Yahoo Finance B&G Foods, Inc. (NYSE:BGS) Q1 2024 Earnings Call Transcript
B&G Foods, Inc. (NYSE:BGS) Q1 2024 Earnings Call Transcript May 8, 2024
B&G Foods, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and welcome to the B&G Foods First Quarter 2024 Earnings Call. Today's call, which is being recorded, is scheduled to last about 1 hour including remarks by B&G Foods management with a question-and-answer session.
I would now like to turn the call over to AJ Schwabe, Associate Corporate Strategy and Business Development for B&G Foods. AJ?
AJ Schwabe: With me today are Casey Keller, our Chief Executive Officer; and Bruce Wacha, our Chief Financial Officer.
You can access detailed financial information on the quarter in the earnings release we issued today. which is available at the Investor Relations section of bgfoods.com.
Before we begin our formal remarks, I need to remind everyone that part of the discussion today includes forward-looking statements. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer you to B&G Foods' most recent annual report on Form 10-K and subsequent SEC filings for a more detailed discussion of the risks that could impact our company's future operating results and financial conditions.
B&G Foods undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We will also be making references on today's call to the non-GAAP financial measures, adjusted EBITDA, segment adjusted EBITDA, adjusted net income, adjusted diluted earnings per share, adjusted gross profit, adjusted gross profit percentage and base business net sales. Reconciliations of these financial measures to the most directly comparable GAAP financial measures are provided in today's earnings release.
Casey will begin the call with opening remarks and discuss various factors that affected our results, selected business highlights and his thoughts concerning the outlook for the remainder of fiscal 2024. Bruce will then discuss our financial results for the first quarter of 2024 and our guidance for fiscal 2024. I would now like to turn the call over to Casey.
Kenneth Keller: Good afternoon. Thank you, AJ, and thank you all for joining us today for our first quarter 2020 earnings call.
In my remarks, I will address 3 topics on the call today. First, an overview of first quarter results. Bruce will provide more detail and color later in the presentation. Second, the reporting of segment results for the first time by our 4 business units. And third, an update on our portfolio reshaping plans and activity.
Quarter 1 results. First quarter net sales of $475.2 million and adjusted EBITDA of $75 million were slightly below expectations. Base business net sales adjusted to exclude the year-over-year impact of lower Crisco oil pricing decreased by approximately $17 million or 3.4% compared to the year ago period. Much of the decline within our food service and industrial businesses across spices and seasonings, Maple Grove Farms syrups, baking powders and oils and Ortega cheese and other sauces. The declines reflect an overall slowdown in out-of-room traffic and volumes compared to fiscal year '23 trends.
Net sales to retail customers across the business units were slightly down, approximately 1.5%, with relatively flat volumes, offset by a modest increase, 90 basis points in trade and promotional spending. Adjusted EBITDA for the first quarter decreased by $7.4 million compared to the first quarter of 2023. 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. Adjusted EBITDA as a percentage of net sales for the first quarter was 15.8%, largely in line with the 16.1% achieved in the prior year period.
On a consolidated basis, gross profit as a percentage of net sales for the quarter was up 60 basis points versus last year. We continue to see moderating inflation and some favorability in transportation and warehousing. Although, these were offset by increased G&A costs for insurance and salary wages as well as higher advertising and marketing investment in the quarter versus last year.
Segment reporting. This is the first quarter of B&G Foods is reporting results by operating segments, providing greater visibility into the underlying performance of the company's business units. The segments represent the 4 operating business units that we recently reorganized the company's structure into. Business units are now fully established, running their businesses and actively managing the business unit P&Ls. Across the 4 business units, we maintained a lean corporate structure, approximately 4% to 5% of net sales to maintain oversight and efficiency and trend and shared transactions and operations, i.e., sales distribution and order processing, et cetera.
The 4 business units are spices and flavor solutions. 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%.
B&G Foods is a leader in the spices and seasoning category with key brands, Dash, Weber grilling, Spice Islands, Ac'cent, et cetera.
During the first quarter, Spices & Flavor Solutions net sales were depressed by a significant decline in food service business with key distributors and customers. Sales to retail customers were up slightly in the quarter. We are also launching a new line of licensed seasoning and grilling blends under the 4 6s brand, which is the new show and ranch featured in the Yellowstone Television franchise.
Meals. The Meal segment represents approximately 25% of our consolidated net sales, with segment adjusted EBITDA as a percentage of net sales of 21.4%. The key components of this business unit are Mexican meals, Ortega Las Palmas and hot breakfast, Cream of Wheat, McCann's, Maple Grove Farms, Syrups. We see growth opportunities in Mexican meal preparation as consumers expand their Mexican cuisine options at home. The first quarter meal segment net sales decline was driven by lower food service sales while net sales to retail customers were roughly flat.
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%. The primary focus of this business unit is baking staples, about 70% of business unit sales with leading #1 brands such as Crisco oil and shortening, Weber grill baking powder, Grandma molasses, et cetera. Baking both from scratch and mix has remained relatively stable over time with more consumers learning to bake from scratch during COVID lockdowns. The Specialty segment's key objective is to maintain strong, stable cash flow and margins. Specialty segment adjusted EBITDA was up slightly in the first quarter.
Frozen and vegetables. The Frozen and vegetables segment represents approximately 22% of our consolidated net sales, with the lowest segment adjusted EBITDA margin as a percentage of net sales of 7.5%. The Frozen and vegetables business unit includes the U.S. Green Giant Frozen business, the Canada Green Giant frozen and canned businesses, a major portion of our company's consolidated Canada sales and the Le Sueur canned vegetable product line. The primary focus of our Frozen vegetables business unit is to improve gross profit margins, strengthen the innovation pipeline, streamline the frozen distribution network, and grow volumes in our [indiscernible], Mexico and [indiscernible], Arizona manufacturing facilities.
First quarter Frozen vegetables segment net sales reflect overall softness in the frozen vegetables category, with much of the segment adjusted EBITDA decline year-over-year attributed to the divestiture of the U.S. Green Giant can business last November. Portfolio shaping. B&G Foods has continued and will accelerate the reshaping and restructuring of our portfolio to sharpen focus, improve margins and cash flow and maximize future value creation. The divestiture of the Green Giant U.S. canned vegetable business was completed last fall, following the sale of the Back to Nature brand in January 2023.
As previously disclosed, we have been evaluating and working on divestures that represent between 10% to 15% of total company net sales. That process on smaller brands is proceeding and we expect to possibly sell some assets before the end of fiscal year '24. Beyond those efforts, the larger decision on whether to remain in frozen long term has been an open question. 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 Vegetables business unit.
Green Giant remains a strong brand with broad awareness and distribution, and the frozen vegetables category is on trend with long-term health and dietary trends. However, I believe the frozen vegetable business may not be the right fit with B&G Food's focus and capabilities, 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. More to come as we further evaluate our options and plans. Thank you. And I will now turn the call over to Bruce for more detail on the quarterly performance and outlook for the year.
Bruce Wacha: Thank you, Casey. Good afternoon, everyone. 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. 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. In the first quarter of 2024, we generated $475.2 million in net sales, $75 million in adjusted EBITDA, adjusted EBITDA as a percentage of net sales of 15.8% and $0.18 in adjusted diluted earnings per share. Base business net sales, which excludes the Green Giant U.S. shelf-stable product line, decreased by $22 million or 4.4% in the first quarter of 2024 compared to the year ago period.
The decrease in base business net sales was driven by approximately $5 million from the execution of our Crisco pricing model that reflected a decrease in soybean oil costs and allowed us to pass this benefit back to consumers in the form of lower pricing. Approximately $10 million was from lower food service and industrial net sales across multiple business segments and brands. And the remaining $6-plus million 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.
Gross profit was $108.9 million, for the first quarter of 2024 or approximately 22.9% of net sales. Adjusted gross profit, which excludes the negative impact of $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. Gross profit was $114.2 million for the first quarter of 2023 or 22.3% of net sales. Adjusted gross profit, which excludes the negative impact of $0.7 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. While we are continuing to see input cost inflation with regards to material goods and our factory production, the cost increases have been modestly flat thus far this year and offset in part by continued moderation in certain costs like soybean oil and tomatoes that saw the greatest increases in 2022 and 2023.
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. Selling, general and administrative expenses increased by $1.9 million or 4% to $48.6 million for the first quarter of 2024 from $46.7 million for the first quarter of 2023. The increase was composed of increases in general and administrative expenses of $2 million. Consumer marketing expenses of $1.6 million and acquisition divestiture and nonrecurring expenses of $0.1 million, partially offset by decreases in selling expenses of $1 million and warehouse expenses of $0.8 million.
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 9.1% for the first quarter of 2023. The increase in general and administrative costs was largely driven by modest inflation in wages, insurance and other professional services. As I mentioned earlier, we generated $75 million in 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. 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. The remainder was largely driven in proportion by a decline in our net sales.
Net interest expense was $37.8 million in the first quarter of 2024 compared to $39.4 million in the first quarter of 2023. 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, partially offset by slightly higher interest rates on our long-term debt compared to the first quarter of 2023 partially offset by slightly higher interest rates on our long-term debt compared to the first quarter of 2023. Depreciation and amortization was $17.2 million in the first quarter of 2024 compared to $18 million in the first quarter of last year.
We had a net loss of $40.2 million or $0.51 per diluted share and adjusted net income of $14.4 million or $0.18 per diluted share in the first quarter of 2024 compared to net income of $3.4 million or $0.05 per diluted share and adjusted net income of $19.1 million or $0.27 per diluted share in the first quarter of last year. The net loss and diluted loss per share in our GAAP results were driven by a write-down of goodwill that was allocated to our frozen and vegetable business unit as part of our reorganization into 4 operating segments and as described further in our press release and 10-Q. Casey already described the units, and I recommend investors to review our press release and 10-Q for additional information.
I would like to now touch on the results. Net sales for the Specialty segment decreased $7.9 million or 4.9% for the first quarter of 2024 to $154.7 million from $162.6 million in the year ago quarter. The decrease was primarily due to lower Crisco pricing, driven by softening commodity costs, coupled with declines in food service and industrial sales. Specialty segment adjusted EBITDA increased by $0.7 million or 1.9% for the first quarter of 2024 compared to the first quarter of 2023. Net sales for the Meal segment decreased $1.9 million or 1.6% for the first quarter of 2024 to $120 million from $121.9 million for the first quarter of 2023. The decrease was primarily due to lower net sales in Food service.
The Meals segment adjusted EBITDA decreased by $0.6 million or 2.3% compared to the first quarter of 2023, which was in line with the decrease in net sales. 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 vegetables segment decreased by $6.7 million or 6%. Although increased promotional trade support help grow our bag-in-a-box or BIB product line during the quarter, some of the other parts of the frozen business fared less well.
Frozen and vegetables segment adjusted EBITDA decreased by $2.7 million compared to the prior year period. 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. Net sales for the Spices & Flavor Solutions segment decreased by $5.4 million or 5.4% in the first quarter of 2024 to $95.6 million from $101 million in the first quarter of 2023. The decrease was primarily due to lower net sales in food service. The Spices and Flavor Solutions segment, adjusted EBITDA decreased $2 million or 6.6% in the first quarter of 2024 compared to the first quarter of 2023.
Now I'd like to spend some time on our cash flows and balance sheet. 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. Our net cash from operations was actually quite strong despite the year-over-year decrease when compared to the first quarter of 2023. 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 the year ago period.
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. We finished the first quarter of 2024 with approximately $560.6 million of inventory compared to $569 million in inventory at the end of 2023 and $700.9 million at the end of the first quarter of 2023. 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 refinanced, have an interest payment in Q2. We reduced debt by a little bit more than $10 million during the first quarter of 2024, and we have now reduced net debt by approximately $250 million since the end of the first quarter of 2023.
Our pro forma adjusted net leverage ratio as defined in our credit agreement was approximately 6.35x at the end of the first quarter of 2024, in line with our year-end results and significantly better than the 7.2x at the end of last year's quarter. 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 towards achieving our long-term target of 4.5x to 5.5x. As noted in our earnings press release, we are revising our fiscal 2024 guidance to $1.955 billion to $1.985 billion for net sales. $300 million to $320 million for adjusted EBITDA and $0.75 to $0.95 for adjusted diluted earnings per share.
We believe that the revised guidance better reflects the emerging challenges in food service and a more gradual recovery in net sales to retail customers with improvement expected in the second half of this year. We do expect continued volume improvement throughout the year in our sales 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.
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. depreciation expense of $47.5 million to $52.5 million, amortization expense of $20 million to $22 million; an effective tax rate of 26% to 27% and CapEx of $35 million to $40 million. We expect to use approximately 50% of our excess cash to pay our dividend and the remaining 50% to pay down debt. Now I'll turn the call back over to Casey for further remarks.
Kenneth Keller: Thank you, Bruce. In closing, our first quarter results demonstrated consistent margins and moderating inflation with declines in net sales driven by food service trends and increased promotional spend. We expect food service trends to be soft through the first half of the year, with a corresponding pickup in at-home consumption trends in the back half. We are also accelerating efforts to reshape and clarify the portfolio through the reporting of business unit segments and the strategic evaluation of the remaining Green Giant frozen and canned vegetable business in the U.S. and Canada. This concludes our remarks. And now we would like to begin the Q&A portion of our call. Operator?
Operator: [Operator instructions] And your first question is from William Reuter from Bank of America. Please ask your question.
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