take that payment if.
Carla Marie Casella Hodulik: If they don't want it goes to the term loan.
Carla Marie Casella Hodulik: We kind of detailed that in our Q in the subsequent events.
Speaker Change: So okay.
Speaker Change: Essentially fairpoint to say take what we paid down on the term loan and assume that essentially doubled.
Speaker Change #156: Okay. Thank you.
Speaker Change: Exactly.
Speaker Change: Your line is.
Speaker Change: Yeah, its about $44 million in total what.
Speaker Change: What we needed to pay down so again half of that went to term loan investors right away on the senior secured notes.
Speaker Change: Very little came back to us so it will be more towards the term loan the notes are trading well above par so as expected.
Speaker Change: Some of that going to take that money back at par and when it's trading at whatever 1314.
Speaker Change: Alright, so when do you make that second term loan payment went through whatever is left in the second quarter.
Speaker Change: Okay. Okay. So it wasn't made in first that's what average check and was not made in the first now early days of the second quarter.
Speaker Change: Okay, great. Thank you.
Speaker Change #157: That's all I had.
Speaker Change: Thank you there are no further questions at this time.
Speaker Change: That concludes the question and answer session for today, ladies and gentlemen, the conference has now ended.
Speaker Change: You all for joining you may all disconnect.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: Good day and welcome to the PNG Foods first quarter 2024 earnings call.
Speaker Change: Today's call is being recorded.
Speaker Change: I spoke to last about one hour, including remarks by P&G fluids management, well the question and answer session.
Speaker Change: I would now like to turn the call over to a J Schwab.
AJ Schwabe: Those yet corporate strategy and business development will be interesting Hey, Jay.
AJ Schwabe: Good afternoon, and thank you for joining us.
AJ Schwabe: With me today are Casey Keller, our Chief Executive Officer, and Bruce Walker, Our Chief Financial Officer.
AJ Schwabe: You can access detailed financial information on the quarter and the earnings release, we issued today.
AJ Schwabe: Which is available at the Investor Relations section of BGC Dot com.
AJ Schwabe: Before we begin our formal remarks I need to remind everyone that part of the discussion today includes forward looking statements.
AJ Schwabe: These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them.
AJ Schwabe: We refer you to <unk>. 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 conditions.
AJ Schwabe: <unk> undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise.
Speaker Change: We will also be making references on today's call to the non-GAAP financial measures adjusted EBITDA.
Speaker Change: <unk> adjusted EBITDA.
Speaker Change: Adjusted net income adjusted diluted earnings per share.
Speaker Change: Adjusted gross profit.
Speaker Change: Adjusted gross profit percentage and base business net sales.
Speaker Change: Reconciliations of these financial measures to the most directly comparable GAAP financial measures are provided in today's earnings release.
Speaker Change: Casey will begin the call with opening remarks and discuss the various factors that affected our results selected business highlights and his thoughts concerning the outlook for the remainder of fiscal 2024.
Speaker Change: Bruce will then discuss our financial results for the first quarter 2024.
Bruce C. Wacha: And our guidance for fiscal 2024.
Bruce C. Wacha: I would now like to turn the call over to Kip.
Kip: Good afternoon. Thank you a J and thank you all for joining us today for our first quarter 2024 earnings call.
Kip: In my remarks, I will address three topics on the call today.
Kip: First an overview of first quarter results Bruce will provide more detail and color later in the presentation.
Kip: Second the reporting our segment results for the first time by our four business units.
Kip: And third an update on our portfolio reshaping plans and activity.
Kip: Quarter one results.
Kip: First quarter net sales of $475 $2 million and adjusted EBITDA of $75 million were slightly below expectations.
Kip: Base business net sales adjusted to exclude the year over year impact of lower critical oil pricing.
Kip: Creased by approximately $17 million or three 4% compared to the year ago period.
Kip: Much of the decline within our foodservice and industrial businesses across spices, and seasonings Maple Grove farms syrup baking.
Kip: Breaking patterns and oils and Ortega cheese and other sources.
Kip: The declines reflect an overall slowdown in out of home traffic and volumes compared to fiscal year 'twenty three trends.
Kip: Net sales to retail customers across the business units were slightly down approximately one 5% with relatively flat volumes offset by a modest increase 90 basis points and trade and promotional spending.
Kip: Adjusted EBITDA for the first quarter decreased by $7 4 million compared to the first quarter of 2023.
Kip: The divestiture of the Green Giant U S shelf stable product line was responsible for approximately $1 $5 million of the year over year decline.
Kip: Adjusted EBITDA as a percentage of net sales for the first quarter was 15, 8%.
Kip: Largely in line with the third the 16, 1% achieved in the prior year period.
Kip: On a consolidated basis gross profit as a percentage of net sales for the quarter was up 60 basis points versus last year.
Kip: We continue to see moderating inflation and some favorability in transportation and warehousing. Although these were offset by increased G&A cost for insurance and salary wages as well as higher advertising and marketing investment in the quarter versus last year.
Kip: Yes.
Kip: Segment reporting.
Kip: This is the first quarter P&G foods is reporting results by operating segments.
Kip: And greater visibility into the underlying performance of the Companys business units.
Kip: The segments represent the four operating business units that we recently reorganized the company structure into.
Kip: Business units are now fully established running their businesses and actively managing the business unit P&l's.
Kip: Across the four business units, we maintain a lean corporate structure, approximately 4% to 5% of net sales to maintain oversight inefficiency and trend and share transactions or operations or your sales distribution order processing et cetera.
Kip: The four business units are.
Kip: Spices and flavor solutions.
Kip: This segment represents approximately 20% of our consolidated net sales and has our highest segment adjusted EBITDA as a percentage of net sales at 30%.
Kip: <unk> foods is a leader in the spices and seasoning category with key brands Dash wherever grilling Spice Islands accent etcetera.
Kip: During the first quarter spices that flavor solutions net sales were depressed by a significant decline in foodservice business with key distributors and customers.
Kip: Sales to retail customers were up slightly in the quarter.
Kip: We are also launching a new line of licensed seasoning and grilling glands under the four sixes brand, which is the new show and ranch featured in the Yellowstone television franchise.
Kip: Meals.
Kip: The meal segment represents approximately 25% of our consolidated net sales with segment adjusted EBITDA as a percentage of net sales of 21, 4%.
Kip: The key components of this business unit, our Mexican meals Ortega at Las Palmas, and hot breakfast cream of wheat, Mccann's Maple Grove farms tariffs.
Kip: We see growth opportunities in Mexican meal preparation as consumers expand their Mexican cuisine options in the home.
Kip: The first quarter meals segment net sales decline was driven by lower foodservice sales, while net sales to retail customers were roughly flat.
Kip: Yeah.
Kip: Specialty the specialty segment represents approximately 33% of our consolidated net sales with segment adjusted EBITDA as a percentage of net sales of approximately 24%.
Kip: The primary focus of this business unit is baking staples about 70% of business unit sales with.
Kip: With leading number one brands such as critical oil and shortening clabber girl baking powder.
Kip: <unk> molasses et cetera.
Kip: Baking both from scratch and mix has remained relatively stable over time with more consumers learning today from scratch during Covid lockdowns.
Kip: The specialty segments key objective is to maintain strong stable cash flow and margins, especially segment adjusted EBITDA was up slightly in the first quarter.
Kip: Frozen vegetables.
Kip: Frozen and vegetable segment represents approximately 22% of our consolidated net sales with the lowest segment adjusted EBITDA margin as a percentage of net sales of seven 5%.
Kip: Frozen vegetables business unit includes the U S Green giant frozen business.
Kip: The Canada Green giant frozen and canned business is a major portion of our company's consolidated Canada sales.
Kip: And the sewer canned vegetable product line.
Kip: The primary focus of our frozen vegetable business unity is to improve gross profit margins strengthen the innovation pipeline streamline the frozen distribution network and grow volumes at our <unk> Mexico.
Kip: In Yuma, Arizona manufacturing facilities.
Kip: First quarter frozen and vegetable segment net sales reflect overall softness in the frozen vegetable category with much of the segment adjusted EBITDA declined year over year attributed to the divestiture of the U S Green giant canned business last November.
Kip: Portfolio shaping.
Kip: <unk> Foods has continued and will accelerate the reshaping and restructuring of our portfolio to sharpen focus.
Kip: Group margins and cash flow and maximize future value creation.
Kip: The divestiture of the Green giant canned vegetable business was completed last fall following the sale of the back to nature brand in January 2023.
Kip: As previously disclosed we have been evaluating and working on divestitures that represent between 10% to 15% of total company net sales.
Kip: That process on smaller brands is proceeding and we expect to possibly sell some assets before the end of fiscal year 'twenty four.
Kip: Beyond those efforts the larger decision on whether to remain in frozen and long term has been an open question.
Kip: After careful analysis, we are placing the frozen and remaining canned vegetable businesses under strategic review and are evaluating a possible divestiture and sale of some or all of the assets in the frozen and vegetable business unit.
Kip: Green giant remains a strong brand with broad awareness and distribution in the frozen vegetables category is on trend with long term health and dietary trends.
Kip: However, I believe the frozen vegetable business may not be the right fit with <unk> foods focus and capabilities.
Kip: Particularly since we have no plans to add more assets in the frozen portfolio given the opportunities in our core shelf stable businesses and overall capital constraints.
Kip: More to come as we further evaluate our options and plans.
Kip: Thank you and I'll now turn the call over to Bruce for more detail on our quarterly performance and outlook for the year.
Bruce C. Wacha: Thank you Casey good afternoon, everyone.
Bruce C. Wacha: As a reminder, and before I get into our results, we sold our green giant U S shelf stable product line last fall and so we are lapping the first quarter 2023 results that had that business.
Bruce C. Wacha: The Green giant U S shelf stable line had $14 $6 million of net sales and approximately $1 million to $2 million of contribution in last year's first quarter.
Bruce C. Wacha: In the first quarter of 2024.
Bruce C. Wacha: We generated $475 $2 million in net sales.
Bruce C. Wacha: $75 million and adjusted EBITDA adjust.
Bruce C. Wacha: Adjusted EBITDA as a percentage of net sales of 15, 8% and 18.
Bruce C. Wacha: And adjusted diluted earnings per share.
Bruce C. Wacha: Base business net sales, which excludes the green giant U S shelf stable product line decreased by $22 million or four 4% in the first quarter of 2024 compared to the year ago period.
Bruce C. Wacha: The decrease in base business net sales was driven by approximately $5 million from the execution of our Chriscoe pricing model that reflected a decrease in soybean oil costs and allowed us to pass this benefit back to consumers.
Bruce C. Wacha: In the form of lower pricing.
Bruce C. Wacha: Approximately $10 million was from lower foodservice and industrial net sales across multiple business segments and brands.
Bruce C. Wacha: And the remaining six plus million dollars of the decrease was partially driven by lower net sales to our retail customers that were largely the result of modest increases in promotional trade spend and relatively flat volumes.
Bruce C. Wacha: Gross profit was $108 $9 million for the first quarter of 2024 or approximately 22, 9% of net sales.
Bruce C. Wacha: Adjusted gross profit, which excludes the negative impact of $1 million of acquisition divestiture related expenses and nonrecurring expenses included in the cost of goods sold during the first quarter of 2024 was $109 9 million or 23, 1% of net sales.
Bruce C. Wacha: Gross profit was $114 $2 million for the first quarter of 2023 or 22, 3% of net sales.
Bruce C. Wacha: Adjusted gross profit, which excludes the negative impact of $7 million of acquisition divestiture related expenses and nonrecurring expenses included in the cost of goods sold during the first quarter of 2023 was $114 $9 million or 22, 4% of net sales.
Bruce C. Wacha: While we are continuing to see input cost inflation with regards to a material goods and our factory production the cost increases have been modestly flat thus far this year.
Bruce C. Wacha: And offset in part by continued moderation in certain costs like soybean oil and Tomatoes that saw the greatest increases in 2022 and 2023.
Bruce C. Wacha: Separately, we are also continuing to see favorability in our logistics costs. Although these benefits are much more modest on a rate basis than they were a year ago.
Bruce C. Wacha: Selling general and administrative expenses increased by $1 $9 million of 4% to $48 $6 million for the first quarter of 2024.
Bruce C. Wacha: $46 $7 million for the first quarter of 2023.
Bruce C. Wacha: The increase was composed of increases in general and administrative expenses of $2 million.
Bruce C. Wacha: Consumer marketing expenses of $1 6 million in acquisition divestiture, and nonrecurring expenses of <unk> $1 million parts.
Bruce C. Wacha: Partially offset by decreases in selling expenses of $1 million and warehouse expenses of <unk> $8 million.
Bruce C. Wacha: Expressed as a percentage of net sales SG&A expenses increased by approximately 110 basis points or 10, 2% for the first quarter of 2024 as compared to nine 1% for the first quarter of 2023.
Bruce C. Wacha: The increase in general and administrative costs was largely driven by modest inflation in wages insurance and other professional services.
Bruce C. Wacha: As I mentioned earlier, we generated $75 million and adjusted EBITDA or 15, 8% of net sales in the first quarter of 2024 compared to $82 4 million or 16, 1% in the first quarter of 2023.
Bruce C. Wacha: Approximately $1 million to $2 million of the decrease in adjusted EBITDA was the result of the divestiture of the Green Giant U S shelf stable product line, which we sold last fall.
Bruce C. Wacha: The remainder was largely driven in proportion by a decline in our net sales.
Bruce C. Wacha: Net interest expense was $37 $8 million in the first quarter of 2024 compared to $39 $4 million in the first quarter of 2023.
Bruce C. Wacha: The decrease was primarily attributable to a reduction in average long term debt outstanding and the accelerated amortization of deferred financing costs related to long term debt prepayments during the first quarter of 2023.
Bruce C. Wacha: Partially offset by slightly higher interest rates on our long term debt compared to the first quarter of 2023.
Bruce C. Wacha: Depreciation and amortization was $17 $2 million in the first quarter of 2024 compared to $18 million in the first quarter of last year.
Bruce C. Wacha: We had a net loss of $42 million or <unk> 51.
Bruce C. Wacha: For diluted share and adjusted net income of $14 $4 million or <unk> 18 per diluted share in the first quarter of 2024.
Bruce C. Wacha: Compared to net income of $3 $4 million or <unk> <unk> per diluted share and adjusted net income of $19 1 million or 27 cents.
Bruce C. Wacha: <unk> per diluted share in the first quarter of last year.
Bruce C. Wacha: The net loss and diluted loss per share and our GAAP results were driven by a write down of goodwill that was allocated to our frozen vegetable business unit as part of our reorganization into four operating segments and as described further in our press release and 10-Q.
Speaker Change #158: Casey I already described the units and I recommend investors review, our press release and 10-Q for additional information.
Kenneth Charles Keller: I would like to now touch on the results.
Kenneth Charles Keller: Net sales for the specialty segment decreased $7 9 million or four 9% for the first quarter of 2024 to $154 $7 million.
Kenneth Charles Keller: From $162 6 million in the year ago quarter.
Bruce C. Wacha: The decrease was primarily due to lower chriscoe pricing.
Bruce C. Wacha: Driven by softening commodity costs, coupled with declines in foodservice and industrial sales.
Bruce C. Wacha: Specialty segment, adjusted EBITDA increased by <unk> $7 million or one 9% for the first quarter of 2024 compared to the first quarter of 2023.
Bruce C. Wacha: Net sales for the meal segment decreased $1 $9 million or one 6% for the first quarter of 2000 $24 million to $120 million.
Bruce C. Wacha: From $121 9 million for the first quarter of 2023.
Bruce C. Wacha: The decrease was primarily due to lower net sales in foodservice.
Bruce C. Wacha: The meals segment, adjusted EBITDA decreased by $6 million or two 3% compared to the first quarter of 2023, which was in line with the decrease in net sales.
Bruce C. Wacha: Excluding the impact of the divestiture of the Green Giant U S shelf stable product line, which we sold last fall net sales of the frozen and vegetable segment decreased by $6 $7 million or 6%.
Bruce C. Wacha: Although increased promotional trade.
Bruce C. Wacha: Support helped grow our bag in a box or PID product line during the quarter some of the other parts of the frozen business fared less well.
Bruce C. Wacha: Frozen and vegetable segment, adjusted EBITDA decreased by $2 $7 million compared to the prior year period.
Bruce C. Wacha: Approximately $1 million to $2 million of that decline was due to the divestiture of the green giant U S shelf stable product line with the remainder driven by the decline in net sales.
Bruce C. Wacha: Net sales for the spices and flavor solutions segment decreased by $5 $4 million or five 4% in the first quarter of 2024 to $95 $6 million from $101 million in the first quarter of 2023.
Bruce C. Wacha: The decrease was primarily due to lower net sales in foodservice.
Bruce C. Wacha: The spices and flavor solutions segment, adjusted EBITDA decreased $2 million or six 6% in the first quarter of 2024 compared to the first quarter of 2023.
Speaker Change: Now I'd like to spend some time on our cash flows and balance sheet.
Speaker Change: We generated $35 $1 million in net cash from operations in the first quarter of 2024 compared to $69 $5 million in net cash from operations generated in the first quarter of last year.
Speaker Change: Our net cash from operations was actually quite strong despite the year over year decrease when compared to the first quarter of 2023.
Speaker Change: While we are continuing to bring inventory down our net cash from operations benefited from a more modest decrease in inventory of $8 $2 million. During this year's first quarter, while net cash benefited from a decrease in inventory of $28 $2 million in a year ago period.
Bruce C. Wacha: As a reminder, last year's first quarter benefited from a sell down of the seasonal pack for the Green Giant U S shelf stable business that we divested last fall.
Bruce C. Wacha: We finished the first quarter of 2024 with approximately 560.
Bruce C. Wacha: $6 million of inventory compared to $569 million of inventory at the end of 2023 and $700 $9 million at the end of the first quarter of 2023.
Bruce C. Wacha: The timing of interest payments also affected our cash flows for the quarter. The new senior secured notes that we issued last fall had an interest payment in Q1 of this year, while the 2025 unsecured notes, which were then partially refinance have an interest payment in Q2.
Bruce C. Wacha: We reduced debt by a little bit more than $10 million during the first quarter of 2024.
Bruce C. Wacha: And we have now reduced net debt by approximately $250 million since the end of the first quarter of 2023.
Bruce C. Wacha: Our pro forma adjusted net leverage ratio as defined in our credit agreement was approximately $6 three five times at the end of the first quarter of 2024.
Bruce C. Wacha: In line with our year end results and significantly better than the seven two times at the end of last year's quarter.
Bruce C. Wacha: We expect to continue to reduce our net debt and pro forma adjusted net leverage ratio throughout fiscal 2024 and beyond as we diligently work toward achieving our long term target of four five to five and a half times.
Bruce C. Wacha: As noted in our earnings press release, we are revising our fiscal 2024 guidance to $1 95, 5 billion to $1 95 billion for net sales.
Bruce C. Wacha: $300 million to $320 million for adjusted EBITDA.
Bruce C. Wacha: And 75 to 95 per adjusted diluted earnings per share.
Bruce C. Wacha: We believe that the revised guidance better reflects the emerging challenges in foodservice and a more gradual recovery in net sales to retail customers.
Bruce C. Wacha: With improvement expected in the second half of this year.
Bruce C. Wacha: We do expect continued volume improvement throughout the year and ourselves to retail customers and less of a drag on net pricing as we will lap our increased trade promotional spending efforts beginning in Q3 of this year.
Bruce C. Wacha: Additionally, we expect for full year 2024 interest expense of $145 million to $150 million, including cash interest expense of $138 million to $143 million.
Bruce C. Wacha: Depreciation expense of 47, five to <unk> 52, and a half million dollars.
Bruce C. Wacha: Amortization expense of $20 million to $22 million.
Bruce C. Wacha: An effective tax rate of 26% to 27%.
Bruce C. Wacha: And capex of $35 million to $40 million.
Bruce C. Wacha: We expect to use approximately 50% of our excess cash to pay our dividends and the remaining 50% to pay down debt.
Bruce C. Wacha: Now I'll turn the call back over to Casey.
Kenneth Charles Keller: For further remarks.
Kenneth Charles Keller: Thank you Bruce <unk>.
Kenneth Charles Keller: In closing our first quarter results demonstrated consistent margins and moderating inflation.
Kenneth Charles Keller: With declines in net sales driven by foodservice trends and increased promotional spend.
Kenneth Charles Keller: We expect foodservice trends to be soft through the first half of the year with a corresponding pick pickup in at home consumption trends in the back half.
Kenneth Charles Keller: We are also accelerating efforts to reshape and clarify the portfolio through the reporting our business unit segments and the strategic evaluation of the remaining green giant frozen and canned vegetable business in the U S and Canada.
Speaker Change #113: This concludes our remarks and now we would like to begin the Q&A portion of our call operator.
Speaker Change: Thank you, ladies and gentleman and you will now begin the question and answer session.
Speaker Change: Have a question. Please press the star followed by the one you touched on filing you will hear today Telecom technology and your request.
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Speaker Change: Once again that is star one should you wish to ask a question.
Speaker Change: And your first question is from Rocky Mount Vernon retired from Bank of America. Please ask your question.
Speaker Change #114: Good afternoon.
Speaker Change: My first question is it sounds like really the majority of the weakness is in the foodservice component to the business what percentage of that.
Speaker Change: What percent is foodservice represent of total sales.
Speaker Change #125: About 14%.
Speaker Change: On average an average quarter would be about 14% of our sales foodservice.
Speaker Change: Okay.
Speaker Change: And I guess, you made some commentary about expectations.
Speaker Change: Kind of see improving trends in retail as the year goes on.
Speaker Change: Is that on a unit basis or on a dollar basis and I guess is that from conversations with retailers are just expectations about economic recovery.
Speaker Change: Theres a couple of things going on on the retail side of the business.
Speaker Change: The first one is volumes has stabilized and so we're seeing in consumption kind of flattish volumes.
Speaker Change: We believe there will be a pickup over time, particularly if you see continued softness in foodservice and so that's part one and that's probably not as strong as initially expected it to be at this point, but it's hanging in there fine and then the other part.
Speaker Change: Pricing, which in this case is promotional trade spend and people are re layering that spend back into the business. It's still below pre pandemic levels, but it's inching higher and we really started to dial that up last year, beginning in the third quarter and so we're lapping our first quarter and second quarter.
Speaker Change: This year, where we had very big pricing benefits last year, and now a higher level of the traits that but we'll be lapping a lot of that activity.
Speaker Change: That we layered in last year as we work towards the back half of this year.
Speaker Change: Yeah.
Speaker Change: Got it and then just lastly for me.
Speaker Change #126: I don't think you've disclosed this thus far but the frozen and canned veggie businesses that remain in the U S and Canada.
Speaker Change: Evaluating.
Speaker Change: Can you share what the sales or EBITDA those are.
Speaker Change: It's essentially it's an and.
Speaker Change: It's in the segment reporting it's essentially that.
Speaker Change: Almost the entire frozen vegetables business unit.
Speaker Change: So a little bit less than $400 million in annual net sales we haven't disclosed.
Speaker Change: <unk> for the full year, we're just rolling on the segment profits as we execute quarter by quarter.
Speaker Change: So we reported basically a $105 million of net sales for the frozen vegetables business unit in the first quarter.
Speaker Change: Got it I guess, where the first quarter margin representative of what they are for the year or is there seasonality.
Speaker Change: We disclosed the first quarter margins, we haven't disclosed for the remainder of the year yet.
Speaker Change: Part of this is we're not we haven't operated the business on a full year on these business units and so this is an evolution for us and we're.
Speaker Change: Sure the quarterly information at the euros group, Yes, it's that.
Speaker Change: It's not too far up being reasonably with represented within a certain range.
Speaker Change: Got it okay. That's all for me. Thank you.
Speaker Change: Yeah.
Speaker Change #159: Thank you.
Speaker Change: Next question is from Michael Lavery from Piper Sandler. Please ask your question.
Speaker Change: Okay.
Michael Scott Lavery: Thank you and good afternoon.
Michael Scott Lavery: Just was.
Michael Scott Lavery: I'm curious how to think about Canada if hypothetically.
Michael Scott Lavery: Hypothetically you were to divest.
Michael Scott Lavery: Frozen vegetables.
Michael Scott Lavery: Is there an upscale excluding that piece of the business is there.
Michael Scott Lavery: Is that how you think about one gets tied to the other.
Michael Scott Lavery: Where does sort of came in again left after a potential.
Michael Scott Lavery: And we've had we've had a Canadian business that predated green giant we continue to have one after this transaction, obviously green giant as a significant portion of the sales in Canada, but we still expect desk Canadian business, we would probably not and maintain the same infrastructure.
Speaker Change #160: Okay makes sense, that's helpful and just at a high level on the portfolio.
Michael Scott Lavery: You've historically had a good track record of.
Michael Scott Lavery: Buying cash generative businesses.
Michael Scott Lavery: That seemed at least a little bit category agnostic, you've identified now how frozen may not fit and.
Michael Scott Lavery: <unk> got a segment view, that's a little bit different.
Michael Scott Lavery: Maybe just.
Michael Scott Lavery: At the total portfolio high level is there sort of an end game of.
Michael Scott Lavery: How you want to evolve is it is it is it taking on a little bit more of a growth focus or.
Michael Scott Lavery: Bill sort of value cash generative focus or.
Michael Scott Lavery: I'm wearing between maybe just the latest on that.
Michael Scott Lavery: Strategy of the portfolio in its entirety.
Speaker Change: Yeah. So.
Speaker Change: Of the two or three.
Speaker Change: Remaining business units, if we were to sell off the frozen vessels.
Speaker Change: I think theres three different profiles here, so spices and seasonings, we said, we wanted that to be a high margin.
Speaker Change: Low single digit growth business, and we believe that we can get there the issues. This quarter were really more around the foodservice business, but we think for the year were going to be on track to driving growth in that business and maintaining strong margins.
Speaker Change: The meals business, we also want to see some low wells, we want to see low single digit growth on the top line and we're getting there again it was a little bit hampered by the foodservice trends this quarter, but our goal is to get that into low single digit growth as well the.
Speaker Change: The specialty business, which is largely focused around baking staples. We wanted to just whether that business is largely to maintain mode and making sure that we maintain.
Speaker Change: Cash flows stable margins et cetera, not expecting a lot of growth out of that portfolio, but.
Speaker Change: Stability over time, and if you think about those three business units.
Speaker Change: They fit our capabilities, we've got some scale, whether it's in you know.
Speaker Change: Spices seasonings.
Speaker Change: Neil that mixed with the Mexican focus or baking, we've got some scale.
Speaker Change: Think we could add acquisitions to those platforms and do good things with them and maintain strong cash flow and in the cases of the spices business unit and the.
Speaker Change: Meals business, you know I think we can drive growth even with acquisitions over time, so it's a little bit of a mixed bag, but that's how we think about those three business units.
Speaker Change: Frozen vegetables, and the long term I think frozen vegetables.
Speaker Change: Is a decent category to be in the frozen category has historically been a good category has not recently the trends basically had been a little tougher but it is on trend as is vegetables. I. Just don't believe that frozen is the right fit for our capabilities and focus going forward.
Speaker Change #129: Okay really helpful color. Thanks.
Speaker Change #123: Thank you. Our next question is from.
Speaker Change #123: Jim Martinson from Jefferies. Please ask your question.
Karru Martinson: Good afternoon.
Karru Martinson: When we look at the flat volume with a modest step up in promotion.
Karru Martinson: That the consumer just kind of coming to expect the promotional cadence.
Karru Martinson: To increase looking for value and kind of what's the private label response been for you guys.
Speaker Change #100: I think the step up in promotion and as Bruce said, its really going to be probably more of a first half phenomenon. Because we did begin to step up promotional activity our promotion spend in the back half of last year.
Speaker Change #100: I think its two things one is a little bit more competitive promotion environment.
Speaker Change #100: Out there I think you're probably hearing that from other players too it's not it's not higher than it was pre pandemic, but it's getting back to kind of a normal cadence of where it was there.
Speaker Change: In some categories that they're in some category is still a little bit lower than it was pre pandemic, but we're seeing the resumption of normal promotional activity that's been kind of gradually building over the last 18 to 24 months.
Speaker Change: The second thing is that in that extreme pricing environment. We're also trying to manage in a couple of our categories.
Speaker Change: GAAP to private label so like in for instance, in Green giant frozen vegetables.
Speaker Change: Our core bags and bag in box, we want to maintain a certain kind of gap or a price gap to private label. So we've been kind of refining it holding that and largely that we've been doing that with a little bit of trade spend to get to the right price points you either in promotion or in everyday price. So I think it's really those two.
Speaker Change: It's kind of a resumption of normal promotional activity in the environment and second.
Speaker Change: Managing our price gaps in a couple of categories principally.
Speaker Change: Green giant frozen vegetables, and Frisco, although chriscoe, we're kind of just passing through the change in oil price up and down, but we watch that gap pretty closely and Chris go as well, particularly on the shorting side.
Speaker Change: Okay, and then when we look at the other potential divestitures that 10% to 15% of sales.
Speaker Change: Kind of the time Horizon, you mentioned, you know hopefully get some of those done.
Speaker Change #124: Just wanted to get a sense of the scale or magnitude of that youre looking at here.
Speaker Change #101: Yeah I think.
Speaker Change #101: Probably less is more here, we're working on a couple of things, but M&A is just always tricky to predict from a timing or exactly what so it's a little bit stay tuned and it's probably.
Speaker Change #101: Things that would make sense. After after analysis, assuming that we were anything just like the back to nature and again green giant business in the U S.
Speaker Change #101: But we are working on it.
Speaker Change #101: One or two smaller divestitures.
Speaker Change #101: Right.
Speaker Change #101: We would like to move along and so at some point, but that's a much smaller scale that not even the 10% to 15% probably even less than that beyond there.
Speaker Change #101: Larger green giant discussion, we had today about putting it under review.
Speaker Change #102: Thank you very much guys I appreciate it.
Speaker Change: Thank you. Your next question is from Robert.
Robert Moskow: Moscow from Genie Cowen. Please ask your question.
Robert Moskow: Hey, Thanks for the question.
Robert Moskow: I just wanted to clarify that the back half of the year, you're assuming just easier comparisons on your pricing youre not expecting any kind of change in the consumer.
Robert Moskow: Behavior like a stronger consumer that will boost volumes.
Speaker Change: Just wanted to make sure.
Speaker Change #161: Yeah, Rob on the margins, maybe yes, but not in a big way.
Speaker Change: Okay, I think I may follow up are the most for the most part we expect easier comps.
Speaker Change #103: We are here.
Speaker Change: Historically, what's happened when foodservice traffic has gone down and you see a little bit of in home consumption pick up but we're not counting on it very much.
Speaker Change #133: Right Okay.
Speaker Change #104: And then the other question was I thought I heard you say that frozen is $400 million in sales, maybe I misheard, but then the divestiture that you are evaluating is 10% to 15% of sales which is less than 400.
Speaker Change #104: Different things I think before we were talking about smaller divestitures.
Speaker Change #104: That represented about 10% to 15%, which would have been things like back to nature et cetera.
Speaker Change #104: And we're still working on a small list of those within that 10% to 15%.
Speaker Change: The news today is that we're considering a larger divestiture beyond that 10% to 15% pruning that would be the green giant are the frozen vegetables business.
Speaker Change: Okay. So I mean.
Speaker Change: When you're when you're setting done like it could be as much as.
Speaker Change: 30% of the portfolio that you exit.
Speaker Change: Okay.
Speaker Change #134: Yeah Okay.
Speaker Change #105: And one last point I mean, we don't think it's a little bit probably a little probably a little less than that but yes.
Speaker Change: Okay.
Speaker Change #127: And then last question within <unk>.
Speaker Change #127: Are there any specific channels to kind of call out restaurants versus institutions or schools that are causing the decline or is it just kind of a broad foodservice decline.
Speaker Change: We're just seeing a broad decline in traffic in.
Speaker Change: And the orders coming from you know we've largely go through distributors, we do have one or two direct customers that we I get I don't want to specifically talk about some of our customers that we know they've had traffic declines and other things, but we're kind of following the general industry trend that you've probably seen about foot traffic being down a lot of out of home.
Speaker Change: Establishment.
Speaker Change: Yes.
Speaker Change #162: Great. Okay. Thank you.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question is from like.
Jpmorgan: <unk> from Jpmorgan. Please ask your question.
Jpmorgan: Hi, a couple of follow ups on that service.
Jpmorgan: <unk> is one of your segments more concentrated in foodservice and then are there are there any that don't really participate in foodservice.
Jpmorgan: I think spices and seasonings is probably our largest concentration.
Jpmorgan: Concentration, but we also have some concentration in the meals segment with the Ortega Ortega cells.
Jpmorgan: <unk> sources, that's a lot of sauces, and salsas et cetera, and that peppers.
Jpmorgan: And then in our specialty segment, we do sell oils baking powders.
Jpmorgan: Other things into foodservice.
Jpmorgan: The largest concentration would be in spices, followed by those other two business units.
Speaker Change #128: Okay, so not much difference than isn't so much.
Speaker Change #137: Not so much no not very much.
Speaker Change #137: Okay.
Jpmorgan: Got to recast your sand pit.
Jpmorgan: Recast sales on the website or and then we can kind of I guess coming up given the brands that you broke out in your older printing, but.
Jpmorgan: Have you or will you recast it.
Jpmorgan: So this would be going forward, we would be disclosing the statement results sales and actually profitability, but not the brand sales.
Speaker Change #108: Okay and it looks to me like if I just add up the different brands that are included in France. You said, just under 400 million of net sales for the year I'm only getting like 365.
Speaker Change #108: I mean, if youre going to recast like the historical into the new segment reporting.
Speaker Change #108: So great Green giant is just really the green giant brand plus the SOR.
Speaker Change #109: Okay great.
Jpmorgan: The U S U S frozen plus Canada.
Jpmorgan: So, Canada frozen and canned vegetable business and a little sort of business.
Jpmorgan: Okay.
Jpmorgan: Okay.
Jpmorgan: Okay, Great and then on the trade spend you mentioned that it's kind of getting back to more normal levels is that retailers pressing more for it or is it being more driven by competition from.
Jpmorgan: You know the brands trying to get.
Jpmorgan: Better spacing products et cetera.
Jpmorgan: I think it's a little bit of both I think everybody is kind of going back to normal.
Jpmorgan: Additive levels from where they were in a pandemic.
Jpmorgan: So the.
Jpmorgan: The prices higher so there's a little bit more pressure to have some promotional discounts to help consumers get back in the stores and drive volume.
Jpmorgan: So that's a little bit of a okay.
Jpmorgan: Okay.
Jpmorgan: Yeah.
Jpmorgan: We.
Jpmorgan: So that was work we also expected that was going to happen at some point because we've been seeing it gradually increase over time.
Jpmorgan: I think that over the last couple of quarters yet.
Speaker Change: Yeah, Yeah, I think that's pretty consistent.
Speaker Change: Larry just trying to get more of a sense, whether it's coming from the retailers pulling it or the manufacturers pushing it.
Speaker Change: And it sounds like from now thanks, you've talked to as well.
Speaker Change: Yeah.
Speaker Change: Just on the Uh huh.
Speaker Change: Estelle froze and how is that business.
Speaker Change: It's a different supply chain kind of it I mean is that integrated at all with your existing network for distribution or <unk>.
Speaker Change: Facilities.
Speaker Change: So from a from a manufacturing standpoint no.
Speaker Change: We've got two main manufacturing facilities for Green giant, which is one in Mexico and one in Arizona, a fair amount of that is still co packed.
Speaker Change: So there might be overlap and some relationships, but it's completely different from the manufacturing.
Speaker Change: Distribution distribution distribution logistics and manufacturing is completely distinct from the rest of that business for the rest of the company okay.
Speaker Change #163: Okay great.
Speaker Change: And then.
Speaker Change: Working capital.
Speaker Change: And just you did give some color on it and I noticed that your payable days are a little bit higher is that a timing issue or is there any other working capital timing issues, we should consider for the remainder of the year.
Speaker Change: I think it will all balance out the couple of pieces that will be a little bit different rate as we exited the green giant canned business and by the way I think I think maybe your confusion in rolling up the numbers if youre looking at our K for the sales.
Speaker Change #140: Yeah, so part of the shelf stable business, but not all of it right. We sold the U S part of it.
Speaker Change: The shelf stable business.
Speaker Change: Called Green giant, but not the Canada piece.
Speaker Change: That's probably just the small gap.
Speaker Change #164: Got you.
Speaker Change #139: Okay, Great. That's all I had thank you.
Speaker Change #130: Thank you.
Speaker Change: Thank you. Your next question is from Hale Holden from Barclays. Please ask your question.
Hale Holden: Hi, Thank you I had two.
Hale Holden: On the foodservice decline I missed it if you gave sort of an aggregate.
Hale Holden: And what that was down across the portfolio, but sounded like mid single digits, but the way to think about it.
Speaker Change #131: No it's actually it's actually more like.
Speaker Change: Yes somewhere.
Speaker Change: 12, 13%.
Speaker Change: Well right now.
Speaker Change: The decline is 12, 2%.
Speaker Change: Yes, and it's about 14% of our sales.
Speaker Change: And then for the guide as you as you took the reduction for the year.
Speaker Change: Can you just sort of running that forward or do you assume that it's stabilized it's towards the back half of the year.
Speaker Change #141: It's probably going to be a little bit challenged throughout the year hopefully not that bad.
Speaker Change: The real way to look at our top line guidance is we Havent first quarter right. So we know what that is and then if you were to take the remainder of our business for the last three quarters of the year.
Speaker Change: As a reminder, the green giant canned business that we sold was about.
Speaker Change: $65 million of sales you strip that out theres, another $10 billion in pricing around Chriscoe normalization everything.
Speaker Change: And so you take that core base business for the remaining three quarters of the year, and we're assuming up or down 1% give or take.
Speaker Change: Okay.
Speaker Change #142: My second question was.
Speaker Change #142: Yeah.
Speaker Change #142: One company split divisions up for review.
Speaker Change: Lots of different things can happen over.
Speaker Change: Along our short time horizon, but.
Speaker Change: Yes.
Speaker Change: This is an asset.
Speaker Change: You've been thinking about for some time I think.
Speaker Change #165: I'm wondering.
Speaker Change: A sale process you know what.
Speaker Change: What inning are you in or.
Speaker Change: I don't want to pin you down on a timeline, but is it a short medium long term kind of process to get to the other side of it.
Speaker Change #111: I'm going to politely duck that question and just say M&A is less predictable.
Speaker Change #111: Commentary in the press release says we're evaluating.
Speaker Change #111: The strategic review of the business and will move forward and update as appropriate we have we have been working on the radio business before now.
Speaker Change #111: Okay. I mean, I gave you so many buckets for us, but I understand thank you.
Speaker Change #111: Yeah.
Speaker Change #111: Yes.
Speaker Change: Thank you. Our next question is from Rob Dickerson from Jefferies. Please ask your question.
Robert Frederick Dickerson: Hi, great. Thanks, so much.
Speaker Change: Bruce.
Speaker Change: Curious.
Robert Frederick Dickerson: We were talking about the divestment potential of green giant frozen.
Robert Frederick Dickerson: Probably not complete shock here.
Speaker Change: You know, we've talked a $400 million in revenue the margin profile.
Speaker Change: And then let's say like maybe sort of its unpredictable there could be another 10% and our smaller brands et cetera.
Speaker Change: But you know like at some point you know the EBITDA.
Speaker Change: It does kind of add up a little bit.
Speaker Change: Relative to what you are paying a dividend.
Speaker Change: And I feel like it's always comes out there to enjoy and also leverage so I'm just curious.
Speaker Change: As we all think about kind of the portfolio reshaping and divestment potential.
Speaker Change: How would you kind of want them to be thinking about just overall capital structure. If you were to sell these.
Speaker Change: Pacific brands and businesses clearly you've got the cashin that's multiple contingent.
Speaker Change: But at the same time.
Speaker Change: I guess the theory, you still have like less free cash flow generation apps in.
Speaker Change #132: Future acquisitions, so kind of the comprehensive and a question just kind of give you an opportunity to kind of talk about the capital threshold, but that's all I have thanks.
Speaker Change #112: Yeah, and I'm going to talk a little bit of that other than to say we are committed to a dividend.
Speaker Change:
Speaker Change: We are talking about potentially a couple more smallest dive.
Speaker Change: Divestitures and a potential larger one certainly that would accelerate from a capital structure our deleveraging.
Speaker Change: And bring us down.
Speaker Change: Mr to that four five to five five times that we want to get too and as.
Speaker Change: As part of that thinking through proceeds in and what the right capital structure. It looks like I think it's a little bit early to say exactly what that'll be and when but we are committed to a dividend and we're very much contributed to bringing our leverage down.
Speaker Change #143: Alright, good enough I'll pass it on thank you Sir.
Speaker Change #143: Thank you once again, please press star one should you wish to ask a question. Your next question is from David Palmer from Evercore. Please ask your question.
Speaker Change #143: Aye.
David Sterling Palmer: Yeah, I'm curious just on the on the announced strategic review and potential sale.
David Sterling Palmer: It does feel like due to Rob's point before it does feel like this is a long time coming and for you to put them under review now I'm just wondering you know why.
David Sterling Palmer: Why this communication now and is there.
Speaker Change: Something about the timing that.
Speaker Change: It seems right for you to do this.
Speaker Change: Method of selling it now in this announcement.
Speaker Change: And then separately I just wonder if you've done the pro forma math, how much better or a company would be in GB.
Speaker Change: Not just with this weekend and the rest of the Camden in the frozen business, but also the sale of the 10% to 15% that you're also contemplating sound like it.
Speaker Change: How much better of a company would this be Uh huh.
Speaker Change: What does that do to pro forma maybe historic revenue growth rates and margin structure.
Speaker Change #166: Sure. So so a couple of things in there Brad and part one this is our first quarter with our new.
Speaker Change: These issues at our segment results, we've been talking about getting to the stage for some time and sort of.
Speaker Change: Casey has made a point as he came on board we are talking about the strategy and how he wants to run the business and grow the business going forward and what areas, we want to invest in and what areas are maintained and drive cash and so this is a natural combination of at rework of the business segments that are our first time reporting segment result.
Speaker Change: And I think the whole concept here is improving the business.
Speaker Change #135: So you're asking the right questions obviously.
Speaker Change #135: Not in a position to disclose.
Speaker Change #135: Yes.
Speaker Change #135: The outcome, but certainly you can see by the margins, we will improve our margin profile.
Speaker Change #135: From an inventory standpoint, this is a more inventory and working capital intensive business, a little bit more seasonality less so since we already got rid of the can business, but more seasonality in working capital.
Speaker Change #135: Certainly with anticipated accelerating our deleveraging of the business at the end of the day, we want to get back to strong commitment to the dividend.
Speaker Change: Using those free cash flows through a combination of paying a dividend and reducing leverage and going back to acquiring businesses that makes sense for us and fit in our portfolio.
Speaker Change: With a different strategy for each business unit that cases Ella.
Speaker Change: I think in simple terms.
Speaker Change: We want to get to a company that's capable of growing at one maybe 2% on the top line, we want to get to a company that has closer to a 20% EBITDA margin. We wanted to get to a company that has stronger cash conversion.
Speaker Change: And we want a company with clear platforms that we can acquire on and drive value.
Speaker Change: And that's what we're trying to do and that's what this.
Speaker Change: The announcement and discussion is today, how do we get to that were pretty clear in those three other business units that we have platforms. We are pretty clear that we can get to that kind of performance that we're talking about in terms of growth and margins and this I think is just the culmination of a lot of work to say, what's the right structure long term for us to go back and acquire and build.
Speaker Change: Green giant.
Speaker Change: A great brand and its iconic.
Speaker Change: At a point in time it was one of the fastest growing brands in the grocery store. It's just very different from a lot of the other things that we own from a profile standpoint.
Speaker Change #144: And we want to be a focused business.
Speaker Change: Hi.
Speaker Change #116: I wanted to just ask a follow up. Thank you. That's all great color by the way. Thank you I wanted to follow up on the foodservice side I mean, the industry was obviously pretty lousy in restaurants in the first quarter volume, where traffic was down 2% as an industry.
Speaker Change #116: In the first quarter.
Speaker Change #116: Your number I think you said down 12, 13 or so percent.
Speaker Change #116: That's obviously not equipped equivalent but how much.
Speaker Change #116: Worse in a volume metric basis than the industry, where are you in.
Speaker Change #116: Hi.
Speaker Change #116: Where do you know why would it be worse.
Speaker Change #138: Im not really sure.
Speaker Change #167: I think it's just.
Speaker Change #167: We see traffic numbers at least from our customer base, a little bit lower than what you just quoted.
Speaker Change: So I think this is all really timing about people adjusting inventories when you think about spices right. So how much people have are maintaining inventory at our distributors et cetera. So.
Speaker Change: I just think it's a timing issue is reflecting the general slowdown.
Speaker Change: Hi, I'm going we're going to keep watching it to see what we think the longer term trend is but I think we're going to have.
Speaker Change: And we have a tough comp I think in the first quarter versus last year.
Speaker Change: We think we'll be down in the second quarter, probably a little bit better in the third and the fourth based on the trend analysis, we're seeing.
Speaker Change #106: Yeah, I mean I.
Speaker Change #106: Right.
Speaker Change #106: I guess, you probably over indexed some.
Speaker Change #106: Some players that had a really rough I mean, there were some.
Speaker Change #106: There's some chains out there that had rough going in I O.
Speaker Change #106: Yes, maybe offline I am wondering if you changed who we deal with directly that had that had much worse numbers. So.
Speaker Change #106: And it is what it is the other part of it is some of this some of our foodservice as markets through large distributors and sometimes that can be a little bit lumpy.
Speaker Change #106: As opposed to followings.
Speaker Change #168: Yeah, I think but I think that's going to be the story, that's that that stuff youre talking about theres much more math. There then there will be for the industry trend is I mean, my comment back on that.
Speaker Change #106: <unk>.
Speaker Change #106: Thank you. Our next question is from Carla Casella from Jpmorgan. Please ask your question.
Carla Marie Casella Hodulik: I had a couple of follow ons.
Carla Marie Casella Hodulik: I think I'm not sure. If you said this in your prepared remarks, but I think you've paid down $20 million of that the term loan b with the green giant presses in fourth quarter and there was another payment coming in first quarter was that is that do I have that correct I was assuming another 30.
Speaker Change #106: Something million in first quarter or what their payment.
Speaker Change #169: So there are two.
Speaker Change #106: The way it works through our covenants and now that we've got the senior secured notes, there's got to be a payment to the term loan and then an offer to the new senior secured noteholders.
Speaker Change #106: And then those new senior secured note holders don't have to take that theme. It if they don't it goes to the term loan.
Speaker Change #106: We kind of detailed that in our Q in the subsequent events.
Speaker Change #117: So okay.
Speaker Change #117: Essentially fairpoint to say take what we paid down on the term loan and assume that essentially doubled.
Speaker Change #119: Okay and thank you all get the exact number.
Speaker Change #118: Your line is.
Speaker Change #145: Yeah, its about $44 million in total.
Speaker Change #107: What we needed to pay down so again half of that went to term loan investors right away on the senior secured notes.
Speaker Change #120: Very little came back to us so it will be more towards the term loan the notes are trading well above par so as expected.
Speaker Change #120: I can take that money back at par and where its trading at whatever 1314.
Speaker Change #107: Right. So when do you make that second term loan payment went through whatever is left in the second quarter.
Speaker Change #107: Okay. Okay. So it wasn't made in Paris, that's what I was checking was not made in the first now early days of the second quarter.
Speaker Change #146: Okay, great. Thank you.
Speaker Change #121: That's all I had.
Speaker Change #122: Thank you there are no further questions at this time that concludes the question and answer session for today, ladies and gentlemen, the conference has now and.
Speaker Change #110: Thank you all for joining you may all disconnect.