B&G Foods, Inc. Q3 FY2020 Earnings Call

Good day, and welcome to the B&G Foods Third Quarter 2020 Earnings 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 at the Investor Relations section of bgfoods.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-GAAP financial measures, adjusted EBITDA, adjusted net income, adjusted diluted earnings per share, 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. Ken Romanzi, the company’s President and Chief Executive Officer, will begin the call with opening remarks and discuss various factors that affected the company’s results and selected business highlights. Then Bruce Wacha, the company’s Chief Financial Officer, will discuss the company’s financial results for the third quarter, as well as expectations for the remainder of 2020. Ken will then wrap up with his thoughts regarding the priorities for the remainder of 2020 and beyond. I would now like to turn the call over to Ken.

Thank you, operator. Good afternoon, everyone. Thank you for joining us today for our third quarter earnings call. With the portfolio of brands and products very well suited for the stay at home, work from home, cook from home, and eat at home world B&G Foods delivered another strong quarter of sales and earnings. Our portfolio of Green Giant vegetables, spices & seasonings, condiments, baking products, and other brands for all daily products delivered when consumers needed to feed their families at home, out of necessity at first, and then out of their rediscovery of their love for cooking and baking. This resulted in another great quarter for our business with net sales increased by 22% and adjusted EBITDA growth of 21.3% compared to the third quarter of last year. These results drove reported adjusted diluted earnings per share of $0.74 for the quarter, an increase of 37% compared to last year. We experienced tremendous strength in almost all of our brands, with nearly 80% of our brands growing net sales versus last year, and nearly 60% of our growth at a double-digit pace. Throughout this pandemic, we have remained focused on our three major priorities: protecting the health and safety of our employees, continuing to meet the unprecedented customer and consumer demand, and making the investments necessary to ensure the long-term financial health and success of B&G Foods. Our operations team continues to do an incredible job ensuring that our supply chain meets the unprecedented increase in demand for our products by keeping our manufacturing facilities operating efficiently, while at the same time ensuring the health and safety of all of our employees. I'm pleased to report we have been very successful in keeping our employees safe. Keeping them safe is not only the right thing to do, but we believe that it has been a competitive advantage as it has allowed us to keep our supply chain functioning without disruption to meet the unprecedented surge in demand. Our supply chain has been a clear contributor to our growth, among the best in the industry. While we assume that some supply shortages might exist in about half a dozen of our product lines, we've maintained excellent customer service levels on the vast majority of our 50 plus brands throughout the pandemic. I cannot thank our frontline workers enough for working tirelessly around the clock for many months to meet our customer and consumer needs during this time. They continue to be our true heroes. Our impressive growth in net sales across our portfolio was driven by a continuation of strong sustained consumption growth throughout the quarter. For the 13-weeks ending October 3, as reported by Nielsen, the total B&G Foods portfolio consumption grew 18% versus last year, which was nearly 50% greater than the total packaged food growth rate of 12.4% for the same time period, keeping B&G Foods consistently among the fastest growing publicly traded packaged food companies in the U.S., both for the quarter and the entire period since the beginning of the pandemic. Additionally, we continue to gain market share in nearly two-thirds of our brands and categories. Our largest brand, Green Giant, grew 31.5% in net sales driven by strong needs and consumption with 46.6% in shelf-stable vegetables, leading to a 2.1 share point increase in the canned vegetable category. There was more than 13% consumption growth in frozen vegetables, contributing to our market share increase in the frozen vegetable category that grew 10.6%. Our spices and seasoning grew net sales by 30% despite the material exposure to the food service channel. Strong retail consumption growth of 29% for the quarter drove strong net sales growth. Many of our other brands also had a strong third quarter. For example, net sales of Victoria increased by 55.9%, and net sales of Cream of Wheat rose by 17.2%. Our baking products boomed among consumers' newfound love for baking, followed by our Clabber Girl line of baking products, which increased by 23.2% versus last year. Speaking of baking, before turning the call over to Bruce, I want to discuss our most recent exciting announcement. As you may have seen, we recently entered into an agreement to acquire the iconic Crisco brand of oils and shortening from The J.M. Smucker Co. This acquisition is the second largest in B&G Foods' history, and we are absolutely thrilled. Crisco is an excellent complement to our existing portfolio of baking brands including Clabber Girl, Davis, Rumford, Grandma's molasses, and our Pure Maple Syrup brands. The acquisition of Crisco is consistent with our long-standing acquisition strategy of targeting established brands with leading market positions and strong cash flow profiles at reasonable purchase price multiples. Crisco has a strong heritage as the original all vegetable shortening that transformed the way people baked and cooked over 100 years ago. It is the number one brand of shortening, the number one brand of vegetable oil, and it also holds leadership positions in other cooking oils and sprays. Consistent with our acquisition strategy, we expect the acquisition to be immediately accretive to our earnings per share and free cash flow. I'll come back later to share more about how we plan to continue to capture the many opportunities we have with Crisco and all of our brands after Bruce provides you with more details on our third quarter financial performance.

Thank you, Ken. Good afternoon, everyone. As Ken just outlined, we continue to see the same elevated business trends during the third quarter that we saw during the first two quarters of the year, largely as a result of the ongoing COVID-19 pandemic and its impact on consumers. Our Q3 2020 results include net sales of $495.8 million, adjusted EBITDA of $104.6 million, and adjusted diluted earnings per share of $0.74. Adjusted EBITDA as a percentage of net sales was 21.1% for the quarter. Our net sales increased by $89.5 million or 22% in the third quarter of 2020 when compared to last year's third quarter. The increase in net sales was almost entirely driven by increased volumes, while the impacts of M&A, pricing, and foreign exchange were negligible. Similarly, base business net sales increased by $89.1 million, or 21.9%. Our volumes increased primarily driven by the elevated trends resulting from COVID-19. In addition, the third quarter also benefited from an extra week due to the occurrence of the 53rd week during our fiscal year. Our average weekly sales in the third quarter of 2020 were approximately $35 million. Third quarter net sales included strong performance across the majority of the brands within our portfolio, with nearly 60% of the brands generating double-digit percentage growth in the third quarter of 2020, when compared to last year. Among our larger brands, net sales of Green Giant, including Le Sueur, increased by $37.9 million, or 31.5%. Net sales of our spices & seasonings increased by $24.3 million, or 29.5%. Net sales of Victoria rose by $6.3 million, or 55.9%. Net sales of Maple Grove Farms increased by $3.2 million, or 18.2%. Net sales of Cream of Wheat went up by $2.4 million, or 17.2%. Net sales of Ortega increased $1 million, or 3%. Net sales of all other brands, in the aggregate, increased $14 million, or 11.1%. Gross profit was $136 million for the third quarter of 2020, or 27.4% of net sales. Excluding the negative impact of $0.1 million of acquisition/divestiture-related and non-recurring expenses during the third quarter of 2020, our gross profit would have been $136.1 million, or 27.5% of net sales. Gross profit was $108.8 million for the third quarter of 2019, or 26.8% of net sales. Excluding the negative impact of $1.5 million of acquisition/divestiture-related and non-recurring charges during the third quarter of 2019, our gross profit would have been $110.3 million, or 27.2% of net sales. While we have continued to see significant operating leverage within our gross profit as a result of our increased sales, these benefits were offset in part during the third quarter by COVID-19 preventative costs, enhanced compensation during the pandemic for employees at our manufacturing facilities, and approximately 100 basis points of freight rate inflation. Our COVID-19 costs, including the enhanced compensation for our manufacturing employees, continue to run about $1.5 million per month or approximately $4.5 million in the third quarter. Meanwhile, on a rate basis, increased freight rates cost us about $5.5 million in the quarter. Selling, general and administrative expenses were $43.4 million in the third quarter of 2020, which was an increase in dollar terms, but favorable by about 60 basis points as a percentage of net sales. SG&A costs increased by $5.3 million, compared to the year ago third quarter. The dollar increase was composed of increases in consumer marketing, including investments in e-commerce of $3.8 million, in general and administrative expenses of $2.7 million, in selling expenses of $1.8 million, and in warehouse expenses of $0.3 million, partially offset by a decrease in acquisition, divestiture-related, and non-recurring expenses of $3.3 million. Expressed as a percentage of net sales, selling general and administrative expenses were 8.8% for the third quarter of 2020 compared to 9.4% for the third quarter of 2019. We generated $104.6 million in adjusted EBITDA in the third quarter of 2020, compared to $86.2 million in the prior year quarter, which represents an increase of approximately $18.4 million or 21.3%. The increase in adjusted EBITDA was primarily driven by an increase in net sales volume. Adjusted EBITDA as a percentage of net sales was 21.1%, which was in line with adjusted EBITDA as a percentage of net sales in the prior year third quarter of 21.2%. Year to date, adjusted EBITDA as a percentage of net sales is now 19.8%, approximately 20 basis points higher than the prior year period. We generated adjusted net income of $47.9 million or $0.74 per adjusted diluted share in the third quarter of 2020 compared to $34.9 million or $0.54 per adjusted diluted share in the third quarter of 2019. Earlier this year, like many in our peer group, we suspended our annual guidance with the onset of the COVID-19 pandemic. While we noted that the world would change and that forecasting our business would be challenging due to the many factors outside of our control, we expressed our belief that we would materially exceed the financial forecasts that we had made earlier in the year of $1.66 billion to $1.68 billion in net sales and $302.5 million to $312.5 million of adjusted EBITDA, and we certainly have. While life has not returned to normal yet, given where we are in the year, we believe we are in a position to provide guidance for the remainder of fiscal 2020. We certainly expect to see continued elevated performance throughout the remainder of the year. When factoring in our guidance, however, please keep in mind that while we are excited about the announced acquisition of Crisco from Smucker, this transaction has not yet closed, and therefore our guidance excludes the expected impact of the pending acquisition. So, here it is. Through the first nine months of 2020, we generated $1.458 billion in net sales, compared to $1.19 billion in the year-ago period, an increase of $267.5 million or 22.5%. Similarly, through the first nine months of 2020, we generated $287.9 million in adjusted EBITDA, compared to $233 million in the year-ago period, an increase of $54.9 million, or 23.5%. While we don't expect to remain at the same plus 20% growth rate into perpetuity, we do anticipate growth in the fourth quarter to remain elevated or up as much as 10% or more for net sales, which will drive the rest of our model. Based on our performance in the first nine months and our outlook for the fourth quarter, we expect this strong performance to continue throughout the remainder of the year and we expect to generate between $1.95 billion and $1.97 billion in net sales for 2020. We expect to generate between $360 million and $370 million in adjusted EBITDA. We expect slight improvements in our adjusted EBITDA as a percentage of net sales, as operating leverage from increased volume is expected to continue to boost margins. However, similar to prior quarters, we expect some of these margin benefits to be offset by increased costs relating to the pandemic, as well as the continued uptick in freight inflation. We are also providing adjusted diluted earnings per share guidance for the full-year fiscal 2020 in the range of $2.30 to $2.40. We expect to spend approximately $40 million to $45 million for the year in CapEx. Based on our latest estimate and our continued debt paydown efforts, we are trending toward a net debt to adjusted EBITDA before share-based compensation of approximately 4.5 times before the acquisition of Crisco. Pro forma for the pending acquisition of Crisco, we expect to remain well within our target net leverage ratio of 4.5 times to 5.5 times. Based on our latest forecasts and our estimates for the acquisition, we now expect to finish the year at approximately 5 times to 5.1 times net debt to adjusted EBITDA pro forma for the acquisition. Ken discussed some of the highlights earlier explaining why we are excited about the acquisition. I would also like to provide some additional financial information. Similar to other brands in our portfolio, Crisco has seen elevated performance throughout the pandemic boosted by strong double-digit increases in consumption as Americans are re-embracing their kitchens and rediscovering the joys of baking. As previously announced, we expect Crisco will generate approximately $270 million of net sales and approximately $65 million to $70 million of adjusted EBITDA in 2021. We expect Crisco will be accretive to our adjusted diluted earnings per share by approximately $0.45 to $0.50. We also expect Crisco to add approximately $7 million to our annual CapEx needs. We're excited about the free cash flow generation profile of this business and expect to help accelerate our deleveraging goal. We expect the acquisition to close during the fourth quarter, and we expect to finance it initially through a combination of cash on hand and a revolver draw. I would now like to turn the call back over to Ken to highlight our plans going forward.

Thank you, Bruce. Our plans going forward follow the same blueprint we began implementing before the onset of the coronavirus pandemic. We call it our vision for growth, anchored in three strategic priorities: drive organic growth, improve margins, and make accretive acquisitions. We aim to keep our business tightly aligned with modest organic growth and good cost management, so we can keep our cash flow strong and balance sheet ready for a period of acquisitions. Returning a substantial portion of excess cash to our shareholders in the form of dividends has always been a core part of B&G's value proposition. The pandemic has accelerated our vision for growth. With tremendous organic growth this year, combined with expanded margins delivering robust cash flow, we've been able to reduce our leverage from over six times at the end of last year to 4.5 times projected this year. This has allowed us to get back on the acquisition hunt, and as we mentioned before, Crisco is a classic B&G Foods acquisition we couldn’t be more excited about. Furthermore, our board of directors declared our 65th consecutive quarterly dividend, which has been public since 2004. To drive organic growth, we will capitalize on the growth we're seeing, driven by both existing users and the addition of new users. We believe much of the increased consumption is due to lasting changes in consumer behavior. We expect many more consumers will continue to work from home even after a vaccine is available. We participate in strong categories with well-known leading brands that cater very well to the work-from-home crowd, whether it’s baking, meals, condiments, spices and seasonings, or vegetables. Our high-quality, tasty products are designed to satisfy consumers' basic needs. Our vast portfolio of branded products is driving growth in multiple ways: gaining new households, increasing consumption in existing households, and both in the last 12 months ending September 2020, 83% of U.S. households purchased at least one B&G food product, an increase from 79% last year. The majority of our major brands have seen positive gains in household penetration, including Green Giant, Ortega, Clabber Girl, Cream of Wheat, Weber, and Victoria. These new households love our products, just like our existing consumers, with a repeat rate of 53%. Our broad portfolio of brands is driving growth in multiple ways as mentioned before. Brands experiencing the most growth from new buyers include Clabber Girl, Mama Mary’s, Victoria, and Spice Islands. Brands receiving growth primarily from existing buyers include Green Giant and Ortega. We also have brands seeing growth more evenly split between new and existing buyers, including Cream of Wheat, Bear Creek, and Weber. We expect future growth to continue mostly from existing users as consumers have fundamentally changed their behavior and will continue to cook and eat more at home. Many companies are planning to have their employees work from home more in the future, regardless of whether or not there’s a COVID vaccine. Our brand portfolio will meet their needs with new recipes, usage ideas, and innovations, as they have throughout the pandemic. Regarding new households, I continue to believe that they are akin to the fountain of youth for any brand, particularly legacy brands like ours. We expect they will add significant value to our future growth opportunities. To retain these new households and keep our strong base of existing households returning, we've been increasing our marketing investment, shifting those investments toward more usage-oriented marketing with an emphasis on e-commerce. Recent efforts include partnering with leading media companies to promote our brands and recipes on high-impact sites like delish.com, and allrecipes.com. We've also launched an exclusive interactive online kitchen with a digital pantry and freezer stocked with our brands, in addition to a host of recipes, tips and tricks to make dining at home with the family easier and more enjoyable. Additionally, we've partnered with Catalina Marketing to strategically target the increment of new households gained during the pandemic. While delivering these new consumers, we have been providing usage suggestions online, at home, on their mobile devices, and in-store to encourage consumption of our brands already found in their households and promote repeat purchases thereafter. We've collaborated with a leading provider of household panel data to deliver enhanced consumer demographic, attitudes, and purchase behavior insights. These insights will not only help us drive sales by better positioning ourselves with existing consumers and retail partners, but also among opportunity consumer segments that will be integrated into our business. Lastly, I’m pleased to report that the Jolly Green Giant is back on national television for the fall advertising campaign, teaching consumers how to get more vegetables into their diet, featuring much of our frozen innovations. Regarding e-commerce, we estimate that the proportion of our sales through e-commerce has grown 140% this year, representing approximately 7% of our consumption sales, as reported by U.S. data. This is an estimate, as retailers have not yet completely broken down our sales between traditional brick-and-mortar sales and click-and-collect or click-and-deliver, but we know it has grown rapidly and become an increasingly important part of our business. Our largest brand, Green Giant, is also our largest brand in e-commerce by far. According to reports, our share of frozen vegetables in e-commerce is over 50%, approximately four times our retail share. On this front, we've invested in much of the foundational work necessary for success, including internal and external search functionality, location-based services, assortment optimization, key images, and targeted keyword use. We are also partnering with e-commerce retail partners to test what is most impactful for consumers in terms of product placement. This foundational work is critical to our growth in e-commerce, and we believe will enable us to hit the ground running even faster in 2021. Last but not least, product innovation will remain a major driver of our business going forward. While retailers have limited product introductions during the pandemic, we focused our efforts on keeping the supply chain full of our best-selling products. However, this delay had a hidden benefit: it extended the lead time needed for product development. This is a rare luxury in the world of new product development, and as a result, our innovation pipeline is even more robust. Some highlights of new product introductions delayed this year and early 2021 include continuing the innovation train with Green Giant by introducing additional products that help people incorporate more vegetables into their diets. Our focus will continue to be on introducing new vegetable-based products to serve as delicious replacements for high-carb categories like pasta, rice, and bread. This quarter, we will continue to rollout Green Giant Cauliflower Gnocchi and Cauliflower Breadsticks. Additionally, we will launch Green Giant Cauliflower-based veggie fries and rings, our take on traditional onion rings. Retail interest in the first few retailers for these new items has been promising. Next year, we plan to introduce cauliflower-based pastas, including ravioli, fettuccine, and mac and cheese. They are delicious, and one would never know they are made from cauliflower and other vegetables. We are also looking to drive our core vegetable brand with the introduction of Green Giant Vegetables seasoned with our Dash salt-free seasonings, our first cross-brand product innovation. The second largest brand, Ortega, will introduce cauliflower into its line with Ortega Cauliflower Taco Shells and Tortillas, one of the first innovative formulations in this category in quite some time. We will complement this launch with the introduction of Ortega street taco sauces in three flavors in squeeze bottles to capitalize on the growing food truck trend. In spices and seasoning, we are constantly innovating with new blends like our Dash Everything with a salt-free option, allowing people to enjoy the flavor of everything without the salt. Additionally, we've launched new Weber grilling products, including our Weber Cowboy and Savory Steakhouse Seasonings. Now, the next one is very exciting. Under a licensing agreement, we recently launched the Cinnamon Toast Crunch single best seasoning blend inspired by the second best-selling cereal in America, Cinnamon Toast Crunch. This product was introduced to much fanfare, and consumers on their social media pages and in the media alike have been obsessed with it, delivering over 2.7 billion media impressions since we announced it in late August. Our initial sales results have not disappointed, and it has quickly become the fastest-selling spice blend within our entire seasoning portfolio at a major wholesale club partner. We will be expanding distribution of this exciting new product in early 2021. Our second strategic imperative of our vision for growth is improving margins. At the core of this is better price management and our cost productivity program, which continues to bear fruit across our supply chain in logistics, product and packaging initiatives, and manufacturing. We set a goal of driving $20 million in annual cost savings and delivered in 2019. In 2020, we expect to deliver $17 million in cost savings, optimizing our transportation cost, product weight, package cost reductions, and repatriating products from co-packers into our facilities. The $3 million gap between our expected savings and our goal was due to our decision to delay several manufacturing projects to avoid disrupting our facilities as they ramped up production at the pandemic's onset and have remained at high levels since. We will begin implementing our manufacturing cost programs as we catch up with COVID demand and will share more on this front at our year-end earnings call. Better price management is the second driver of our margin improvement strategy, and COVID certainly helped in this area. Through the first three quarters of 2020, we've achieved over $24 million in improved pricing. While we have returned to more normalized promotional levels in the third quarter, we expect most of our year-to-date pricing to hold. Moving forward, our new trade promotion management system will allow us to continue to optimize promotional price points for better efficiency and effectiveness. Our final strategic imperative of our vision for growth is, of course, making accretive acquisitions. This is why B&G Foods was built, and we have a successful track record of generating shareholder value with this strategy, and Crisco is yet another perfect addition to our portfolio. With strong cash flows from these acquisitions, plus a healthy base business, we expect to continue to reduce our net leverage after the acquisition to ensure our balance sheet is robust enough to add more profitable businesses. Lastly, before I turn the call back over to the operator, I'd like to acknowledge and thank the entire B&G Foods organization of almost 3,000 people for their tireless efforts to produce the results we shared today. They have maintained a commitment to care for one another while remaining extremely productive, ensuring that our nation's food supply remains steady. Our frontline employees are true heroes throughout this pandemic, and I cannot thank them enough for their efforts. I would also like to take this opportunity to publicly welcome the Cincinnati-based Crisco employees that we expect will join the B&G Foods family later this year, subject to the closing of the pending acquisition. This concludes our remarks for today, and now we would like to begin the Q&A portion of our call.

Thank you. And our first question today comes from Brian Holland with D.A. Davidson.

Thanks, good afternoon and congratulations on the continued sharp performance this year. Maybe first question, shipments up, you know, base business up low 20s, 21% something like that, I believe I heard in the prepared remarks consumption of 29, so, you know, can you help triangulate sort of going forward? Because it feels like it, I think you talked about some supply, you know, issues that you were managing as well. So as we kind of go forward here, are inventories pretty tight with retailers, are we going to see a setup there where you're going to have to grow shipments ahead of consumption in subsequent quarters that kind of catch up for that? And maybe help us understand the progression of that over the next few quarters. How quickly can you make that up, if you will?

Yeah, I mean, certainly, if you look at our inventory, this is definitely the quarter where we increase inventory. So, broadly speaking, we are building our inventory. On a specific basis, obviously, we are operating, you know, call it 7, 8 months into a pandemic, and there are on occasion certain brands and categories that are in heightened demand, therefore, you really need to ramp up our efforts from a supply standpoint. I think we're just going to continue to watch it. You have seen distortion from time to time during holidays and other occasions where buying patterns look different. We're certainly in the holiday buying period today as we speak, you know, in November heading toward Thanksgiving. But we’ve also seen periods, like we mentioned earlier in the year after the second quarter, where you didn't see a big lift for July 4. Some of those are a bit tougher to predict where they stand. As Ken mentioned earlier in the call, we're doing everything we can to maximize supply and ensure that we have product on the shelf continuously while continuing to react to the needs of the retailers and, ultimately, the consumers.

Okay, fair enough. And then, you know, just taking a step back, obviously, your portfolio is effectively positioned within COVID, you know, where the consumer is migrating to from a category standpoint, baking, Frozen, etcetera. Your share has improved through this. So, I'm wondering if you could kind of take a step back here and maybe help us understand where you think your consumption is improving across grocery, obviously, but where are you guys taking share right now? Where is either the execution improving? Or where is, you know, the connection with the consumer? Where's that most acute right now? It's worth noting that your share has improved in this dynamic, it hasn't worsened.

Yeah, I appreciate your recognition of that. Sorry, Ken, do you want to answer that?

Well, as you can say, some of our biggest share gains are in baking powder, molasses, frozen vegetables, and shelf-stable vegetables. I mean, if you categorize our largest share gains, we would say two-thirds of our brands have gained or held share. It's difficult to pinpoint, but there have been significant gains in baking powder, shelf-stable vegetables, even in some other late months and segments of our seasonings business.

Brian, one of the key things to remember is just the ability to execute and manage your supply chain effectively while maintaining good relationships with your co-packers for the manufacturing that you don't own. This has been crucial in ensuring we meet heightened levels of consumer demand. Our ability to execute and keep the factories running efficiently has been a key factor in keeping product on the shelf.

Certainly, the supply chain has been integral in our success. While we’ve had some challenges, we have received positive feedback from our customers about our performance, particularly in crucial categories. We’re successfully maintaining stock, which has contributed to driving our share gains.

Our next question comes from David Palmer of Evercore ISI.

Hi, it's actually Kevin Lehmann on for Dave, thanks for the question.

No worries. Hey, Kevin.

Hey, guys. Thank you, Ken. In the past, you have discussed the opportunity to expand some of the smaller regional brands you've acquired over the years into more mainstream or national retailers. You mentioned just a few minutes ago that Victoria, for example, sales are up 55% in the quarter, and if you look at scanner data, your ACV distribution for that brand is up almost 600 basis points. Clabber Girl saw a similar ACV increase. So, we’re all wondering how sticky consumer trial will be, but has the pandemic demand also accelerated some ACV gains that may have otherwise taken several years to achieve? If so, how sticky do you think those distribution gains will be in 2021 and beyond? Thanks.

Yes, it certainly helps. Distribution gains are important because once we achieve them, if the product performs well, they can become very sticky. Distribution is only tricky if the products don't perform well. We hope that the distributions we've seen for pasta sauce and seasonings will stick as they have been well-received by consumers. We were ready to supply customers when they needed our products, and strong performance helps to maintain distribution.

Thank you.

We'll go next to Michael Lavery of Piper Sandler.

Thank you. Good evening. You mentioned how important the relationships are with your co-packers and co-manufacturers, but do you have a sense of how much, even though growth appears to be continuing at elevated levels, that dependency might diminish next year, and if there's a margin benefit we should expect from that?

Yes, I'm not really sure the COVID situation will allow much reduction in our dependency. You have to remember that about half of our volume is internally manufactured and half comes from co-packers. It’s really a result of the amalgamation of businesses we've acquired; some came with manufacturing capabilities, some did not. Most of our co-packers have come through well during COVID, with only a handful struggling to keep pace. We’ve increased production in our own facilities to respond to demand, and while we are not planning to completely eliminate co-packing, our strategy will focus on capacity expansion to ensure fill rates improve.

That’s helpful. And just a quick follow-up about canned corn: any sense of how that supply might look over the next year, and if you foresee any constraints?

We believe the entire canned vegetable category will be tight. We have to make volume decisions well in advance, notifying farmers what to plant early in the year to harvest in summer and early fall. These demand plans were finalized by January, but when COVID hit in March, we adjusted our requests in May, seeking more volume. Though we received additional supply then, it wasn't close to meeting our needs, especially considering the ongoing COVID-driven demand. Stockpiling trends for this category are expected to remain tight through the next summer.

We'll go next to Karru Martinson of Jefferies.

Good afternoon. Just quick housekeeping. I thought I heard you say, with Crisco pro forma, you're expecting 5 times to 5.1 times leverage is that correct?

Correct.

Okay. In terms of the welcome delay giving you guys more time to formulate the product innovation pipeline here. Has that changed the cadence of introducing new products? We constantly hear stories of companies focusing on the core, but how are you rolling out new products and when can we expect that to flow through in the upcoming year?

It's a retail decision whether or not they will reset their shelves. It’s tough to generalize because it varies by retailer. Some retailers are changing their categories from the second to third quarter, while others are postponing the reset even to next year. The good news is we’ve prepared the product and are ready for launch whenever our customers are.

When looking at new product development, how are you tying that into the online shopping experience, and are you finding placement in grocery stores putting in online shopping centers?

Not to a large extent. We do ensure that certain online product requirements for packaging are considered, and we are engaging with online retailers for early marketing since it's an effective way to generate buzz.

Thank you very much, guys. Appreciate it.

We'll go next to William Reuter with Bank of America.

Hi, I guess my first question assumes, given the relatively large acquisition, you’ll pause on share repurchases going forward, is that correct?

Obviously, our focus right now is the acquisition and integration, and, you know, depending on where sales, EBITDA, and cash flow shake out over time, share repurchases will be a consideration, but the focus is primarily on acquisition and integration right now.

Okay, my other question: given some capacity constraints and challenges with regard to the supply chain, I think you manufacture about half your product. Have you given any thought to changing that mix of self-manufacturing versus third-party?

The biggest driver of any change would be the result of M&A, but as Ken mentioned earlier, we want to be more efficient wherever it makes sense. In-house manufacturing can be beneficial, but the asset-light model with co-packers has its advantages too. It’s important to maintain a significant position with our co-packers instead of becoming a small player.

Hi. I have one question on the capital structure and one on the business: with the big acquisition and callable debt in your structure, any thoughts on refinancing and potentially using longer-term financing for the acquisition rather than your revolver?

That's certainly something we're going to evaluate over time and be opportunistic within the market context.

Regarding the brand, I have a couple on brand categories. Any strengths in this quarter driven by timing surrounding shipment in the third quarter versus fourth quarter next year?

No. In fact, we are off to a solid start in October. Our shipments and consumption were comparable in the third quarter, so it wasn’t negatively affected at all.

Okay, great. Thanks.

Our next question comes from Hale Holden of Barclays.

Thanks for taking the question. I have two quick ones. On the Crisco acquisition, when you guys bought Green Giant, there were nine-months to integrate before seeing your own innovation. Is that something we should expect with Crisco, or is there an innovation pipeline coming faster than that?

I would say we don't anticipate the same level of innovation with Crisco that we did with Green Giant, but there are intriguing ideas on the books. Our immediate focus will be on effectively integrating this substantial business into our portfolio.

Sounds good. And then Bruce, you gave a pricing increase year-to-date; was it around $23 million or $24 million? Did you realize your price increases? You outlined several tools to better engage consumers, so when you combine those insights with your confidence level on holding that pricing into a more normalized environment, potentially in 2021, how should we expect to frame that?

The organization is certainly smarter today than it was years ago. That new tool was part of a program we started last year, focusing on price optimization. We expect to retain benefits through this year despite returning to more normalized promotional levels in the third quarter. We see ongoing improved pricing trends.

Thanks very much.

Our next question comes from Eric Larson of Seaport Global Securities.

Thank you for taking the question. Good afternoon, everyone. There are a couple questions. I think Ken alluded to a concept many companies are mentioning. If you could quantify total marketing spend, you're increasing it at a time of rising household penetration to retain customers, can you provide a sense of how much you're spending either in dollar terms, as a percentage of sales, or some measurement?

In the first half of the year, our marketing spend was down as we were clamping down on spending to assess the situation. Year-to-date, our marketing spend is approximately 10% higher than a year ago, but it is down as a percentage of sales. It rebounded in the third quarter, and we expect increased spending in fourth quarter, which will result in an overall increase in marketing spend of at least 15% for the year.

Got it? A follow-up: given the increased freight inflation, is this situation sustainable? Could we see scenarios similar to hyperinflation experienced a few years ago, and how should we be looking at freight costs?

Interestingly, we anticipated freight increases this year, but saw some favorability during the first half. They increased notably in the third quarter. We're continuing to monitor this. We don't believe we’ll experience hyperinflation in freight; we're more efficient now than we were in the past. We've optimized miles in our logistics approach, which is allowing us to handle challenges with greater ease.

I'd add that the real issue is a shortage of capacity. We've noted that many delivery companies are advising customers to order early to avoid delays. We’re currently seeing similar increases, but with our long-term logistics program, we’re managing the impact better than we did in previous years.

Next up we'll go to Ken Zaslow of Bank of Montreal.

Hey, good afternoon, everyone.

Hey, Ken.

I know it's early, but can you provide some consideration of how to think about 2021? I see the rate of EBITDA growth is slowing. What are the biggest puts and takes we should think about, as we frame 2021?

We’re not ready to provide 2021 guidance. It’s best to evaluate trends versus 2019 instead of 2020. That’s the trend we can reliably analyze. It’s tough to determine what will happen next March or April compared to last year, due to unexpected demand spikes.

The biggest wildcard in our forecast remains COVID. The conditions under which we’ve been operating may persist into 2021, influencing buying habits significantly and the overall outcomes.

Okay, freight would obviously be a factor too, and then I assume ad spending on innovation will also rise. It seems like you're focusing more on innovation. Can we think about that relative to 2019?

Of course, we should see sustained inflation, and while it's not unique to B&G Foods, expect other players in the packaged food sector to also be responding with price increases. We've seen COVID-driven demand throughout the year, but ongoing uncertainty leads us to focus primarily on innovation efforts going forward.

I appreciate that. Thank you, guys. Be well.

Thank you.

We'll go next to Robert Moskow of Credit Suisse.

Hi. Thank you. I have a question about the merchandising resets: can you elaborate a bit more on how retailers are responding? Are these resetting efforts enabling you to achieve distribution gains not seen otherwise? If so, are retailers expanding overall categories or are there other brands being pushed aside?

The term luxury refers to our marketing and R&D teams as they now have a 6 to 9-month reprieve for product development. The luxury means greater time for refined development. We’re not halting our innovation pipeline; everything shifted forward. While we are focused on next year, we’re prepared to launch when our customers are ready.

Will this lead to more innovative product launches in 2021 compared to a typical year?

I believe this will allow for more innovative introductions. However, it’s difficult to gauge how much additional product we can roll out versus last year, as uncertainty persists amid the pandemic.

Thank you for your continued support.

Thank you everyone, and with no further questions in queue that will conclude today's call. We thank you for your participation, and you may now disconnect.

Thank you.