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

Good day, and welcome to the B&G Foods Second Quarter 2026 Earnings Call. Today's call, which is being recorded is scheduled to last about an hour, including remarks by B&G Foods management and the question-and-answer session. I would now like to turn the call over to AJ Schwabe, Director, Corporate Strategy and Business Development for B&G Foods. AJ?

Good afternoon, and thank you for joining us. With me today is Bruce Wacha, our Chief Financial Officer. You can access detailed financial information on the quarter and 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 condition. 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 and segment adjusted EBITDA, adjusted net income, adjusted diluted earnings per share, adjusted gross profit, adjusted gross profit percentage, base business net sales and segment adjusted expenses. Reconciliations of these financial measures to the most directly comparable GAAP financial measures are provided in today's earnings release. Bruce 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 2026 and beyond. I would now like to turn the call over to Bruce.

Thank you, AJ. Good afternoon, everyone. Thank you for joining us today. I'm going to cover a number of topics on our call this afternoon, which will include our change in CEO and why we are so excited to have Rob Mills join our executive leadership team at B&G Foods. Our portfolio reshaping efforts, which consists of the divestitures of low-margin, working capital-intensive business, including Green Giant U.S. Frozen, before U.S. shelf-stable and the Don Pepino brand over the past 12 months. The establishment of our Green Giant U.S. Frozen contract manufacturing business which we expect to provide a modest but consistent contribution to adjusted EBITDA and cash flows as well as the acquisition of the higher-margin cash-generative collagen and Kitchen Basics brands. Our second quarter results, which demonstrate our ability to grow adjusted EBITDA and net cash provided by operating activities despite a challenging industry backdrop, and an update on our fiscal 2026 guidance, which we are reaffirming at previous levels across net sales, adjusted EBITDA and adjusted diluted earnings per share. While it has taken time to implement this portfolio reshaping and we are still evolving today, we can see the green shoots as our business results continue to improve and we continue to better position ourselves for a more steady and more balanced financial performance in the future. Now before I move on to our performance in the second quarter, I'd like to take a moment to comment on our CEO transition and the appointment of Rob Mills as our Chief Executive Officer. Having served on our Board of Directors for the past 8 years, Rob brings a unique combination of deep knowledge of our company and extensive operating experience. He understands our brands, our customers, our opportunities and importantly, the challenges that we need to address. This familiarity significantly reduces the traditional transition period for a new CEO and positions Rob to move quickly establish clear priorities and accelerate the actions necessary to improve execution, strengthen the business and create sustainable shareholder value. Rob's experience is particularly well aligned with what B&G Foods needs at this point in our evolution. He joins us from Tractor Supply Company, where he has held senior executive leadership roles spanning strategy, digital commerce, technology and business operations with direct P&L accountability. During his tenure, Rob helped lead large-scale transformation and growth initiatives across a complex multibillion-dollar public company while building deep experience in digital, data, AI, productivity and operating execution. Rob also brings extensive M&A and corporate development experience, including evaluating, acquiring and integrating businesses. This combination gives Rob a broad perspective on organic and inorganic value creation, disciplined capital allocation and active portfolio management. Rob comes into this role with a strong sense of urgency and a clear understanding of B&G Foods. During his first 90 days, he intends to spend considerable time with our employees, customers, business partners and shareholders, listening and developing. An even deeper understanding of the challenges and opportunities in front of us. His 8 years on our Board provide an important head start allowing him to use this period not simply to learn the business, but to quickly establish priorities and begin translating these priorities into action. Rob's immediate focus will be on strengthening execution, maximizing the potential of our core brands, improving productivity and cash generation and accelerating the strategies that can return the business to sustainable growth. Rob is excited about the future of B&G Foods and the opportunity to build upon the strength of our brands, while bringing new capabilities and greater speed to the organization, and so am I. We believe that his experience in digital transformation, data and AI can help us modernize how we operate, better understand and serve our customers, consumers and improve decision-making and identify new opportunities for growth and productivity. Rob is also looking forward to engaging directly with the analyst and investor community in the months and years ahead. and sharing more about his priorities and vision for B&G Foods. We believe that Rob has the right combination of institutional knowledge, operating experience, strategic leadership, M&A expertise and transformation capabilities to move quickly, make disciplined decisions and accelerate value creation for our shareholders. We are very excited to have Rob as part of the B&G Foods family. Rob will be joining our third quarter earnings call in November. And now back to the quarter. For the second quarter of 2026, we generated $383.3 million in net sales, a net loss of $4 million or $0.05 per diluted share. Adjusted net income of $4.9 million or $0.06 per adjusted diluted share, adjusted EBITDA of $60.4 million and adjusted EBITDA as a percentage of net sales of 15.8%. As we review our second quarter 2026 results, we will highlight the impact of our various M&A transactions, which include the divestitures of the Don Pepino and [ Lasor ] U.S. brands in the summer of 2025 and the divestiture of the Green Giant U.S. Frozen business in early March 2026. Simultaneous with the Green Giant U.S. Frozen divestiture, we commenced the contract manufacturing business pursuant to which we produce Green Giant U.S. Frozen products at our vegetable manufacturing facility in Mexico on behalf of the new owner of the Green Giant U.S. Frozen business. In addition, we acquired the Collagen and Kitchen Basics brands in late March of 2026. Unless otherwise noted, the 3 divestitures are included in our Q2 2025 financials but not our Q2 2026 financials. While the new contract manufacturing business and the acquired brands, are included in our Q2 2026 financials, but not our Q2 2025 financials. Because the divestiture of the Green Giant Canada has not yet closed, there is no impact to our net sales or adjusted EBITDA. However, because Green Giant Canada is classified as an asset held for sale for accounting purposes, the pending divestiture does impact how Green Giant Canada assets are carried on our balance sheet and within certain line items of our P&L. We expect the Green Giant Canada divestiture to close during the third quarter and look forward to providing an update after the divestiture has been completed. Net sales for the quarter 2026 decreased by $41.1 million or 9.7% to $383.3 million from $424.4 million for the second quarter of 2025. The decrease was primarily attributable to the Green Giant U.S. Frozen, Lasor U.S. shelf-stable and Don Pepino brand divestitures, partially offset by incremental net sales from the Green Giant U.S. frozen contract manufacturing business and the acquisition of the collagen and Kitchen Basics brands. Net sales of divested brands contributed approximately $68 million to Q2 2025 net sales. Net sales of acquired brands plus the contract manufacturing business contributed approximately $37 million in net sales during the second quarter of 2026. Base business net sales for the second quarter of 2026 decreased by $10.2 million or 2.9% to $346.3 million as compared to $356.5 million for the second quarter of 2025. The decrease in base business net sales was driven by a decrease in volume of $15.5 million or 4.3% of base business net sales, partially offset by an increase in net pricing and product mix of $5.1 million or 1.4% of base business net sales and the positive impact of foreign currency of $0.2 million or 0.1% of net sales. The timing of the fourth of July holiday cost us about 1.5 shipping days in the quarter or approximately $5 million to $7 million of net sales in the second quarter of 2026. For the year-to-date period, base business net sales are on track with our plan and were essentially flat or up $0.2 million to $711.4 million for the first 2 quarters of 2026, from $711.2 million for the first 2 quarters of 2025. Gross profit was $79.6 million for the second quarter of 2026 or 20.8% of net sales and adjusted gross profit was $83.7 million or 21.8% of net sales. Gross profit was $87 million for the second quarter of 2025 or 20.5% of net sales and adjusted gross profit was $89.1 million or 21% of net sales. Gross profit as a percentage of net sales increased due to the acquisition of higher-margin collagen and Kitchen Basics brands, the divestiture of the lower-margin Green Giant U.S. Frozen business and certain tariff refunds received from the U.S. government during our second quarter. Selling, general and administrative expenses decreased by $6.6 million or 14% to $40.6 million for the second quarter of 2026 from $47.2 million for the second quarter of 2025. The decrease was comprised of a decrease in warehouse expenses of $3.7 million, general and administrative expenses of $2.7 million, consumer marketing expenses of $1.7 million and selling expenses of $0.8 million. These were partially offset by an increase in acquisition divestiture-related and nonrecurring expenses of $2.3 million. Expressed as a percentage of net sales, selling, general and administrative expenses improved by 0.5 percentage points to 10.6% for the second quarter of 2026, and as compared to 11.1% for the second quarter of 2025. We continue to follow these costs closely, and we are taking steps to reduce our ongoing SG&A commitments to better reflect the size of our business going forward, minimizing the impact of stranded costs on our overhead structure from recent divestitures. We generated $60.4 million of adjusted EBITDA or 15.8% of net sales in the second quarter of 2026 compared to $58 million or 13.7% in the second quarter of 2025. The increase in adjusted EBITDA was primarily attributable to the acquisition of the collagen and Kitchen Basics brands, the divestiture of the Green Giant U.S. Frozen business the commencement of the Green Giant U.S. Frozen contract manufacturing business and tariff refunds received from the U.S. government during the second quarter. Net interest increased $2.7 million or 7.5% to $38.5 million for the second quarter of 2026 from $35.8 million for the second quarter of 2025. The increase in net interest expense was primarily attributable to an increase in average long-term debt outstanding during the second quarter of 2026, and relative to the average long-term debt outstanding during the second quarter of 2025 and the 11% interest rate on our new senior unsecured notes due 2031. During the second quarter of 2026, net interest expense was also negatively impacted in connection with our debt refinancing because the new 11% senior unsecured notes due 2031 were issued on June 10, 2026 prior to the redemption of our 5.25% senior unsecured notes due 2027. And therefore, during a 24-day period, we incurred interest expense on both sets of notes, which was only partially offset by the interest earned on the net proceeds of the issuance of the 11% senior unsecured notes due 2031. Depreciation and amortization was $14.5 million in the second quarter of 2026 compared to $16.7 million in the second quarter of 2025. We had a net loss of $4 million or $0.05 per diluted share for the second quarter of 2026 compared to a net loss of $9.8 million or $0.12 per diluted share for the second quarter of 2025. The net loss for the second quarter of 2026 was primarily attributable to approximately $9.7 million of acquisition divestiture-related expenses and nonrecurring expenses, including certain organizational restructuring efforts to reduce the cost overhang related to the divestitures. We had adjusted net income of $4.9 million or $0.06 per diluted adjusted share in the second quarter of 2026. In the second quarter of 2025, we had adjusted net income of $2.9 million or $0.04 per adjusted diluted share. Adjustments to our EBITDA net income are further described in our earnings release that was issued today and our 10-Q, which we expect to release later this week. I would now like to touch on the results by business unit for the second quarter. Net sales for Spices and Flavor Solutions increased by $0.1 million or 0.1% in the second quarter of 2026 to $96.6 million from $96.5 million in the second quarter of 2025. Spices and Flavor Solutions segment adjusted EBITDA increased by $7 million or 29% in the second quarter of 2026 compared to the second quarter of 2025. The increase in segment adjusted EBITDA was primarily due to an increase in net pricing and the impact of product mix. an improved cost environment for spices relative to the prior year and tariff refunds received from the U.S. government during the second quarter. Net sales for Meals increased $6.4 million or 6.2% in the second quarter of 2026 to $110.5 million from $104.1 million for the second quarter of 2025. The acquisition of Collagen and Kitchen Basics brands added approximately $13.2 million of net sales during the quarter. Meals segment adjusted EBITDA increased by approximately $0.1 million primarily driven by the acquisition, which offset declines in certain brands. Net sales for Specialty decreased by $5.9 million or 4.4% in the second quarter of 2026 and to $128.9 million from [ $134.9 million ] in the second quarter of 2025. The decrease was due in part to the divestiture of the Don Pepino business, which generated $1.8 million of net sales in the second quarter of 2025. Specialty segment adjusted EBITDA decreased by $8.9 million in the second quarter of 2026 and compared to the second quarter of 2025. The decrease was due in part to the divestiture of the Don Pepino business, certain unfavorable cost comparisons in raw materials, increased manufacturing expenses and our investment in Crisco oil pricing, which on the positive side, benefited from increased volumes in the quarter. Financial performance for the Frozen and vegetable unit during the second quarter of 2026 and the second quarter of 2025 are not comparable due to the impact of the Lasor U.S. and Green Giant U.S. frozen divestitures and the impact of our new contract manufacturing agreement for Green Giant U.S. Frozen. Net sales of Green Giant Canada remained strong and increased by $0.5 million or 2.4% to $23.4 million for the second quarter of 2026 compared to $22.9 million for the second quarter of 2025. Separately, the new Green Giant U.S. Frozen contract manufacturing business generated $23.9 million in net sales during its first full quarter of operation following our sale of the Green Giant U.S. Frozen business. Our team is looking to build this business, add new customers and increase its volumes. Before I discuss 2026 guidance, I'd like to remind the audience that we continue to live in unpredictable times and depending on the day we are at war in the Middle East. Our 2026 guidance reflects only what we know today, and for example, does not factor in significant changes in inflation, tariff policies or the potential impact of escalation and conflicts in Eastern Europe, the Middle East or Latin America could have on our results. Also, please note that our guidance reflects the expected impacts only of acquisitions and divestitures that have already closed. In other words, our guidance reflects the expected impacts of Don Pepino, Lasor U.S. and Green Giant U.S. Frozen divestitures, the commencement of the Green Giant U.S. frozen contract manufacturing business and the Collagen and Kitchen Basics acquisition. But our guidance does not reflect the expected impact from the pending Green Giant Canada divestiture because that divestiture has not yet closed. Also as a reminder, our guidance reflects that fiscal 2026 and has 1 fewer week than fiscal 2025, which had a 53rd week. The benefit of the 53rd week was included in our fiscal 2025 results, and we will lap that benefit of approximately $18 million in net sales during the fiscal fourth quarter of 2026. That said, we are reaffirming our guidance. We are maintaining fiscal 2026 net sales guidance in the range of $1.735 billion to $1.775 billion, adjusted EBITDA guidance in the range of $275 million to $290 million and adjusted EBITDA as a percentage of net sales in the range of approximately 15.8% to 16.3%. And based on this guidance, we still expect adjusted diluted earnings per share to be in a range of $0.575 to $0.675 per share. Additionally, we expect for full year 2026, interest expense of $157.5 million to $162.5 million, including cash interest of $150 million to $155 million; depreciation expense of $40 million to $45 million; amortization expense of $17 million to $19 million. Cash taxes of approximately $5 million or less, an effective tax rate of 26% to 27% and CapEx will likely be at the lower end of our $30 million to $35 million target. As a reminder, we are making strong progress against our long-term goals, which include improving the base business net sales trends of the core business to the long-term objective of 0% to 2% growth. Reshaping the portfolio for future growth stability, higher margins and strong cash flows, proactively managing our capital structure by using excess cash flow and the net proceeds of divestitures and to facilitate debt reduction and ultimately, to fund strategic acquisitions. We believe that we have the ability, even in a challenging environment for packaged food companies to maintain a stable base business and enhance our performance through our growth by acquisition strategy while simultaneously returning a meaningful portion of our excess cash to investors through our long-standing commitment to both debt reduction and a healthy dividend policy. We are very excited about the future of B&G Foods, and we thank you for turning into our earnings call this afternoon. This concludes our remarks, and now we would like to begin the Q&A portion of our call. Operator?

[Operator Instructions]. Your first question comes from Andrew Lazar with Barclays.

Maybe to start off, can you maybe quantify how much the tariff refund benefited EBITDA in the quarter and what your expectation would be for that benefit for the full year, if there's more to come?

Yes. We haven't disclosed the number. It's relatively modest. If you go back to kind of 2025 results and as we articulated then, we have about $8 million to $9 million of total incremental tariff exposure. That included tariffs where we were the direct importer of record.and where we were not the importer of record. Where we were the importer of record is about a little bit less than half of that, and that's largely what we got back in the second quarter. We expect to get some more back throughout the remainder of the year and in certain cases, we'll invest that in the business on a go-forward basis.

Got it. All right. And then I think on the last call, there was quite a bit of discussion around potential inflation building even outside of just soybean oil as it relates to Crisco but other items, too. And that might necessitate some incremental pricing moves, despite it being sort of a challenging environment for everyone. Where do you stand on inflation at this stage for this year? What might that mean for pricing? And have you taken any or planned to? And then what sort of elasticity should we be thinking about this time around, just given the consumers under sort of more pressure than perhaps in the last couple of rounds of pricing the industry took?

Yes. I think on our last call, we were right around the time where both diesel fuel oil kind of West Texas brand, and so we're all at their peak levels. So they're a little bit inside of where they were before with a couple of moves up and down. That's still the largest area where we've seen inflation so far this year. There's a little bit coming in spices as well. but that's primarily where we've seen it. We haven't seen people taking pricing on fuel costs, but we certainly have seen that within vegetable oil. And our expectation is to cover that inflation where we can.

Right. And kind of the way that you've done it on Crisco in the past, whatever it is, a year or 2 with that new process.

Next question is David Palmer with Evercore.

I wanted to ask you about nonmeasured channels. I think last quarter that might have been up low double digits or at least some sort of double digits, and now it feels like it might maybe up low single digits. Wondering how your -- what reason there is for that? And how you're thinking about nonmeasured going into the second half?

Yes, we're still seeing pretty strong growth across some of our nonmeasured channels. Canada has been strong, continues to be strong. The foodservice where we have it is continue to be pretty strong. And then within spices, our private brands relationship continues to be strong as well as some of the other ones. We still see that strength. It's up, it's offsetting some of the damage in the regular track channels. But quite frankly, we need to improve the performance of our retail brand new business. And I think that's a lot of the focus that Rob is going to bring on a go-forward basis.

Okay. And just with regard to what we're seeing when we look at some of the scanner data, it looks like spices is under pressure, but you're having some areas of strength elsewhere like Cream of Wheat. Could you maybe make a comment about the wins and losses and where you see the most opportunity near and medium term with the brand business? And I'll pass it on.

Yes. We're actually seeing pretty good trends in our hot breakfast overall, which would be Cream of Wheat, McCann and the Pure Maple Syrup, Grandma's Molasses. So there's pockets of strength in there. On the spices, where there's a little bit of noise, there's some shift in some of the brands, particularly around tones and weather that are going from branded to partner brands. So that creates a little bit of the distortion that you're seeing. But look, we need to improve our performance across the board. We've had really good performance in some of the nontracked channels. We need to see further improvement in the track channels as well.

Next question, Robert Moskow with TD Cowen.

Maybe I'll just go right to that last point. Tones and Weber are going from brands to partner brands. Is that new, Bruce? And can you give a little more context as to what the rationale for that is?

Yes. It's a continuation of what we've seen over time. We saw this very much early on when we bought the ACH business in like 2016, 2017, and then we're just seeing sort of the follow-through there. So in a couple of spots, we're losing tones distribution, and it's being replaced with us providing distribution of similar products, similar amount of SKUs on the private band side.

Okay. But you're not recharacterizing those 2 brands as like private label or work to detail or anything like that, okay.

No, we're keeping those brands. And look, we want to improve the performance in those brands.

Okay. Got it. And can you touch on collagen and Kitchen betas. The sales were lighter than what we had forecasted. Maybe we got the seasonality wrong. But can you talk to your early learnings on those two?

Yes. Sales for both, I think, are just a little bit ahead of where we had forecasted, but maybe we were a little bit more conservative than you were. I think within consumption, there's a little bit of softness in collagen, which we knew when we bought this. Number two, Northeast regional brand. We have to price it right. I think under the last year or 2 of prior ownership, particularly leading up to the bankruptcy and post bankruptcy, we think it was mispriced in the market. And so we are fixing that. We're looking forward to a strong holiday season. not knew what we were getting here, which is something we got to really protect and drive cash flows with but manage that brand as it is, which is a #2 Northeast regional player where it's been around for a long time and makes good money where we sell it. Kitchen Basics, I think we continue to be surprised by this business. We really like it. We think it's got some growth opportunity in addition to having some pretty good margins. The category has been pretty good. To be fair, it's off-season, but people are still buying a lot of rain stocks in the summer, but it is off season. And so it's a little bit smaller. The true test for us really will be as we integrate during the winter months, the more additional soup season in the third and fourth and first quarter.

Next question Karru Martinson of Jefferies.

I couldn't help but notice a couple of comments here on implementing portfolio reshaping active portfolio management. You've done a lot of the heavy lifting here. Is there more to do? Or are there pockets when you look at your portfolio that you want to accelerate on?

I think, Karru, there's always more to do with B&G. We tend to be pretty active in M&A, and we're focused on improving our portfolio. I think a big focus for the last 1.5 years has been the Green Giant strategic review. And so we're nearing the end of that. And so that's a big lift there. There are still things that we'll look at opportunistically across the portfolio from the divestiture standpoint, but I wouldn't put a big expectation there. Collagen and Kitchen Basics we want and we expect to do more things like that in the future where we're adding some nice incremental growth in sales and profitability of our business.

And I'm sorry, I missed it. Did you give a tariff refund number?

We did not. It's not a huge number.

Next question, Hale Holden with Barclays.

Bruce, on the tariff refunds, which I think as you outlined is all in the spices line. Was that part of your original guidance? Or is that something that's sort of a put and take as you came across it in the middle of the year?

We always knew that it was out there. It's probably a put and take as it factors in, and we've got a little bit of both here. We always do.

Yes. And when you think about risk to the next 2 quarters that gets you to the low end or the high end of that guidance range. Maybe you could talk through some of the puts and takes that you're seeing on the ground?