B&G Foods, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Sales Trends: Third quarter net sales of $461.1 million were somewhat below expectations. Base business net sales excluding Crisco and Green Giant divestiture decreased by approximately 3% compared to the year-ago period. Spices and Flavor Solutions showed positive trends (+2.6% in Q3) driven by fresh produce growth. Major retail customers lowered warehouse and shelf inventories by several days to a week in July, impacting net sales by 1%. Foodservice sales were down 2%-3%.
• Adjusted EBITDA: Adjusted EBITDA of $70.4 million decreased by $10 million compared to Q3 2023. The Green Giant U.S. shelf stable divestiture and foreign exchange from the peso negatively impacted results. Total B&G Foods adjusted EBITDA as a percentage of net sales was 15.3% down from the prior year period.
• Portfolio Shaping: B&G Foods remains committed to reshaping and restructuring its portfolio. The divestiture of the Green Giant U.S. canned vegetable business was completed last fall, and the Back to Nature brand was divested in January 2023. The company continues to review its remaining portfolio for possible divestiture of non-core assets, including the Frozen and Vegetables business unit.

Segment Performance

• Spices and Flavor Solutions: Third quarter net sales increased 2.6% versus Q3 2023, aided by fresh fruit perimeter growth in grocery. This segment has the highest segment adjusted EBITDA as a percentage of net sales. However, segment adjusted EBITDA was down modestly due to timing of foodservice trade spend, increases in certain raw material costs, and product mix. A new line of licensed seasoning and grilling blends under the 46s brand was launched.
• Meals: Q3 net sales decreased by 3.9% versus last year. The largest driver was the Ortega brand, impacted by competitive pressure from the Taco Bell brand. Skinnygirl salad dressings continued high growth behind new items, increased capacity, and expanded distribution.
• Specialty: Q3 net sales declined by 9.9% versus last year. The decline was primarily due to lower Crisco pricing driven by decreased commodity costs coupled with modest declines in volumes across the business unit. Wesson also fielded more aggressive pricing and promotion during the quarter.
• Frozen and Vegetables: Excluding the impact of the U.S. Green Giant canned divestiture, net sales were down 1.7% versus last year, an improvement from prior quarter trends and reflecting some overall category softness in frozen vegetables. Excluding the divested Green Giant U.S. shelf stable business and the impact of foreign exchange from the peso, segment adjusted EBITDA for Frozen and Vegetables was positive for the quarter.

Guidance

• Revised fiscal 2024 guidance: Net sales is revised to $1.92 billion to $1.95 billion, adjusted EBITDA to $295 million to $305 million, and adjusted diluted earnings per share to $0.67 to $0.77. The midpoint of net sales guidance is based on first three-quarters net sales of approximately $1.381 billion and projected base business net sales decline of approximately 2% to 3% for Q4 2024. The company expects gradual recovery and stabilization in fiscal 2025 with sequential improvement between the first and second halves of the year.

Risks

• Consumer environment and slower recovery in center store trends impacting sales.
• Foreign exchange from the peso negatively impacting Green Giant's segment adjusted EBITDA.
• Increased competitive activity in categories such as vegetable oil (Wesson pricing aggressively) and Mexican category (Ortega and Old El Paso impacted by Taco Bell brand activity).

Question and Answer

Q: Andrew Lazar asked about inventory stocking in Q2 and destocking in Q3.

A: Bruce Wacha and Kenneth Keller discussed that major retail customers took inventory down in July, impacting Q3 sales, and that inventory adjustments were seen in July and August.

Q: Michael Lavery asked about foreign currency impact and tariffs.

A: Bruce Wacha explained that foreign currency from the peso negatively impacted Green Giant's segment adjusted EBITDA, and there was no comment on tariffs.

Q: Robert Rigby asked about private label trends and commodity prices.

A: Kenneth Keller discussed private label impact on frozen vegetables and certain oil categories, and Bruce Wacha mentioned input cost inflation trends.

Q: Robert Moskow asked about competitive intensity and hot cereal.

A: Kenneth Keller discussed efforts to address competitive pressure in Mexican and vegetable oil categories and no major concern on hot cereal.

Q: Hale Holden asked about specialty margin decline and food service in 2025.

A: Bruce Wacha and Kenneth Keller discussed specialty margin factors and expectations for food service normalization in 2025.

Q: David Palmer asked about top areas for improvement.

A: Kenneth Keller highlighted spices, Ortega, Crisco, and Frozen and Vegetables as key areas for improvement through innovation and brand position.

Q: Karru Martinson asked about inventory reduction carry-through and retailer adjustments.

A: Kenneth Keller discussed inventory reduction impact and retailer inventory management strategies.

Q: Carla Casella asked about revolver status and Wesson pricing.

A: Bruce Wacha explained revolver status post-refinancing and Wesson pricing dynamics related to input cost changes.