B&G Foods, Inc. (BGS) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Stockholders of B&G Foods. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Dave Wenner, Interim President, Chief Executive Officer and a director of B&G Foods. Mr. Wenner, the floor is yours.

Thank you. I am Dave Wenner, Interim President, CEO and a director of B&G Foods. On behalf of the directors and officers of B&G Foods, I'd like to welcome you to our annual meeting of stockholders. We appreciate your attendance, your interest, and most importantly, your support of our company. Due to the COVID-19 pandemic, we are holding this Annual Meeting of Stockholders in an audio-only virtual format to provide a safe experience for our stockholders and employees. I will act as the Chairman of this meeting. And at this time, I would like to call the Annual Meeting of Stockholders to order. I would first like to introduce each of the other current directors of the company who are attendance on the call today: Steve Sherrill, the Chairman of the Board; DeAnn Brunts; Debra Chase -- Martin Chase, excuse me, Chuck Marcy, Rob Mills, Dennis Mullen, Cheryl Palmer and Al Poe. Each of us is standing for reelection. I would now like to introduce the following members of the B&G Foods executive leadership team: Erich Fritz, who is Executive Vice President and Chief Supply Chain Officer; Jordan Greenberg, Executive Vice President and Chief Commercial Officer; Eric Hart, Executive Vice President of Human Resources and Chief Human Resources Officer; Scott Lerner, Executive Vice President, General Counsel, Secretary and Chief Compliance Officer; Ellen Schum, Executive Vice President and Chief Customer Officer; and Bruce Wacha, Executive Vice President of Finance and Chief Financial Officer. Scott Lerner will act as the Secretary of this meeting. Also in attendance are Asad Chaudhry, Corey Temple and [ Grace Ungerleider ] of KPMG, the company's independent registered public accounting firm. The stated items of business for this meeting are: 1, the election of 9 directors to serve until the 2022 Annual Meeting of Stockholders; 2, an advisory vote on executive compensation, commonly referred to as say-on-pay vote; and 3, the ratification of the appointment of KPMG as our independent registered public accounting firm. In order to have an orderly meeting, after the proposals are presented, I will ask if there are any questions or comments. [Operator Instructions] Time has been allotted later in the meeting for any appropriate questions you may have concerning the company. Please review and adhere to the rules of conduct that are posted on the meeting center site. We will now proceed with the voting on the proposals. If you have voted your shares in advance of the meeting by one of the methods described in the proxy materials for the meeting, there is no need to vote those shares during the meeting. If you have not already voted your shares in advance of the meeting, you may vote by following the instructions on the meeting site. For the 2021 proxy season, an industry solution has been agreed to that we expect will allow the vast majority of beneficial holders, those stockholders whose shares are held in the name of a broker, bank or other nominee, to vote their shares during the meeting using the control number received with their voting instruction form. Please note, however, that this option is not available to all beneficial owners, and the inability to provide this option to any and all beneficial owners shall in no way impact the validity of today's meeting. For those beneficial owners who do not have this option, you will not be able to vote your shares electronically during the meeting today, unless you have obtained a proxy executed in your favor from the institution that holds your shares and have previously submitted the proxy to Computershare and received the confirmation of your registration with a control number from Computershare in accordance with the procedures described in the proxy statement. Your vote must be cast before the polls are closed. The polls will be closed at the end of the general discussion and my CEO report to stockholders. Again, please be assured that there will be an opportunity later in the meeting for stockholders to ask general questions regarding the company. We will now begin the formal business of the meeting. Mr. Lerner, will you please present the notice of meeting?

I present to this meeting an affidavit of Computershare, the transfer agent for the company's common stock, which states that the notice of Annual Meeting was mailed on April 8, 2021, to all holders of record of the company's common stock as of the close of business on March 22, 2021. The notice of meeting and the affidavit will be filed with the records of the company. The report of the Inspector of Election certifies that there are in attendance at the annual meeting or by proxy stockholders entitled to cast at least the majority of the votes which all stockholders are entitled to cast.

Thank you, Mr. Secretary. In view of that report, I declare that a quorum is present, and the meeting is duly constituted. We are now ready to proceed with the transaction of business. The Board of Directors has appointed Kerri Shenkin of Computershare to act as inspector of the election for this meeting. The inspector is in attendance and has taken her oath of office, which I direct to be filed with the minutes of this meeting. The inspector has a list of stockholders of the company indicating the name, address and number of shares held by each holder of the company's common stock as of the record date certified by the company's transfer agent. This list is available for inspection during the meeting by any stockholder on the meeting center site. The secretary will file a copy of the list of shareholders with the records of the company. We will now have the presentation of the 3 proposals before the meeting. Each of the proposals is described in the proxy statement previously made available to you. Shareholders who have questions specifically relating to the 3 proposals may submit them now. And after I finish summarizing the proposals, we will answer those questions. Proposal #1 is the election of 9 directors to serve until the 2022 Annual Meeting of Stockholders. The company has an advanced notice bylaw provision. Accordingly, all nominations are closed. As set forth in the proxy statement, the Board of Directors has previously nominated for reelection each of the current members of the Board. Proposal #2 concerns an advisory vote on executive compensation, commonly referred to as say-on-pay vote. And Proposal #3 concerns the ratification of the selection of KPMG as the company's independent registered public accounting firm for the year ending January 1, 2022. Do we have any questions?

As we have received no questions regarding the proposals, we will proceed to the opening of the polls. Mr. Wenner?

I declare the polls now open for voting on all proposals. If you have voted your shares in advance of the meeting by one of the methods described in the proxy materials for the meeting, there is no need to vote those shares during the meeting. If you have not already voted your shares or wish to change your vote, you may do so now by clicking on the Cast Your Vote link on the meeting center site. [Voting]

While stockholders are voting, I will now present the Chief Executive Officer's report to the stockholders. Before I begin my remarks, I'd like 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. I refer all of you to our recent filings with the SEC for a more detailed discussion of the risks that could impact our 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. I will also refer to the non-GAAP financial measure adjusted EBITDA. Reconciliations of this financial measure to the most comparable GAAP financial measures are provided in the earnings press release that we issued for fiscal 2020 and the first quarter of 2021, both of which may be found in the Investor Relations section of our website, bgfoods.com. Having dispensed with that, thank you all for joining us this morning. We very much appreciate your interest and continued investment in B&G Foods. It would be a gross understatement to say that 2020 was a year like no other. COVID-19 brought an incredible amount of suffering, inconvenience, and unfortunately, death with it. It's humbling that our company benefited from such tragedy. And at the same time, it's a tribute to our employees, working in the midst of the pandemic and dealing with their own issues caused by it, that we were able to respond as well as we did to the increased needs of consumers as they coped with COVID-19 and the resulting quarantines. Fiscal 2020 was a record-breaking year for B&G Foods. We set a company record for sales, which increased 8.5 -- 18.5% to $1.968 billion, and adjusted EBITDA, which increased 19.4% to $361.2 million. We generated adjusted EBITDA as a percent of net sales of 18.4%. We also successfully completed the Clabber Girl integration, the Crisco acquisition and a credit agreement refinancing. Consistent with our core values, the health and safety of our employees and the quality and safety of our products are our highest priorities. During 2020, we implemented a wide range of precautionary measures at our manufacturing facilities and other work locations in response to COVID-19. We have also been working closely with our supply chain partners and our customers to ensure that we can continue to provide uninterrupted service. Thanks to the tremendous efforts of our employees, especially those throughout the supply chain, our ability to serve our customers has not to date been materially impacted, although we have faced and continue to face supply chain constraints on certain of our products. For example, the Green Giant brand, which was one of our brands that benefited the most from COVID-related demand during fiscal 2020 as well as certain of its competitor brands, has faced supply chain constraints that we expect will continue until we reach the new seasonal pack this summer. As a result, we made the difficult decision during the fourth quarter of 2020 and the first quarter of 2021 to place certain of the brand's products on allocation with our customers to avoid running out of products prior to the start of the new pack season, which is expected to somewhat limit net sales of Green Giant products until the third quarter of fiscal 2021. That said, even with those constraints, we expect Green Giant brand sales to continue to track to 2019 levels until the new crop arrives. Our ongoing acquisition strategy, which we have successfully executed for many years, continued to yield positive results in 2020. On December 1, we acquired the iconic Crisco brand of oils and shortening from The J.M. Smucker Company. Crisco has a strong heritage as the original all-vegetable shortening that transformed the way people bake and cook over 100 years ago. Crisco is the #1 brand of shortening, the #1 brand of vegetable oil, and also holds a leadership position in other cooking oils and cooking sprays. Crisco is an excellent complement to our existing portfolio of brands, including our Clabber Girl and other baking powder brands. This acquisition is consistent with our long-term acquisition strategy of targeting well-established brands, with defensible market positions and strong cash flow and a reasonable purchase price multiple. With this acquisition, we expect your company will exceed $2 billion in sales -- net sales for the first time. As the in-house historian, I can remember a company that had one brand with approximately $35 million in net sales in 1993. Needless to say, this is a very different company now. We have had some significant achievements during an unprecedented fiscal 2020. Most importantly, we were able to successfully continue our business despite the pandemic, and did so in a manner that kept our employees safe and healthy. The successes of fiscal 2020 should not mislead any of us about the challenges of 2021. It has been and will continue to be a much more challenging year in terms of inflation across a number of key input costs, including certain agricultural products, packaging and freight. As in prior years, our expectation is that we will manage these costs through a combination of pricing initiatives and cost savings activities to preserve our margin profile and our cash flows. In that vein, the first quarter of 2021 played out much as we expected. In total, we achieved record quarterly net sales of $505.1 million, a 12.4% increase from the first quarter of 2020. Net sales on our base business, which excludes the Crisco acquisition completed in December, were approximately $447 million, virtually flat versus first quarter of 2020 at a modest 0.6% decline. Within that number, U.S. base business net sales were up 2.1%, while international base business net sales were down 31.8%, virtually all of that Green Giant sales in Canada due to severe allocation of the brands there. Compared to the fiscal 2019, our base business net sales, which, for purposes of the 2-year comparison, also exclude Clabber Girl and Farmwise net sales, increased $16.6 million or 4% for the quarter. Our $447 million base business net sales were supplemented by the $58 million of Crisco sales, bringing our total net sales up to the $505 million figure. Adjusted EBITDA for the quarter also set a first quarter record at $92.9 million, a 15.2% increase, a result of solid base business volume and earnings and a fulsome Crisco benefit in our first few months of ownership. As encouraging as the first quarter results were, there are certainly risks and unknowns to deal with for the remainder of 2021. Rising costs are a significant issue, and one that will not be resolved anytime soon. Freight costs have increased steadily. Capacity issues in the trucking industry in both labor and equipment will continue for the foreseeable future. Packaging and raw materials have seen widespread cost increases as well. We have insulated ourselves in many cases with forward buying positions. But even those in -- even with these in place, they've also had to announce pricing and manage our trade spending to compensate for these cost pressures. Some of these increases are already in effect and others will take effect shortly. On the positive side, we are seeing reduced expenses related to COVID as vaccination of our workforce expands. While this was a $2.9 million negative in the first quarter of 2021, we should save much of the $13.3 million we spent on COVID-related measures in the last 3 quarters of 2020. While much of our business has started shifting back to more normal performance, one area where we see a continuation of new consumer behavior is e-commerce. Even though there are no complete or precise measures for net sales for this means, we are able to estimate that retail sales of our brands through various e-commerce venues grew by over 60% to $50 million in the first quarter of 2021. At this point, we estimate that e-commerce retail sales for the full year will continue to grow at that rate and reach $275 million this year. I should emphasize that this is not necessarily growth in our factory sales, but instead, a noteworthy shift in how consumers are buying our products. We are investing significantly in this area to ensure that we are well represented in this phenomenon, which shows no signs of leveling off in the near future. If anything, retailers are upping the ante, with one recent article citing plans for a 2-hour delivery window of orders to a consumer's home. We continue to believe that our shareholders are best served by the operating model we've had in place since we went public in 2005: strive for modest organic growth in our base business of well-established brands; layer on a larger growth component via accretive acquisitions; and return a meaningful proportion of free cash flow to shareholders through dividends. In our 16 years as a publicly held company, we have proven our commitment to creating shareholder value by consistently paying a generous and growing cash dividend. We have paid a dividend every quarter since our initial public offering. And over the 16 years since our initial public offering, we have increased the dividend at a compound annual growth rate of 5.5%. We have been able to maintain our dividend policy year after year by growing net sales and adjusted EBITDA over the past 16 years at a compound annual growth rate of 11.0% and 10.8%, respectively. Our dividend yield is among the highest in the industry, and we remain as committed as ever to our policy of returning a meaningful portion of our excess cash to shareholders. During 2020, we returned $121.9 million of cash to our stockholders. Other progress in 2020 that is well worth noting includes a heightened recognition of the corporate responsibilities of B&G Foods as we approach the threshold of $2 billion in net sales. The year saw the formation of a new Corporate Social Responsibility Committee at the Board of Directors level. Its mission, to direct and oversee our efforts to meet our corporate social responsibilities to our employees, customers, consumers, communities and other stakeholders. During 2020, we also adopted and published on our website a new human rights policy and a new environmental health and safety policy. And most recently, we have established an employee-directed diversity, equity and inclusion council that has -- and engaged in a third-party DEI consultant to help us understand and meet the needs of our employees, while achieving appropriate workforce DEI throughout our company. While we already have had efforts in place on these fronts, these actions show that we as a company are committed to increasing our efforts and investments. With one investment, we have recently established the B&G Foods scholarship at The Culinary Institute of America to support individuals from diverse backgrounds in their pursuit of culinary careers. With the goal of making culinary education and employee more accessible to all, the B&G Foods scholarship awards 5 $10,000 grants to eligible Culinary Institute students each year, with a total commitment of $1 million in scholarships over the next 8 years. Additionally, scholarship recipients who received their education in good standing will receive the award each year until graduation. B&G Foods partnership with The Culinary Institute of America is rooted in shared values of passion, collaboration, inclusion and empowerment. B&G Foods story began in 1889, when 2 immigrant families came to America in search of a better life. What began as a family pickle brand sold on the streets of New York City, has become a portfolio of more than 50 iconic and beloved brands, including Green Giant, Crisco, Ortega, Clabber Girl, Cream of Wheat, Dash, Victoria and Back to Nature. As part of our commitment to promote diversity, equity and inclusion, B&G Foods designed this scholarship to encourage more diverse voices to make their impact on the culinary industry. Before our earnings call last week, we issued a press release announcing the appointment of Casey Keller as our new -- next President and Chief Executive Officer, effective June 14. As of that date, I will step down as interim CEO. I will remain a director of our company, and we'll work closely with Casey to ensure a seamless transition. Casey will also be elected to the B&G Foods Board of Directors. Casey is a food and beverage industry veteran. Most recently, he served as President and CEO of JDE Peet's NV, a $7 billion global coffee and tea company, with over 20,000 employees based in Amsterdam, the Netherlands. He led the merger of Jacobs Douwe Egberts and Peet's Coffee, Inc., and the successful initial public offering of the combined company in May 2020. Prior to the merger, Casey was the President and CEO of Peet's Coffee, a premium specialty coffee company based in California and led the business through rapid growth in the United States and successful expansion into China. Prior to that, Casey served as Global President of Wm. Wrigley Jr. Company, a subsidiary of Mars, where he was responsible for delivering sales and profit growth across the global gum, mints and candy business. He joined Wrigley in 2011 as President of Wrigley North America and later assume responsibility for Wrigley Americas. In the United States, the company's largest global market, Casey led a turnaround of the Wrigley business, delivering growth well above the industry average. During the integration of Wrigley into Mars, Casey helped establish the global business units and strategy for the combined Mars-Wrigley confectionery business. Before that, Casey served as President of Alberto Culver USA from 2008 until the company's acquisition by Unilever in 2011. He's also worked at H.J. Heinz Company in both the United States and Europe, leading the ketchup, condiments and sauces division in the United States, and he was the CEO of Heinz Italy. Casey began his career -- goods career with Procter & Gamble. Casey also earned a Bachelor of Arts from Cornell University and served for 4 years as an officer in the U.S. Navy before receiving his Masters of Business -- his MBA from Harvard Business School. From my conversations with Casey, I can tell you that he is incredibly excited to be joining B&G Foods and working with our very talented and dedicated workforce. He plans to continue to focus on organic and acquisition growth, innovation, operational improvements, cost reduction efforts and the creation of stockholder value. At the same time, he will continue to promote and further enhance B&G Foods corporate social responsibility efforts, including our company's environmental, sustainability and DEI efforts. It has been a very rewarding experience to once again lead our company, work with our very talented executive leadership team, and reinforce the principles and strategies that have helped create tremendous value for all of our stakeholders over the years. I look forward to continuing to serve on B&G Foods' Board of Directors and assisting Casey's transition. Finally, I want to recognize our company's employees, all of whom have contributed to making this company successful in an extremely challenging year. Without all of their dedicated efforts, we could not achieve the records that were set in fiscal 2020 or have begun 2021 with the prospect of another successful year. Our passion for what we do, our commitment to food safety and quality, integrity and accountability, our customer and consumer focus, our commitment to the safety and health of our employees, and our belief in collaboration and empowerment are the values that have driven the success of this company for many years and will continue to drive our company's success in the future. It is because of these values that we've been able to create tremendous stockholder value over the years, and why I believe stockholders of B&G Foods should continue to expect the bright future ahead. Thank you very much for joining us here today and for your time and attention. And thank you for your continued support of B&G Foods. And this concludes my prepared remarks. Now we will return to the business of the meeting. Since everyone has now had the opportunity to vote, the polls are now closed. While the votes are cast and proxies are counted, I now invite stockholders to ask any questions you may have about the company.

It appears we have received 5 questions. First, I've noticed the price of commodities are rising, from ag prices used to make our products, to aluminum, steel, cardboard used to package your items. I also read about increasing transportation costs. My question is, does B&G Foods have the ability to raise prices to offset these costs? Or is the competition in the food industry too tough to pass these costs on to the customer?

Well, the simple answer is that these costs are facing everyone that is in the industry. And I think everyone will respond with pricing, trying to maintain their profitability. And that's what we're seeing so far. We have already raised price on several brands, Green Giant and Underwood earlier this year because of costs we saw then. And we raised price on Crisco in April because we saw oil that goes into the Crisco products going up rapidly. We've announced further price increases in -- that take effect in June on a variety of our brands. And frankly, we're layering in plans for more price increases down the road because the cost situation is getting more and more severe as the year goes on. So I guess the quick answer is, everyone is in the same boat, and we believe everyone will follow or lead in pricing. And I don't think the competition will be much of a factor, except perhaps in 1 or 2 select brands.

Second question, when the annual meeting was in person, B&G Foods used to hand out a coupon book to attending shareholders to allow them to try new company products. Can you send out a coupon book to shareholders attending this year's virtual meeting?

You're forgetting the goodie bag.

Yes. We can send out coupon books. If you entered the meeting as a record holder, we have your name and address. If you entered today's meeting as a guest or as a beneficial holder through a broker, please send your request to [email protected]. Corporate secretary, one word, @bgfoods.com. That e-mail address is also on Page 8 of the proxy statement. If you e-mail us, we'll make sure we get you a coupon book. And thank you for attending the meeting. Next question. Nationwide, job openings are at an all-time high as workers are hesitant to return to work. Are you having a problem filling job openings? Are you having to increase salaries to attract experienced workers?

In general, no. We have a very veteran, long-standing workforce, and a lot of stability within that workforce. There are a couple of locations where we are having some difficulty getting enough people in, especially to meet the expanded demand those locations have seen. But in general, no, we aren't seeing as much of a problem as you might see in the press.

There were reports of supply chain constraints affecting all industries. Can you discuss how B&G Foods is being affected?

Yes. Supply chain is a serious problem up and down the line. So far, it hasn't affected the commodities in terms of availability for us to make the products. But it certainly has affected the packaging industry. Lead times are longer on packaging when you can get it. And certain things, you can't get. So you may notice some of our products with -- that normally would have a black cap, might have a red cap or a white cap because we can't get the cap that we would otherwise use. And it's just the lead times are longer. The expense is obviously up, as was mentioned before. And then when you go to ship to customers, trucking is short. So we are not being as efficient in trucking as we would like to be, not being able to load trucks the way we'd like, with delays and things like that. But we are coping with it and still doing well versus our 2019 numbers. Obviously, our sales at this stage of 2021 are down versus the huge surge that we saw in 2020.

With the recent Crisco acquisition, your debt ratio has increased. Please discuss your policy and limits you place on the amount of debt B&G Foods will hold. Also, B&G Foods plans to reduce the leverage.

Well, if you look back in the history of B&G Foods, it goes in the cycle. We typically like to have leverage at or below the 5x EBITDA level. When we do an acquisition, it goes up, as it has with Crisco. And then we use cash and improved EBITDA to lower that ratio. So it can go -- in a perfect world, it might go up near 6x. And then we bring it back down to 5x or less because that gives us the flexibility to continue the acquisition strategy. And I encourage you, if you can access the data on the company, and you'll see that, that's a cycle that has repeated itself many times.

As those are all the questions we have received, the next item on the agenda is the report of the inspector. The Inspector of Election has tabulated the votes cast at this meeting, electronically or by proxy, with respect to the election of directors, and has preliminarily reported that the director nominees have received between 85% and 96% of the votes cast, and accordingly, they are elected as directors of the company. In addition, the say-on-pay proposal received approximately 91% of the votes cast. And the proposal to ratify the appointment of KPMG has received approximately 97% of the votes cast. Accordingly, all of these proposals are approved. The full and final details of the votes cast will be contained in the written report of the inspector, which may be examined by any stockholder and will be filed with the records of the company. In addition, as required by SEC rules, the company will file a current report on Form 8-K later this week to report the details of the votes cast. Mr. Wenner?

Okay. I want to thank all of you for attending today's meeting and for the interest you have shown in B&G Foods and the investment you've made in our company. There being nothing further to come before the meeting, I declare the meeting closed, adjourned. I hope all of you and your families remain safe and healthy. Thank you.

This concludes the meeting. You may now disconnect.