Q2 2019 Earnings Call
Good day, and welcome to the B and G Foods incorporated second quarter to 2019 financial results Conference call.
Today's call is being recorded you can access detailed financial information on the quarter.
In the company's earnings release issued today, which is available on the investors relations sections of BG foods Dot com.
Before the company begins its formal remarks I need to remind everyone that part of the discussion today includes forward looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them.
We refer you to the company's most recent annual report on Form 10-K , and subsequent SEC filings for a more detailed discussion of the risks that could impact the company's future operating results and financial condition. The company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise.
The company will also be making references on today's call to the non G.P. financial measures adjusted.
T.D. adjusted net income adjusted diluted earnings per share and base business net sales reconciliations of these financial measures to the most directly comparable GP financial measures are provided in today's earnings release.
Ken Romance, he the Companys, President and Chief Executive Officer will begin the call with opening remarks and discuss the various factors that affected the company's results selected business highlights and his thoughts concerning the outlook for the remainder of 2019 and beyond.
Bruce Walker, the company's Chief Financial Officer will then discuss the Companys financial results for the quarter as well as its guidance for 2019, I would now like to turn our conference over to plan.
Thank you good afternoon.
Thank you all for joining us today for our second quarter earnings call.
And with a special thanks to the dedicated team at BMG food.
We're working so hard in a challenging operating environment to generate our result.
This afternoon I'd like to provide you a perspective on our second quarter results before I turn the call over to Bruce can provide the details of our financial performance.
I'm pleased to report that we had a solid second quarter with results that were ahead of our internal plans.
Which got us back with our internal operating plan through the first six months of the year.
And we believe puts us on track to deliver our full year plan to achieve our 2018 financial targets.
And most importantly, they are more reflective of the performance that I expect from BNP foods.
Net sales for the quarter were $371.2 million.
A 4.4% decline versus last year.
But at 2.2% increase.
Excluding the divestiture of Pirates booty.
Adjusted EBITDA was $71 million down 4.7% versus year ago, but up 5.3% excluding pirates booty.
Adjusted EBITDA as a percentage of net sales was 19.1%.
More in line with what we're used to it being Dean foods and ahead of our for the full year target.
As we shared with you at the beginning of the year.
Our 2019 plan and in fact, our longer term strategic plan is based on a stable base business.
Pricing to help offset inflation in all forms such as list pricing weighed out trade spending optimization and innovation.
Cost savings initiatives targeting targeting to take $50 million of cost out of our cost of goods sold over a two to three year timeframe.
And of course always on the lookout for accretive acquisitions.
I'm pleased to report that all of these initiatives gain traction in the second quarter.
And we expect them to continue to gain momentum throughout the remainder of the year.
Our base business performance was powered by our largest brand green giant.
For the third consecutive quarter, both shelf stable and frozen green giant drove growth.
Shelf stable grew with new distribution and improved pricing.
While green giant frozen continues its strong momentum behind our vision of making green giant the plant based vegetable food brand of the future.
Fueled by continued success of our new product introductions.
Our vision is to not only introduce new vegetable products in the traditional frozen vegetable category, but to help people get more vegetables in their diet by introducing new products made with vegetables.
Expanding the giants reach across the frozen food case.
We are very encouraged by the successful launch of the latest generation of innovation, such as Green giant caliber cauliflower pizza crust.
Green giant protein bowls.
And little Green Sprouts organics.
We are very much looking forward to announcing our next wave of Green giant frozen innovation later this year as we continue to facilitate Americas healthier eating habits.
And a little bit further into the future. Our plans include expanding green Giant's President.
Throughout the entire grocery store.
We had some other winners across the portfolio this quarter.
Following a challenging first quarter performance.
We are happy to report that Victoria was up in net sales by about 1.5% and we continue to believe that this is a brand with solid growth opportunity as we continue to expand distribution across the country and the growing premium pasta sauce category.
Maple Grove farms that have strong second quarter with net sales up more than 4% on the back of strong retail consumption, coupled with excellent performance within the food service channel.
And New York style had another good quarter up nearly 4% benefiting from our merchandising efforts and the attractive deli perimeter of the store.
And last but not least the addition of clavier girl midway through the quarter help add to our net sales growth by over $8 million on track with our expectations.
Without cloud girl and excluding pirates booty nets their sales were roughly even with last year.
Our net sales growth was supported by solid consumer takeaway.
Total BMG foods consumer consumption as measured by Neilson grew 1.4% for the second quarter and 1.2% for the first half of 2019.
Sales growth and adjusted EBITDA benefited from the pricing we implemented.
We saw the benefits of approximately $4 million in pricing during the quarter inclusive of our list price increase in may of this year.
The wraparound benefit of last year's list price increase from June of last year and from trade spend optimization.
Through two quarters, we now have benefited from approximately $11.3 million and improved pricing.
Well on our way to achieve the $15 million to $20 million in our 2019 plan.
You can see this price realization in the Nielsen data, where the average per unit price across the BMG foods portfolio increased 2.8% versus year ago for the 26 weeks ending June 29.
Encouragingly, our price per equivalent unit increased 4.5% versus last year as our weight out initiatives began to flow into the marketplace.
We also continue to be on track with our cost savings plan.
We have now fully implemented our dry and frozen distribution realignments as we successfully moved our West Coast distribution Center from Texas to California.
Making a significant dent in our customer delivery spend while also allowing us to reap the benefits.
In our internal freight transfers.
All told we have reduced mileage by approximately 17%.
Taking out nearly 8 million miles out of our dry distribution network through June of this year.
Likewise, we have also completed the realignment of a portion of our frozen distribution network.
Moving from a center in Tennessee to one in Texas.
The new Fort worth, Texas location is closer to both our customers and our green giant manufacturing facility facility in Europe Auto Mexico.
Saving miles and money on both customer and inbound replenishment freight to the rapidly growing southwest market.
Furthermore, our procurement group continues to do a great job, reducing the impact of raw material pricing. Despite the inflationary pressures in the industry.
And we continue to take cost out of production of our products through weighed out some packaging without sacrificing the quality of these products.
In the eyes of our consumers.
All in we are on track to deliver our 2019 plan of $15 million to $20 million in cost savings throughout our procurement logistics manufacturing packaging and SDN, a spending which we expect will deliver another 2020 $5 million in the year 2020.
Now before I turn the call over to Bruce I would like to highlight a few other important accomplishments. We have good we have achieved the PNG foods with a little bit larger timeframe to consider.
Over the past 18 months.
The energy has reduced our outstanding long term debt by approximately $415 million.
We repurchased 1.4 million shares of our common stock.
Completed the sale of pirate brands at more than double the price we paid for the business.
And made two small but accretive acquisitions in Mccain's Irish oat meal in cloud will grow.
We also continue to maintain our longstanding commitment to our dividend policy.
Earlier this week, our board of directors demonstrated this by declaring our sixtyth consecutive quarterly dividend since our 2004 IPO.
Since the IPO, we have return to our stockholders almost $900 million in the form of dividends.
And while we do Miss our beloved pirate on occasion.
Our financial results. This quarter are beginning to reflect the positive benefits of our reduction in long term debt and share repurchases.
As well as investments that we made in a pair of acquisitions.
Our debt repayments over the past 18 months have resulted in interest savings of almost four and a half million dollars in this year's second quarter compared to last year.
In addition, we are benefiting from the reduction in share count in our earnings per share calculation.
As a reminder, after we repurchased almost $37 million of our common stock between mid March 2018 through mid March 2019.
Our board of directors extended our stock repurchase authorization for another.
Year through mid March 2020, and reset the purchase authority to up to $50 million.
We certainly recognize the price at which our shares are trading today, and we'll take that into consideration as we consider capital investment alternatives.
Lastly, we are very pleased with our most recent acquisitions.
Mccann's, which just completed its one year anniversary under our ownership is performing as well as we expected and we continue to see upside for this leader in the premium full meal category.
We are excited about the potential to drive new distribution growth as we fill in the still sizeable distribution gaps to take this on trend.
Better for you brand national overtime.
We're also very happy with the accent acquisition of clever girl.
As you know we acquired this business about two and a half months ago.
Cloud Burger holds the leadership position in retail baking powder, which is a growing category with more than a 90% market share position across several brands, including Clavier girl Davis and Rumford baking powder.
As well as a relatively small amount of private label.
In addition, the baking powder clever also maintains number two positions in retail baking soda and corn starch.
We love this business and are very happy it's now part of the BMG Foods family.
I'd like to now turn the call over to Bruce to discuss the details of our second quarter financial performance.
Thank you Ken good afternoon, everyone.
As Ken just outlined we had solid results in the second quarter as we reported net sales of $371.2 million.
Adjusted EBITDA of $71 million and adjusted diluted earnings per share of 38 cents.
Adjusted EBITDA as a percentage of net sales was 19.1% for the quarter.
Through six months, we have net sales of $783.9 million and adjusted EBITDA of $146.8 million, both of which are ahead of our internal plan and supportive of our full year guidance.
After adjusting for approximately $25.2 million in net sales for pirate brands in the second quarter of 2018.
Second quarter 2019, net sales of $371.2 million represents an increase of $8 million or 2.2% more than last year.
Net sales benefited in the quarter by $10.6 million, resulting from the acquisitions of Clavier girl in May 2019, and Mccann in July 2018.
Second quarter net sales benefited from approximately $4 million and benefits from price increases, which were largely driven by our list price increase as well as improvements in trade spending efficiencies.
Volumes exclusive of the sale of pirate brands and including our acquisitions of Mccann's in Clamor girl.
Increased by $5.1 million.
Green giant continues to be a primary driver of growth within the portfolio.
With net sales of all green giant products up $8.3 million or 7.9%.
Net sales of Green giant frozen products were up $3.5 million or 4.1% for the quarter.
Net sales of Green giant frozen products benefited from the successful adoption of innovation products.
Frozen growth.
With slower than we have been used to due to the overlap of innovation pipeline fill last year and from reducing trade promotion activity, which tampered volume growth, but growth in consumption is strong and we remain very bullish about green giant growth going forward.
Separately, our green giant shelf stable products, including less or are seeing the benefits of increased pricing and new distribution wins and were up sharply.
Up 23.5% in the second quarter.
Among our other large brands net sales of Maple Grove farms increased by approximately.
Point $7 million or 4.1% net sales of New York style increased by $8.4 million or 3.8%.
Net sales of Victoria increased $5.1 million or 1.4%.
And net sales of Ortega and cream of wheat were relatively flat for the quarter.
Net sales of the company's spices, and seasonings business decreased by $3.6 million.
Largely driven by price reductions that resulted from lower input costs.
Certain raw materials as well as timing.
Gross profit was $91.9 million for the second quarter of 2019 or 24.7% of net sales.
Excluding the negative impact of $4.9 million of acquisition divestiture related and nonrecurring expenses during the second quarter of 2019.
The company's gross profit would have been $96.8 million or 26% of net sales.
Gross profit was $81.2 million for the second quarter of 2018 or 20.9% of sales.
Excluding the negative impact of $20.1 million of acquisition related and nonrecurring charges during the second quarter of 2018.
The gross profit would have been 101.3 dollars or 26.1%.
Our plan this year was to increase pricing and implement cost it initiatives to offset inflation and to maintain gross profit margins and that is exactly what is happening.
For the second quarter of 2019 gross profit benefited from being net pricing of $4 million, bringing year to date pricing benefit to $11.3 million.
Things are also benefiting margins as our cost cutting initiatives have helped to offset the inflationary pressures that we're seeing across the industry, which include the distribution realignment of our dry and frozen networks.
Improved procurement and our gene a rationalization from earlier this year.
These initiatives in addition to the pirate brands divestiture help lower our Cogs or cost of goods sold inclusive of the cost of materials labor overhead freight and warehousing from $307.2 million in the second.
2000, $18 million to $279.3 million in this years second quarter.
Cost of goods sold as a percentage of net sales from 79.1% in the second quarter of 2018, 75.3% in this years second quarter.
Selling general and administrative expenses increased by $2.6 million or 6.9% to $39.9 million for the second quarter of 2019 from $37.3 million for the second quarter of 2018.
The increase was composed of increases in general and administrative expenses of $1.9 million and an increase in acquisition divestiture related nonrecurring expenses of $1.5 million, which were offset in part by decreases in warehousing of point $4 million consumer marketing expense of $2.3 million.
And selling expense as a point $1 million.
Expressed as a percentage of net sales selling general and administrative expenses increased by 1.1 percentage points to 10.7% for the second quarter of 2019.
Compared to 9.6% for the second quarter of 2018.
After adjusting for the impact of acquisition divestiture related and nonrecurring expenses selling general and administrative expenses expressed as a percent net sales increased by 0.7 percentage points to 9.8% in the second quarter of 2019 compared to 9.1% for the second quarter of 2008.
We generated $71 million in adjusted EBITDA for the second quarter of 2019 compared to $74.4 million in the prior year quarter.
This was driven by the benefits of our pricing and cost savings initiatives, coupled with two small acquisitions offset by the negative drag of cost inflation and approximately $7 million of loss contribution following last year's divestiture pirate brands.
Adjusted EBITDA as a percentage of net sales was 19.1% in law and with 18.2% in the year ago quarter and ahead of our full year target of 18.5%.
We generate it eight cents in adjusted diluted earnings per share in the second quarter for 19 compared to 38 cents per share.
Second quarter of 2018.
This was driven by increased.
Profitability, coupled with the operating leverage from the reduction in long term debt, resulting in interest expense savings and the reduction in shares outstanding as a result share repurchases more than offsetting the reduction of product contribution that resulted from the diverse pirate brands.
We're updating our full year guidance for 2019, following the acquisition of Klauber girl earlier this year.
We expect the acquisition of clever girl to contribute approximately $30 million to $35 million in net sales throughout the remainder of 2019.
And while we expect collaborative goal to ultimately generate adjusted EBITDA as a percent of sales that is generally in line with our base business today.
We have a limited expectations.
For EBITDA contribution this year as we continue to integrate the business.
And as a firm up our 2018 results include almost $30 million in net sales and $10 million in product contribution from pirate brands. During the last few quarters of the year.
For 2019, we have increased our net sales guidance to a range of $1.665 billion to $1.7 billion.
We can expect adjusted EBITDA.
Of 300, and $520 million adjusted earnings per share of $1.85 to $2.
Net interest expense of 85 and a half.
87, and a half to 91 and a half million dollars in the cash interest expense of $84 million to $88 million and interest amortization expense of $3.5 million.
Depreciation expense of Approx $41 million.
Amortization expense of approximately $18.5 million.
In effective tax rate of approximately 25% 25%.
Cash taxes, excluding the tax effects from the gain on sale of pirates.
$5 million or less for the year.
And finally, we expect capex to be approximately $45 million to $50 million for 2019 in line with last year.
Based on the midpoint of our adjusted EBITDA guidance range, we expect that our adjusted EBITDA less capex cash taxes, excluding the tax effects from the sale of pirates and cash interest will be approximately $175 million to $180 million.
The pirate brands Divesture resulted in a pre tax gain on sale of approximately $176.4 million during the fourth quarter of 2018.
The gain on sale negatively impacted our income taxes for the 19 by approximately $71.8 million, which includes a tax payment. We made during the second quarter of 2019 of $43.2 million.
And as tax refund, we otherwise would have expected to receive.
Actually $28.6 million.
Excluding the negative tax impact of the gain on sale, our net cash provided by operating activities for the second quarter and the first two quarters of 2019 would have been approximately $38.3 million and $88.6 million respectively.
During the remainder of 2019, we expect to make cash tax payments of less than $10 million.
From a quarterly modeling perspective, I would remind folks that the third quarter of this year.
I have a similar drag from the divestiture of pirate brands as the first quarter.
And we expect about $78 million or so.
Of loss contribution in the third quarter added approximately two to 3 million dollar impact from the fourth.
Given that we only owned the business for a portion of the fourth quarter 2018.
And while we expect input costs to remain elevated as an inflation appears to be here to stay we also expect to see more benefits from our pricing initiatives throughout the remainder of the year.
These benefits will be coupled with continued activity on the cost cutting front.
Finally based on the midpoint of our adjusted EBITDA guidance and pro forma for a full year benefit of the acquisition of class growth. We expect net debt to adjusted EBITDA of approximately 5.4 times at the end of the year.
And now I will turn the call back over to Ken.
Okay.
Thank you Bruce.
Our second quarter financial performance reflects the momentum is beginning to take hold the PNG foods.
Base business is stable and is performing as expected.
Our pricing and cost initiatives are beginning to deliver our two most recent acquisitions mccann's in cloud growth are performing in line for the patients.
And our new leaner leadership structure is fully operational and working extremely well together.
In summary, we believe the BMG food business plan remains intact and very attractive.
As we continue to run a lean, but nimble organization that can react quickly to various industry challenges such as widespread inflationary pressures.
While we also create value through accretive M&A.
While simultaneously returning excess cash to our investors through a healthy dividend.
And share repurchases from time to time.
This concludes our remarks and now we'd like to begin the Q and a portion of our call.
Operator.
Yes, one more thank you ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speakerphone.
Please make sure your mute function is turned off to allow your signal to reach our equipment. Once again press star one to ask a question.
Our first question from Bryan Hunt of Wells Fargo. Please go ahead.
Good afternoon, Ken Bruce.
[laughter].
Hi.
My first question is you talked about your pricing benefits and then you're on track to hit those as well as cost savings can you discuss.
BNN, where freight inflation and input cost inflation I think you map those out at about 18 and $10 million respectively.
Kind of at the midpoint or are those tracking relative to your original budget.
So we continue to expect inflation this year and cost inputs and in freight and our plans to combat that inflation are tracking within our guidance.
Very good and then next year.
Bruce you talked about 5.4 times leverage by the end of the year I think on the last call. You mentioned five too can you can you discuss what that relative changes I imagine if the acquisition of copper girl.
Yeah its acquisition of collaborative.
Okay, and then lastly.
You all sound pretty positive about the pricing environment.
Is there anywhere.
Within your categories.
Or within your channels that you are seeing heightened competitive activity I mean, I know you have big exposure to club.
So year I'm, sorry, you asked about would you mentioned club Nonetheless.
Yeah. Yeah. I was just wondering are you are you seeing any incremental.
Competitive activity from your from your peers.
Whether 10 traditional channels Oren club.
Particularly with regards to private level.
No not anything particular, I mean, the business is always competitive and so we're not seeing any we don't see we haven't seen the recent quarters any more competitive more or less than than what we're used to.
All right I will hand, it off to somebody else. Thanks for your time.
Thank you.
Thank you. Our next question comes from Karru Martinson of Jefferies. Please go ahead.
Good afternoon, just on the clever girl acquisition.
How much work has to be done to integrate the business to see some of that sales start to drop down to the bottom line.
Sure I think the key thing to remember with cloud are girls, we bought a full standalone business that had all sorts of corporate and family and cost embedded into it.
Very excited about the transaction is performing as expected.
But our view was largely run it as it was being run before.
Which which include some of the burden of those cost.
For a period of time as we work through the Keybanc season.
And so thats the game plan and things are proceeding as planned.
Okay. We're also taking if the time with that acquisition because we just implemented our own ERP system. So we want to make sure that is absolutely free and clear so before we now integrating another business into it.
And so walgreen everything's, a green light for pretty much.
The first of next year to be to be just about fully integrated.
Okay, and now with the three quarters under your belt can distribution gains I mean are we going to call. This a trend now and where are you taking that distribution from.
The biggest distribution gains we received was through the dollar channel.
But it is important to note that when we were overlapping our sales negative sales because of the overlap of the lost distribution outside of the major customer that we lost distribution and consumption was up like 1%, which is pretty promising in that in that in that category.
So this this recent growth is certainly not going to be the future trend will overlap that distribution, but before this occurred our business was actually up up very low single digits.
Absent of distribution gains.
Okay, and then just one.
When we look at your target year end leverage how should we think about M&A working itself into that 5.4 target.
So.
We're always actively looking for M&A opportunities.
And nothing really changed in that in that.
Perspective for us the math that we test the work whether big or small.
From a from a price and evaluation and a business that we won and so we'll continue to evaluate things. We're certainly aware of where our leverage is we're certainly aware of where our stock prices.
And all things included the math has to work.
Okay. Thank you very much guys appreciate it.
Thank you.
Thank you. Our next question comes from Rob.
Moskow of credit Suisse. Please go ahead.
Hi, Rob for the question Hi.
Hey, Ken Hi, Ive side, one of the concerns that I've articulated and I think others have too is that reinvestment needs might have to go up at BSG customers are are more aggressive and they've invested more in data analytics and their supply chains and ecommerce and BG has been operating with a game plan of of kind of running a stable business and.
I guess brands that had been around for a long time.
Have you been able to it obviously the you know the business stabilize this quarter. That's all good news had are you seeing that you're able to run the business with the current level of investment pretty well or do you think that theres more capabilities that you might have to build in future years that that might require more resources.
Given the environment. Thanks.
When you say investing I mean, this two times investment my line one of the piano investment in terms of marketing spend and shopper marketing spend and get ready for ecommerce and things of that major nature and the other is capital spending. So I believe we do have enough capital spending to do we need to do.
At $45 million to $50 million a year.
We are we're going to be and we're coming off a major IP infrastructure investment with our ERP system, we're going to be turning a lot of those capital investments into further investment to drive cost savings not just maintenance spend but investments to drive cost savings on the cost of goods line.
And then in terms and one of those investments is a trade management system, that's going to allow us to get at our largest expenditure on the PML. Besides cost of goods is is trade spending and trade spending gets used in a lot of different ways and we're hoping to take that and do more with that those dollars like shopper marketing like.
Participating in those all those retail programs so.
I.
I believe we have enough.
In RPL to be able to take part in that it's just how we allocate that spending is going to be the most important thing going forward.
Okay, and then a follow up I think you mentioned that.
Your your sales growth in frozen started to slow in the second quarter.
Are you, saying that in the back half the pipeline starts building up again with more new products or do you think the competitive intensity is going to kind of become a challenge in the back half. Thanks.
No. We're we did less we had to innovation pipelines last year spring and fall and this year, we're only doing one.
So we overlapped the pipeline fills of wood that doesn't concern us that's just because we didnt have we didnt have a second shot at it and spring of this year.
In addition to on the.
On the non innovation, we had less trade promotion activity, which which reduced which reduced volumes, but that was planned and intended so.
Thats why Bruce mentioned wallets appears to be a slow down it was planned and.
Not indicative of our expectations going forward.
Okay. Thank you.
Thank you. Our next question comes from call Casella of JP Morgan. Please go ahead.
Hi did you ever get them, then cash and payment you made for the copper girl acquisition.
Yeah. So we had a tax payment obligation of approximately $71 million or no class, what do we pay but oh the purchase price.
Yeah, sorry did you mean, the Briton five or $80 million.
Okay and that was all this quarter.
Correct.
Okay, and what was the tax payment.
A gain on sale of pirates. So when we saw a guy who is there was a tax payment we effectively were able to lay that payment for about six months.
So that okay. Okay I appreciate the score.
It's important to note that that that tax payment. This quarter was was as a result of the sale of pirates booty, what's allowed us to pay a large amount of debt back last year.
Exactly.
Tax because my next question did you give the a b L and how much is drawn and what's the availability on that at the end of the quarter.
So yeah, our revolver all the all of that information is in the press release.
Oh, I'm, sorry, I missed that okay, great and then just one last one you mentioned.
Went down now I find it on the last question and one last question on investment and talked a bit about how you're going to redirect some of the spending.
Out of trade.
Are you seeing much are you seeing others do the same are you getting pushback from retailers that you try and read direct trade spending.
Well, there's a lot of the <unk>, we see a lot of dollars going into things like shopper marketing stuff like that so it's not like we're trying to take anything away. We're really trying to just redirect them to the all the new programs and initiatives that <unk>. The retailers have so it's really about how we spend the same amount of money with with the region.
Okay, great. Thank you.
Thanks Carla.
Mhm.
Thank you next question comes from.
Bank of America Merrill Lynch. Please go ahead.
Good afternoon.
It sounds like you I'm pretty successfully pushed through your price increases with your customers have you gotten some date or can you talk to me about how's. The Pos was of those items. After the price increases were push through to the final customer.
Well, it's all there in Nielsen Aoc consumption was up actually a little bit more in the first and second quarter than it was for total BMG up a smidgen more than we were even more than the first quarter, so 1.5% growth.
Consumer consumption and that's very by brand so.
We haven't seen any any elasticities beyond what we expected so far it is early in terms of when that actually.
You know, we only have <unk> Nielsen results through the end of June so.
You know retail prices were only affected by our price increase it only took place in may so you're not seeing a lot yet in terms of any changes in consumption patterns.
Yeah, No I you guys had given the the commentary about Nielsen I was just you know that was obviously for across all of your products and obviously I'm sure. There was a range of price increases. So I was just trying to get an early indication of what I'm. What you might have seen if there was anything different for those products that you had higher price increases yet and we haven't seen anything unexpected.
Okay, and then one thing you mentioned to an earlier question that you continue to see freight cost up we've heard some indications recently that freight costs are coming down you haven't seen anything.
This is a couple of journal articles that we had seen you haven't seen anything around that recently.
We certainly hope those articles are correct.
But we're not experiencing down versus last year yeah.
Right no I use the word we're terms of rate yeah. We're we're getting savings is our activities in terms of realizing both our dry and frozen.
Right. Okay, and then last time, we had heard from your leverage target was four and a half to five and a half times is that still the number that you guys would just stick with.
It is that's that's very much our long term leverage target.
Okay I'll pass to others. Thank you.
Thank you.
Thank you.
So question comes from David Palmer of Evercore ISI. Please go ahead.
Hey, Dave Thanks, Thanks, David Hey, Bruce.
You can.
Question on Green giant frozen and just a follow up to Rob's question, you mentioned that there was slowing consumption.
But that you have back weighted your marketing promotions in that part of your business.
Do you believe in that we will see that consumer take away growth from green giant frozen, perhaps reaccelerating in the in the next in the coming months in the back half of this year.
Yes, mainly because of the the the launch of innovation in the fourth quarter.
Got it and just on the distribution.
We can see in the scanner data frozen vegetables.
Do you have a CV up there this quarter, but were seeing some ACB losses across many other brands like Ortega and Maple Grove and spices.
Could you talk about what's going on with regard to distribution and perhaps sq rationalization and you know how much of that is your own volition versus retailers.
Sure I mean, there's always.
Ebbs and flows on distribution so.
On some of it is self inflicted some of it we're cleaning up our product line on lower margin products. Some of its retailers being more red lining of of skews that may not turn as fast.
And our whole approach is that particularly when we're launching new products. We're always looking at our own portfolio to make sure that we were justified to have incremental skews on shelf versus just keep adding because we understand the pressures that our customers are under in terms of limited real estate on the shelf. So.
There's always puts and takes on the distribution line.
And then just one last one on canned vegetables, obviously, you're you're getting that good growth out of the dollar channel as you mentioned.
Is that.
Is that are you going to lap that and should we just expect a more moderate growth are more stable performance from cans in a quarter or something like that.
Yes, absolutely we would not model 25%.
Growth assets that distribution growth.
So we wouldn't be that's that's been of.
Category declining in years, but we've actually done other than to distribute one big distribution loss for a big customer our business has actually been pretty good for instance, we're growing it in Canada.
Homes Green giant of very very strong brand in Canada. So they are actually up growing very very nicely.
So, but we wouldn't expect.
A lot of growth from cans.
The post the overlap in new distribution.
Thank you very much.
Thanks.
Thank you. Our next question comes from Eric Larson.
Buckingham Research group. Please go ahead.
Hi, Ken Bruce.
Hi, Eric how are you.
I am well thanks.
All things are on your end to.
Yes, I did a quick and maybe I don't have all.
All the numbers correct here, but it goes to your sales guidance you you you brought it up obviously from here.
The increase is about 30 to 45 million so.
If you just kind of break down the components of that Im just trying to make sure I understand whats within that increase in guide.
You will have $40 million to $50 million of probably incremental revenue from from Clavier girl, you'll have some offset obviously from from pirates.
You're going to have the benefit of a price increase now it'll take a little while for most of that to kick in.
My calculation shows that that puts a base.
Sales assumption on your base brands of about 2%.
Is that anywhere close to the ballpark and I might have some of the divestiture revenues.
Ill incorrect as well I'm just trying to see if that is in the ballpark.
Yeah, so so to make it real simple prior guidance was a billion 635.
A billion 665, and we increased that by between 30 and $35 million for the addition of Clavier girl for the for the year.
Okay, All right and then everything else is net of all that is so that's it's just cloud will grow as youre as the reason for your your your your guide up.
Correct track is tracking to plan with a nice addition of I've got it.
Okay, and then and then.
Now you're kind of you're halfway through the year and now your cost saves.
You know starting to kick in you have better cost saves and you actually beat a bit on the on your EBITDA off your adjusted EBITDA guide in the quarter. So.
Well. It is there is there potential upside to your guide you in adjusted EBITDA for.
For the next several quarters.
I think we would keep it right exactly where it was.
And that's what we're comfortable with.
And that guide also includes Collabra girl.
Correct, although not a lot of incremental benefit from glamour girl in 2019, just given like we said earlier on the call. It came with a full.
Corporate before it got it okay for a relatively small business and so we're running it mostly as is today and like I said, Oh connect that to me.
So that could be potential EBITDA upside maybe in 2020 I should get through your ERP systems get those up you could see that as maybe upside to the next next calendar year.
Correct.
Okay, and that's why we thank you yep. Thank you.
Thank you. Our next question comes from Andrew Lazard of Barclays. Please go ahead.
Hi, everybody.
Hey, Andrew.
Just a couple of quick things one would be if we think about just volume and price.
As we go through the back half of the year.
Can you talk a little bit about would you expect the impact of pricing too.
To accelerate from here or because it doesn't sound like you're at like full run rate yet and.
And then would you anticipate volume to be likely down in the back likely down in the back half.
Around what it had been let's say in the first half or we can there be some adjustment consumers adjust to the higher prices and maybe volume kicks in a little bit or isn't down quite as much in response to the pricing.
So from a pricing standpoint, we laid out a plan that talked about $15 million to $20 million of increased pricing through two quarters, we're tracking to the plan, we're happy with that.
Does that include the 15 to 20 include the benefit that you had in the first quarter from some of the trade optimization.
So we're not we're not changing our guidance on the on the pricing keeping that $15 million to $20 million feel comfortable with that.
Hey.
EBITDA cadence in the back half of the year, maybe could just remind us of a couple of if there were a couple of discrete.
Items between Threeq and Fourq, you that you'd you'd want to kind of call out just as we think through yet.
The primary things that I'd call out and mentioned there a little bit earlier on the call. We're talking through the guidance is last year benefited from about seven $8 million.
From Pirates in the third quarter, and we obviously don't have the pirate today.
And so I would say that's your base plan in terms of are you up or down or flat to that.
And then fourth quarter, it's a it's a smaller we had it for a shorter period of time. So maybe a couple of million dollar drag there before you get into performance of this year.
And then lastly, I guess a broader question I'm, just trying to get a sense of how you would sort of characterize.
Your full year EBITDA guidance at this point and I ask that because and what I mean that is conservative.
Giving yourself some room somewhat flexible because there's been I think it's safe to say a little bit more volatility right in sort of forecasting versus.
Kind of what's been reported both up and down between first quarter and second quarter, and even going back to a little bit last year. So I'm trying to get a sense, whether do you. When you think about a range do you generally sort of think about hey, midpoint gives us some room on both ends or are you just trying to get ultimately be happy to get to the low end is there some flexibility there you get the sense of what I'm I'm going after.
Yeah, and we gave a guidance number we're tracking to our plan and you know I don't see anything that would suggest.
Folks would be altering there.
Forecasts or estimates for the company I think we're tracking to where people were and where we were and.
Very pleased to report that.
Okay. Thank you.
Thank you. Our next question comes from Ken.
Zaslow of bank of Montreal. Please.
Hi, good afternoon everybody.
Again I.
Hey, if I didn't ask this question I think you guys have been sold this I'll start there can you walk us through the capital or the the dividend.
Opportunity I'm, assuming it's still in safe guards, but could you just take a little bit through the cash flow and making sure that through the end of the year were in good shape. There in there won't be any need for any capital raise or anything like that or just that would be where I start.
Sure. So so familiar question and thank you for asking it dividend, we're still committed to the dividend.
Ken referenced on the call the longstanding commitment to the dividend as people saw yesterday, our board reauthorized the dividend at the same level.
And so pretty.
Pretty comfortable with that.
And as far as the dividend coverage.
Based on the range of $305 million to $320 million for adjusted EBITDA, you're getting to a.
170, 580, plus million dollars of EBITDA less cash interest cash taxes, and capex to cover a dividend of about $125 million.
And in that regard there is no reason that you'd even need outside of an acquisition there would be no need for you to raise equity of any sort right is that fair.
Outside of an acquisition I don't see the compelling need to it and we're certainly aware of what our stock price is today and I think people can see.
Board authorization.
For additional share buyback of $50 million and the buybacks that we did over the last 18 months in terms of what our view is on stock price.
And then just on the business can you give us an update on the spaces in what the.
Outlook for that is I might have missed it. So I just would greatly appreciate that and I'll leave it there.
Sure. We don't obviously guide to specific brand performance, but but love the Spice business is performing.
In line with expectations, we outperformed in the first quarter of this year and so there was a little bit of a timing and then and then we also have an issue there it's somewhat of a pass through business and.
So we had some lower raw material costs and that impacted pricing and so sales down a little bit for the quarter profit very healthy and on a year to date basis tracking in line with plan so little bit of timing is there still opportunity for a large expansion within this business given the <unk>.
The infrastructure set up or is that passes by now and it will actually leave it there. Thank you.
Margin expansion in spices or in total, but yes. In this space is this is that I I recall there was some opportunity in terms of distribution opportunity, then and just consolidating certain plants or something like that and I. Just didn't know if where you are on that and if there was any opportunity there.
Right now in total in total margin expansion as we've said, we're looking at the balance pricing cost savings offset inflation longer term, we'd like to return to margin expansion, but in the near term margin maintenance is what the plan is.
Perfect. Thank you very much.
Thanks.
Thank you ladies and gentlemen, that's all the time, we have for questions for today I would like to turn the conference back over to Mr., Ken Romans equal any additional or closing remarks. Thank you.
We just appreciate everybody being on the call good questions and.
I look forward to our next third quarter call. Thank you very much.
Ladies and gentlemen, this concludes today's call. Thank you for your participation you may now disconnect.