Good day, and welcome to the B&G Foods Third Quarter 2021 Earnings Call. Today's call, which is being recorded, is scheduled to last about one hour, including remarks by B&G Foods management and the question-and-answer session. I would now like to turn the call over to Ms. Sarah Jarolem, Senior Director of Corporate Strategy and Business Development for B&G Foods. Sarah?

Good afternoon and thank you for joining us. With me today are Casey Keller, our Chief Executive Officer, and Bruce Wacha, our Chief Financial Officer. You can access detailed financial information on the quarter in the earnings release 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 the 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, adjusted EBITDA before COVID-19 expenses, 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. Casey will begin the call with opening remarks and discuss various factors that affected our results, selected business highlights and his thoughts concerning the outlook for the remainder of fiscal 2021. Bruce will then discuss our financial results for the third quarter, as well as expectations for 2021. I would now like to turn the call over to Casey.

Good afternoon. Thank you, Sarah. And thank you all for joining us today for our third quarter earnings call. The company's performance in the third quarter was strong. Base business net sales, which excludes Crisco, grew at plus 9.2% versus the same period two years ago, accelerating from plus 7% in Q2. With the addition of Crisco, our Q3 2021 net sales are ahead of last year's COVID period. Bruce will talk about categories and brands later, but we are generally seeing strength across the portfolio. Most of our key categories performed well when compared to 2019’s pre-pandemic third quarter results. Net sales of Green Giant and spices & seasonings were up double digits compared to 2019. Net sales of Ortega and Las Palmas, two leading Mexican food brands, were up high single digits compared to 2019. Our baking brands also had a strong performance for the quarter compared to 2019, led by Crisco, Clabber Girl, Baker's Joy, etc. While demand was strong, resulting in elevated sales, we are also managing through many of the same challenges to supply chain and costs that have plagued the industry. Inflation in full year 2021 is in the mid single digits, with the second half increasing to a double-digit increase across the portfolio. As discussed last call, inflation on Crisco is significantly higher than the base portfolio, given the major increases in soybean and canola oil. We have responded with significant price increases, where appropriate, raising list prices and optimizing trade to directly offset higher input costs. While we did accurately identify and address inflationary pressures, the majority of our price increases are effective in the second half, with the largest increase on Crisco effective at the end of September. We project continued inflationary pressure into first half 2022 and we will price to recover year-over-year cost increases. Additionally, we're driving aggressive cost optimization efforts to offset continued inflation. From a supply standpoint, we continue to deal with shortages in packaging materials, freight delays and contract manufacturing capacity. However, overall customer service levels are improving in recent weeks, aided by lifting allocations on Green Giant SKU with the new crop pack. Our goal is to manage our business for stable, steady margins. For the current portfolio, the goal is roughly an 18% adjusted EBITDA margin, with pricing and productivity actions recovering cost pressures on margins. Longer term, our goal is to improve to a 20% adjusted EBITDA margin with creative M&A, efficiencies, and some base business organic growth. In the near term, inflation will make that more challenging, but we believe that is the right target for this business. During the third quarter, we successfully completed the integration of Crisco. And I want to congratulate our team for a smooth transition. Crisco is our second largest acquisition, and we are happy with the performance year-to-date under our ownership, despite some volatility in commodity prices. In August, we also announced that we reached an agreement to sell our Portland, Maine manufacturing facility. We expect the sale to close during Q1 2022. While shutting a factory is never an easy decision, it became clear the 100-year-old Portland facility had reached the end of its useful life and was no longer cost-competitive. The site will become the future home of the Roux Institute at Northeastern University, which is a great outcome for the Portland community. We also continue to make investments in our existing facilities, including a new high-tech automated line in the Ankeny, Iowa spices and seasonings facility, as well as new lines that are Hurlock, Maryland and Yadkinville, North Carolina facilities to increase our capacity for Ortega Taco Sauces and Taco Shells respectively. So finally, after four months in the business, I wanted to share the key priorities and choices that we, the B&G team, are laser-focused on. First, managing B&G Foods effectively through the current inflationary and pricing environment; second, improving organic growth performance beyond COVID recovery; third, focusing on brands and categories where we have the capabilities, scale, and right to win in terms of both resources and structure; fourth, making disciplined acquisitions that are accretive to our portfolio; and with our core expertise in center store dry distribution; and fifth, accelerating cost savings and productivity efforts to eliminate non-value-added costs and strengthen margins, so more to come on those in future calls and discussions, including specific plans and updates. I will now turn the call over to Bruce for a more detailed discussion of the quarter.

Thank you, Casey. Good afternoon, everyone. As Casey mentioned, we had a strong financial performance during our third quarter, despite a very challenging operating environment. Net sales continue to be elevated and are tracking closely to the initial set of assumptions that we used to create our annual budget for fiscal 2021. Similar to our plan for the year, we are showing an acceleration in net sales growth, as we go through the year when compared to last year and our pre-pandemic 2019 numbers. As we continue to work our way through the balance of the year, we are approaching a period that we expect to be more similar to last year, still not quite normal, with more Americans eating at home more frequently than they did pre-pandemic, but also no longer having the height of the pantry loading that coincided with the early days of the pandemic. The result is that, after adjusting for the impact of Crisco, and the impact of an extra week in last year's third quarter, we not only have a net sales increase compared to 2018, but we also have sales trends that are much more similar to those during last year's COVID-19 enhanced third quarter. Separately, but not entirely unrelated, industry-wide supply chain challenges and input cost inflation have served to catch some of the upside that we would otherwise be seeing as a result of this robust demand. For some of our brands, this means that sales could be higher, absent out of stocks for certain items. For many of our brands, we have the sales, but margins are challenged relative to what we typically expect from a portfolio. Input costs across our portfolio generally continue to be up mid-single digits for most products with extreme cases for certain products like soybean and canola oils, transportation, and packaging, which are all up double digits. And like virtually everybody in the food manufacturing industry, we are aggressively increasing price where appropriate, plus cutting costs where possible to protect profitability and ensure the long-term viability of our margin structure. Now, for the third quarter 2021 highlights. We reported net sales of $515 million, adjusted EBITDA before COVID-19 expenses of $96.4 million, adjusted EBITDA of $96.2 million, and adjusted diluted earnings per share of $0.55. Adjusted EBITDA both before and after COVID-19 expenses, as a percentage of net sales was 18.7%. Net sales of $550 million were up $19.2 million, or 3.9% from Q3 2020, up $108.7 million, or 26.7% from pre-pandemic 2019. Crisco, which we acquired in December 2020, generated $71.2 million of net sales in Q3 2021 ahead of our forecast for the quarter, and well ahead of our understanding of 2018 net sales for the same time period under prior ownership. Base business net sales, which primarily excludes Crisco, decreased by $52.1 million, or 10.5%, in the third quarter of 2021, when compared to the third quarter of 2020. As a reminder, when comparing to our previous performance in our base portfolio Q3 2020 not only included COVID-19 enhanced sales, but also the benefit of an extra week due to the timing of our 53rd week in 2020, which we estimate benefited net sales for the third quarter of 2020 by approximately $35 million. The negative comparisons to 2020 are driven by a decline of $68.5 million in unit volume, which is offset in part by a $14.5 million benefit from an increase in net pricing, inclusive of list price increases, trade spend optimization, and a little bit of mix. Foreign exchange added $1.9 million of benefit. On a year-to-date basis, the cumulative benefit of net pricing index is approximately $27.3 million. Base business net sales, which primarily excludes Crisco, were up 9.2% compared to 2019, representing a two-year compound annual growth rate of 4.5% over our pre-pandemic net sales. Our base business net sales growth in the third quarter of this year represents continued sequential acceleration in growth versus 2019, relative to our performance in this year's first and second quarters. We generated adjusted EBITDA of $96.2 million in the third quarter, a decrease of $8.4 million or 8.1% when compared to the prior year period but an increase of $10 million, or 11.5% compared to 2019. The decrease in adjusted EBITDA versus Q3 2020 was largely driven by the reduction in base business volumes coupled with increases in input costs, including materially higher costs for raw materials, factory labor and other costs, transportation and warehouse spending, and one fewer reporting week. These costs were offset in part by locking in prices through short-term supply chain contracts, advanced commodities purchase agreements, implementing cost savings initiatives, coupled with lower price increases, trade spend optimization, and the addition of Crisco to the portfolio. Adjusted diluted per share was $0.55 in Q3 2021 compared to $0.74 per share in Q3, 2020 and $0.54 per share in Q3 2019. The majority of our key brands had declines in net sales when comparing Q3 2021 to Q3 2020. However, approximately two-thirds of the decline resulted from one fewer recording week of net sales in Q3 2021 versus Q3 2020. The majority of our brands had substantial increases in net sales when comparing Q3 2021 to Q3 2019. In some cases, for brands like Ortega and our spices and seasonings business, which were up compared to 2019, the upside was kept by limitations on production. In other cases, for brands like Back to Nature and New York Style, supply chain constraints resulted in declines in net sales when compared to prior years. Net sales of Ortega were $37.6 million in the third quarter of 2021, representing an increase of $1.6 million or 4.2% compared to the third quarter of 2020 and an increase of $2.6 million or 7.3%, when compared to the third quarter of 2019. If we had unlimited manufacturing capacity, net sales growth for Ortega would have been even higher. Demand for Ortega taco sauce, taco shells, taco seasonings and salsa remain very strong. And as Casey said previously, this is a category and a brand that we will continue to invest in and where we believe that our recently added capacity for sauce, shells, and seasonings will lead to increased performance in 2022. Net sales of Las Palmas were $9.1 million in the third quarter of 2021, representing an increase of $2.5 million or 37.1%, when compared to the third quarter of 2020, and an increase of $0.6 million, or 7.3%, when compared to the third quarter of 2019. Last year Las Palmas was an early harbinger of the industry-wide supply chain lows that we continue to see today. And as you may recall, last year at this time, we were unable to fully meet demand for tomato sauces. Our Las Palmas issues have fortunately been resolved this year, which helps to account for the large increase versus Q3 2020. Spices & Seasonings continues to be one of the leading drivers of our portfolio. Net sales of our spices and seasonings, including our legacy brands such as Accent and Dash, and the brands that we acquired in 2016 such as Tones and Weber were approximately $92.9 million, a little bit less than 20% of our total company net sales for the quarter. Net sales of spices & seasonings were down by approximately $14 million or 13.1% compared to Q3 2020. The shortfall is driven primarily by capacity constraints, as demand outran our supply and manufacturing capacity. While this phenomenon is getting better, and we expect will be alleviated in part by some additional capacity that we have coming on in the fourth quarter of this year or in early 2022, we are also lapping a massive quarter for spices & seasonings in last year's third quarter. When comparing Q3 2019, net sales of spices & seasonings were quite strong and increased by approximately $10.3 million or 12.5%. We are now largely through the 2021 pack season and fully caught up on supply for Green Giant. The result is an acceleration of performance beginning in the second half of the third quarter and continuing today. Green Giant generated net sales of $141.2 million in the third quarter of 2021, which was down $17 million or 10.7% when compared to Q3 2020, but is up $20.9 million or 17.4% when compared to Q3 2019. Assuming a healthy holiday season in November and December, we expect continued strength for Green Giant net sales through the fourth quarter of this year. Among our other large brands, Maple Grove Farms, which generated $20.2 million in net sales for the quarter was down $0.5 million or 2.4% compared to Q3 2020 and up $2.7 million or 15.3% compared to Q3 2019. Similarly, Cream of Wheat, which generated $15.2 million in net sales for the quarter was down $1.2 million or 7.4% from Q3 2020, but up $1.2 million or 8.5% compared to Q3 2019. We generated $105.7 million in gross profit for the third quarter of 2021 or 20.5% of net sales. Excluding the negative impact of a $14.1 million accrual for the estimated present value of a multi-employer pension plan withdrawal liability that we expect to incur upon the closing of our Portland manufacturing facility and $2.8 million of acquisition, divestiture-related, and non-recurring expenses, including cost of goods sold during the third quarter of 2021, gross profit would have been $122.6 million or 23.8% of net sales. Gross profit was $136 million for the third quarter of 2020 or 27.4% of net sales. Excluding the impact of $0.1 million of acquisition, divestiture-related, and non-recurring expenses included in cost of goods sold during the third quarter of 2020, gross profit would have been $136.1 million or 27.5% of net sales. During the third quarter of 2021, gross profit was negatively impacted by higher than expected input cost inflation, including materially increased costs for raw materials, factory expenses, and transportation. We have attempted to mitigate the impact of inflation on gross profits by locking in prices for short-term supply contracts and advanced commodities purchases agreements and by implementing cost savings measures. As discussed earlier on the call, we also executed list price increases and reduced trade promotions for certain products. The short-term result is that margins have been pressured relative to what we expect our business to generate in the short term. And while this trend may continue into our fourth quarter and early 2022, we do expect our efforts to return the business to its historic margin profile over time. Selling general and administrative expenses were $46.4 million for the quarter or 9% of net sales. This compares to $43.4 million or 8.8% for the prior year and $38.1 million or 9.4% in the third quarter of 2019. The dollar increase in SG&A compared to year-ago levels is almost entirely driven by a $3.5 million increase in warehousing costs coupled with $3.3 million incremental acquisition-related and non-recurring expenses, which primarily relate to the acquisition and integration of the Crisco brand and the sale of our Portland facility. The increase in warehousing costs was primarily driven by the Crisco acquisition and customer fines relative to COVID-19 shortages and delays. These costs were partially offset by decreases in selling expenses of $1.7 million, consumer marketing expenses of $1.2 million, and general and administrative expenses of $0.9 million and one fewer reporting week. As I mentioned earlier, we generated $96.4 million in adjusted EBITDA before COVID-19 expenses and $96.2 million in adjusted EBITDA in the third quarter of 2021. This compared to adjusted EBITDA of $104.6 million in Q3 2020, and $86.2 million in Q3 2018. Interest expense for the quarter was $26.6 million compared to $26.4 million in the third quarter last year. The primary driver of the increase in interest expense was the acquisition of Crisco, which, as you may recall, was financed in its entirety with a combination of revolver draw and incremental term loans. The revolver currently costs us a little less than 2% in interest, and the term loans a little less than two or three quarters percent. Depreciation and amortization are also up year-over-year driven primarily by Crisco. Depreciation expense was $15.3 million in the third quarter of 2021, compared to $10.9 million in last year's third quarter. Amortization expense was $5.4 million in the third quarter of 2021 compared to $4.7 million in last year's third quarter. We are tracking to an effective tax rate of approximately 26% to 26.5% for the year, with taxes a little higher in this year's third quarter due to some discrete tax items at an effective rate of 26.8% for the quarter compared to 24.7% in last year's third quarter. We generated $0.55 in adjusted diluted earnings per share in the third quarter of 2021 compared to $0.74 per share in Q3 2020 and $0.54 per share in Q3 2018. We remain encouraged by these trends. Despite tough comparisons against 2020 and continuing supply chain challenges driven by the ongoing COVID-19 pandemic, we still expect to achieve company record net sales for the year of $2.05 billion to $2.1 billion representing a mid-single digit increase in net sales compared to 2020 and a mid to high single-digit increase in base business net sales compared to 2019. And while adjusted EBITDA margins will remain challenged this year due to higher than expected input cost inflation, including increased costs of raw materials, factory costs, transportation, and warehouse costs, we also expect to generate adjusted EBITDA of $358 million to $365 million for the year. Also similar to what we discussed last quarter, we expect the following for full year 2021: Interest expense of $105 million to $110 million, including cash interest of $100 million to $105 million; depreciation expense of $60 million to $65 million; amortization expense of $21 million to $22 million; and an effective tax rate of approximately 26% to 26.5%. I'll now turn the call back over to Casey for further remarks.

Thank you, Bruce. As I said at the beginning of the call, we had a fairly strong quarter despite lapping elevated COVID-19 demand and an extra week in Q3 2020. We remain on track to deliver the mid to high single-digit growth against 2019 that we set as a target for the year, and we continue to implement pricing actions to offset inflation in the portfolio. This concludes our remarks. And now we would like to begin the Q&A portion of our call. Operator?

Thank you. I will take the first question from Andrew Lazar with Barclays. Please go ahead.

Great. Thanks so much. Good afternoon.

Good afternoon, Andrew.

Couple things, I guess first off, just been thinking about full year guidance and what that implies for Q4. In Q3, I think on a two-year basis, EBITDA was up about I think 13%, again, versus 2019. And I think the implied two-year rate of growth in Q4 is over 20%. So obviously, you think growth on a two-year basis accelerates. So I'm just trying to get a sense of, I guess, the rationale behind the acceleration when generally speaking, as you've talked about, and pretty much everybody else in the industry, the environment probably getting somewhat tougher rather than easier in terms of costs, and supply chain and labor disruption and things like that? That'd be a first question, please.

Yeah, I mean, I'll lead Andrew and then Bruce can talk some of the numbers. But so I think one thing to remember here is that we took some pretty significant pricing actions, which were fielded in Q3, but really are not becoming effective until the very end of this quarter, September, late September, which is obviously our biggest increases in cost and pricing, and also a number of portfolio pricing actions which are becoming effective in the middle of October. So I guess one thing I would say is that the flow of costs started coming into our P&L in Q3, but the real big flows of pricing are coming in mostly in Q4. So that's a little bit of, I think, a change maybe from the flow of how Q3 and Q4 go in the past. And in terms of the supply disruptions, I would say we did have significant supply issues in Q3, our service levels went down a little bit in Q3 from Q2. But the most – our most recent weeks, we've started to recover some of our customer service rates and some of our supply issues are beginning to get better. One of the big things is, obviously, the new crop on Green Giant, which we've basically taken the Green Giant can business off allocation, which we've been on for months now. So we're now able to ship to demand for that. So, you know, we're starting to see supply issues get a little bit better, but I think you correctly pointed out that we're not going to be out of the woods and a lot of them. But I expect that, you know, we'll have some gradual improvement in the fourth quarter. And then getting better in the first quarter.

And Andrew, just as a reminder, during last year's fourth quarter, Green Giant can was actually on allocation. And so we would be lapping a period where we restricted ourselves. And then obviously, last year, we closed on the Crisco acquisition on December 1. And so we have that for one month of our results in last year's fourth quarter. But we would have it in all three months.

Right. No thanks for that. That's helpful. And then we think about pricing. Obviously, a lot of the pricing you said is starting to become more effective in this quarter that we're in. I think price was up about 3% overall in Q3. I'm trying to get a better sense of how that price piece, year-over-year increase in price in the P&L might look in sort of Q4 going into 2022. For a sense of how much that steps up from the 3% that we saw in this quarter?

Yeah, I think you're going to see a big step up in the fourth quarter because of the way our pricing actions take, we're effective in the trade. So, the Crisco – Crisco is probably half and the significant increase on Crisco is effective September 27. So, you know, that's what that is. We saw the oil costs flowing into our P&L Q3, but because of the lead time that required by customers we got it – it became effective on September 27. Some of our other higher cost input categories also will be effective in the middle of October. So, you know, and those obviously that pricing will carry into 2022 for three quarters of the year.

Yeah, perfect. And then just lastly, maybe just a quick comment on, at least thus far, it's early, but how you're seeing sort of elasticity play out, and I think you're up, maybe nearly seven times levered or so may have borrowed some additional funds quarter-over-quarter, just trying to get a sense, again, of the flexibility right on the balance sheet from the dividend and such, and how you see that, thanks so much.

Yeah, and leverage not seven times, based on our covenants, a different calculation, actually close to 6.49 times, I think. Just a couple of reminders, third quarter is really the finish of the pack plan. And so when we think about inventory, and working capital and leverage that usually kicks in the third quarter as far as where it is for the rest of the year, and we leaned in heavy this year, when you think about some of the issues that we suffered. Last year, the demand was extraordinary for some of our Green Giant products, but we didn't have enough inventory, we had to go on allocation, the demand continues to be incredibly strong for Green Giant, particularly on the shelf-stable side. And as a result, the plan this year was to lean into that pack plan, part one to restore some of the inventory that we didn't have, at the tail end of last year's pack plan. So we were starting from a lower safety stock standpoint and then lean in a little bit more. So we had the capacity to satisfy the demand that we're seeing. And that's our expectation. And that's part of why the trends on Green Giant are accelerating, particularly on the shelf-stable side, whereas we were running on fumes at the end of last year, or at the end of the second quarter.

And the only other thing, I'd say that Andrew is that, obviously there's the higher cost – higher costs flow into our inventories where we have an inflationary inventory adjustment going on in Q3 because that's probably the predominant step up that we're going to have in our working capital. So it's the Green Giant pack, which we took that pack that in frankly, we're selling very nicely against that starting in the fourth quarter. And it's the step up in the valuation of our inventory as higher inflationary costs.

Thank you both so much.

Your next question will come from the line of William Reuter with Bank of America. Please go ahead.

Good afternoon.

Good afternoon.

Given the volatility with a lot of these inputs, in terms of your locking in prices for some of them next year, have you started doing that? I guess some of these may be coming down over time. So, I guess what has been your comfort with trying to, I guess, take risk in some of them?

Really depends on the category. And so there's some things really where we're seeing inflation as Casey said, a lot of the portfolio is mid-single digits. But there are some areas that are extreme, so we think about cans, we think about some of the oils, Crisco, for example. And some of those areas we're a little bit heavier to make sure we are locking in price out of those price increases.

I think honestly, the way we look at it is, you know, what we can we and we want to we lock in with as much forward contracting as we can on the most volatile commodities like say soybean oil. What we do is, we will increase coverage when we see prices increasing, and we will decrease coverage when they think they press it or they're going down. So right now, nobody knows really what's going to happen on soybean oil. But I would say, we're not necessarily increasing coverage on soybean oil at this current, mid-60s price per pound. So yeah, but we were increasing coverage in the first half of this year, when we saw prices increasing, we increased coverage at lower rates, which is why we had kind of the first half of the year, we had better costs because we had forward bought or before contracted for prices when it was lower?

Yeah, that makes sense. Yeah, no, that does help. And then with regard to your leverage still continuing to be a little bit elevated and all the uncertainty in the market, is there a leverage number you would want to get down to before you would consider pursuing additional M&A? Or if there was something that was extremely opportunistic, would you consider yourself in the market in the relative near future?

So we're very focused on getting our leverage into the 4.5x to 5.5x anything that’s the goal. When it comes to evaluating M&A, we've got to evaluate opportunities in that context. And the obvious answer to your question is at current leverage and today, if we were going to look at something in the M&A, you would either have to be a relatively modest-sized transaction or it would have to be structured so that it wasn't increasing our leverage, both from a purchase price and valuation standpoint and then also from a mix of how we funded it.

And the answer is, the near term question we would like to get leverage down below, at 6 or below in the first and second quarter of next year.

Great, very good to hear. And I'll pass to others. Thank you.

Your next question comes from the line of Michael Lavery with Piper Sandler. Please go ahead.

Thank you. Good evening.

Hey Michael.

Just wanted to come back to some of the price mix dynamics, can you touch on the mix please, maybe a little bit related or just which categories you're taking pricing in versus others, but any mix shifts you would expect or that you can flag and maybe what you've seen from some of the pricing so far, or just anything we should be watching out for as we think about modeling the next few quarters?

Yeah. I think I know, Andrew, so we didn't answer it. But I think it is, it's probably important to talk about elasticity. Because in the last call, we said, we're taking some sizable increases on some of these businesses based on input costs. And it's pretty early days on the significant increases I talked about becoming effective in September, October. But I would say early on, we are seeing lower elasticity than we originally forecast. But it is early days. So in other words, we modeled that a little bit higher elasticities, but now that we've seen a lot of industry movement in food. And we have seen frankly private label and other branded businesses moving in many of our categories. We're seeing lower elasticities than a little bit lower elasticities than what we originally expected.

That's helpful. Regarding the outlook for the fourth quarter, which has historically seen some surprises and unusual volatility, could you clarify your level of conservatism or confidence compared to prior years? Additionally, what should we consider in terms of any cushion in your projections?

I mean, we gave the guidance numbers for this for the year. And obviously, we felt confident enough to give those numbers implies a fourth quarter. To answer your question to make sure there's we're in uncharted territory still in terms of the dynamics in the world and what's going on and COVID. We hadn't had EBITDA guidance for this year until this quarter we thought it was appropriate to do so going into the fourth quarter.

Okay. I would say two things. One is October is off to a good start in the fourth quarter. And the other thing is, I think we provided guidance, which says we feel there's a little upside to the consensus.

Okay, great. Thanks so much.

Your next question comes from the line of Karru Martinson with Jefferies. Please go ahead.

Good afternoon. In terms of the co-pack pressures, what are the types of contracts that you have in terms of securing that capacity? And how are we looking for the rest of the year and into 2022?

Our contracts vary based on the specific category or product we are co-packing. We generally aim for longer-term agreements. However, in the current supply environment over the past six months, suppliers haven't always been able to honor those commitments. Often, they are trying to fulfill the surge in demand from their customers, while we are negotiating what we can obtain from their available stock. In some instances, they've faced their own labor shortages, impacting our capacity as well. It's a case-by-case situation. We usually prefer longer-term agreements, but in this climate, suppliers have informed us they can't fulfill all our requests, and we've needed to manage those discussions individually. On a positive note, for some of our larger contract manufacturing, we are seeing improved capacity in the fourth quarter. We're starting to feel more optimistic about the availability from our contract manufacturers for certain key items, although some suppliers still face shortages or labor issues that prevent them from meeting our full requirements.

And on labor, where are you guys on for your facilities in terms of meeting the labor needs?

We have some facilities that are understaffed, which prevents us from achieving full staffing levels. The hiring environment does not provide enough candidates for us to recruit. Currently, we have about three to four facilities that are not fully staffed as we would like. We are compensating for this through shift changes, overtime, and other measures. We are actively working to recruit and achieve full staffing at facilities like Ankeny and Tone's Spices, as well as our Yadkinville plant in North Carolina, by offering incentives and flexible schedules. This issue is affecting nearly everyone in the industry, and it is a challenge we need to manage. Although I have some concerns, we do not have facilities that are severely understaffed; we simply are not at the desired staffing levels.

Thank you very much, guys. It’s pretty good.

Thanks Karru.

Thanks Karru.

Your next question comes from the line of Carla Casella with JPMorgan. Please go ahead.

Hi. I'm just curious how much of the inventory increased significantly sequentially as well as your and I'm just warning, can you give us a sense for how much of that is just the cost built into it Or if you're actually keeping extra stock in any products? It sounds like your short everything, but any details you can give, that would be great.

Yeah. There's really three parts to that. Just in terms of context. Last year through the third quarter, we increased inventory by about $7.7 million. This year, we increased it by $177 million. So that's kind of the context for the numbers. And the reasons for that, last year, in the second quarter and really the tail end of the first quarter, we were sitting on inventory. And due to the inventory we had, we were able to fulfill most of those COVID sales and not really worried about the pricing problems. And so we liquidated a lot of inventory in the early days of COVID and at the peak of COVID. And then we had our pack plan, restore some of that for Green Giant. This year, we had to build that inventory. I don't have the specific numbers broken down in terms of what was inflation versus what was loading up on new inventory. But certainly we've talked to the inflation that we're seeing in the full year and kind of what we expect for the PAC here. So that should give you some context. But we typically load up on inventory and we've got large purchases for the PAC plan. And then, in other areas where we think that there's inflation coming, we also bought ahead of some of those costs increases. And we're concerns around supply chain, we also bought early to make sure that we have the quantity to get us through the end of the year. And that's kind of the plan. And so peak level of inventory for the year in the third quarter like it normally is, but this year, even higher just given the world that we're living in. To simplify that—

I'm sorry.

This is Casey. To simplify that answer, I would say that a little more than half of the increases are due to rising costs and inflation affecting the value of the inventory. The only real increases in our inventory are from higher packs of Green Giant to meet business needs, as we didn't achieve a full pack last year and had to go on allocation. This year, we obtained about 95% of what we wanted, which marks a significant year-over-year change in units. Additionally, we now include the Crisco business, which we did not have at the end of the third quarter last year. Those are the only changes in units; everything else is primarily due to increased costs from inflation. Does that help?

Yes, it does. It seems that some of that will be released in the fourth quarter, but some of the Green Giant pack may be spread out over several quarters.

Yes, historically, we usually see a significant reduction in inventory when transitioning from the third quarter to the fourth quarter, as well as a notable deleveraging outside of the US where we have engaged in mergers and acquisitions. We will continue to sell down the Green Giant inventory from the first and second quarters into the beginning of the pack.

Okay. And then just one other on that main facility sale, is that the $3.8 million of assets held for sale? Is that what we should expect in terms of the cash proceeds coming in?

Yes, that's just relative to the value. We haven't disclosed what the sale process price was. And that's probably something that will ultimately flow through our financials. So, certainly some transparency there and that number, but at the time that we signed the agreement, we did not disclose the sale price and not in a position to do so today.

Okay, great. Did you quantify how much the out of stocks impacted sales? I heard you say it was significant, but did you provide any specific numbers?

We did not.

Your next question comes from the line of Eric Larson with Seaport Research Partners. Please go ahead.

Yes, thanks. Thanks for taking the question. So, my question, again, is on Green Giant. And I guess the real question is, you now have some inventory, but your demand is still really strong, particularly shelf stable; both retail takeaway, is there a risk that you don't have enough inventory again this year? And are you rebuilding retailer inventories? Are they still pretty low? Are you shipping ahead of consumption? Or how should we kind of look at that whole dynamic? And I guess, it's the retail demand that that continues to surprise us.

So, we'd hate to run out of product, but it would be a nice problem to have, if we sold through all of our inventory, add an extra pack. Like I said, we leaned in pretty heavy this year. We're confident that we've got the sales coming to sell through all that inventory. But that was a conscious that we made.

I mean, this is in the frozen side of the business, our retailers don't have a lot of inventory, and this isn't a category that they'll really rebuild heavily. So, there was a little bit of re-piping, probably in late September timeframe, but for what we're seeing is pretty solid demand on Green Giant, and we're shifting very nicely in the first part of the first quarter of the fourth quarter. So, and as Bruce said, we always expect to sell through the inventory that we get in the pack at the end of Q3. We sell through it pretty consistently. The – we do get some additional pack in the spring. So we'll have some vegetable categories coming back in the spring that will do, but a lot of things we're going to have to manage for the next several quarters.

Okay. Thanks. And help me out on this. And you may have talked a little bit about this. I think that demand yet for Ortega is stronger than your ability to meet that demand. Is that the only product line or do you have several others where you're still modestly capacity constrained and I know that you've got labor shortages and things such as that, but I think the one that stood out was Ortega, are there others?

It's difficult to express dissatisfaction when our sales are performing at such high levels, especially in comparison to 2018. On a brand-by-brand basis, there are areas where we can't meet the demand, leading to a nice boost. Ortega and Las Palmas are examples, as well as spices and seasonings, where our sales could be significantly higher if we could simply obtain more product. Unfortunately, we can't. Our sales are up compared to 2019, but there is potential for even greater increases. Other brands, like Back to Nature, New York Style, and Static Guard, also have the potential for increased sales, but we face challenges in accessing the products for various reasons. Specifically, we're having trouble with canisters and Crisco sprays, which is impacting our ability to fulfill robust demand.

Canisters.

It just varies brand-by-brand overall sales around, but on a brand-by-brand you can find areas where you just wish you had more product.

Yes, I think there are two main constraints we are addressing. One is related to packaging materials and supplies, such as canisters for Static Guard and Crisco sprays, including caps and liners for spices and seasonings. The other constraint involves ongoing allocation discussions. However, we have a full crop this year, allowing us to meet that demand. We are also investing in new production lines for Ortega taco sauce and taco shells, which will launch in the first quarter. Additionally, we are developing a new line in our spices and seasoning facility and a chef line to enhance our capacity to meet all demand. These enhancements should be ready in the next quarter. We are making investments to increase capacity while simultaneously managing material shortages to ensure a steady supply.

Okay. Great. That's helpful. Thank you.

Your next question will come from Ken Zaslow with Bank of Montreal. Please go ahead.

Good evening everyone.

Hey, Ken.

When you talk about the businesses, and I'm actually reading into something, but I just kind of wanted a clarification is from the past, I don't know, five, seven years, it doesn't never seem like there was a thought process of really segmenting out certain brands and investing behind them a little bit more aggressively. I get the sense that there are certain brands that you've kind of cleared out in your head at least, that you might be thinking, hey, when we get through this, and we get capacity, that we're going to start to actually spend a little bit more aggressively on rather than just holding the growth at whatever rate the market gives us. One, is that a fair assessment? And which grades would it be, I assume it's our table in Green Giant, but are there others? And is that the way to think about it?

I think your framework is right. So, and that's the work that I'm doing now, after having kind of dug into the business for the first several months. We're now looking at, where do we believe that our focus by, and I would say not only by brand, but by category, where are the categories and brands that we believe, we have good capabilities, we can get some organic growth out of those businesses. We have good assets. And we believe that, those also can be platforms for us to acquire businesses in the future, where we can add value. And so there's a very clear definition of what those categories are. I'm not going to talk about it today because we're still working through all that. And then I think there's some businesses that we're going to say, what we're going to manage these businesses for stability. And we're going to try and kind of maintain the top of the bottom line of those businesses. But we're not going to put a lot of resources, energy and intensity behind those businesses. But there are very, there are clear categories. And I'll say one is spices and seasonings, we've been very successful in spices and seasonings, we have a great asset, we've proven that we can work that business across, retail and other channels. We've got a good portfolio of branded strength. We've gotten some procurement expertise in that area. It's a business that I think we can grow, and it's nice margin. And I think it's a business that we can grow successfully, organically, but also look in the future to where we can bring in inorganic growth. So and well, I mean, at some point, we will come out and kind of give you guys a lot more specificity around this. But suffice to say that, we're going to decide where we want to focus, and where we're going to, not only invest, but put resources and structure ourselves to grow this part of the portfolio. And then pick the parts of portfolio that we want to kind of run, lean and mean and make sure that we just stabilize. But not expect a lot of growth and not put a lot of resource behind. And the algorithm of that to me, we're trying to get to some top line organic growth, and then really find a platform that we can acquire and grow value.

I see. When you begin to segment and you think about this? Do you think there's an opportunity to accelerate your top line growth more akin to other packaged food companies rather than kind of keeping it stable? And then the second part of that, I'll leave it here is, when you think about your 18% to 20% EBITDA margin, is 20% the plateau or is that – is that a milestone for somewhere else to go? Just how do you frame those thoughts? And I'll leave it there, and I appreciate your time.

I believe we can achieve 1% to 2% organic growth in our total portfolio by strategically deciding where to focus our efforts. We are starting to see positive results in areas that align with this approach. For instance, our Ortega Mexican platform has shown solid growth, and I see potential for future expansion with additional capacity. While I'm not certain we will reach the growth levels of some other consumer packaged goods companies, I am confident we can improve upon our current performance, and we are actively working on strategies to achieve this. Regarding margins, I aim to reach an 18% margin and gradually improve upon it, which I see as very achievable. I believe a 20% margin is a reasonable target over the next several years as we optimize our product mix and focus on acquisitions that enhance our margin profile. This 20% target isn’t the final goal but rather an important milestone for us to pursue in the coming years.

I appreciate it. Thank you, guys.

Your next question comes from David Palmer with Evercore ISI. Please go ahead.

Thanks. And another question on Green Giant, the data, the IRI data is looking like it's down mid-teens on a one-year basis in the last quarter, as obviously some good reasons for that, but lots going to change here in the near term with increased shipments and the pricing that you presumably will be taking there. If you're doing what your plan is, what should we be seeing in the IRI data in the coming months? What sort of improvement?

Yes. We are observing good growth in the business compared to 2019. We're focused on building and growing from that 2019 baseline. Year-over-year comparisons are somewhat unclear, but I anticipate that they will start to show improved trends against last year as well. In the fourth quarter, you can expect to see us growing compared to the two-year-old baseline in Green Giant.

Yes. And just to be clear, Green Giant was one of the categories and brands that had the biggest benefits from COVID. And so, hard to lap some of those numbers until we really get to the period where you are on allocation.

On a two-year basis, we're seeing a 3% decline, which has remained unchanged over the last 12 weeks. So your expectation is that we can return to positive growth compared to that.

In the fourth quarter, we expect to see positive results. If you examine the most recent weeks, we are nearly at that point.

Got it. And you mentioned that the inflation rate, the core inflation was mid-single digits. But there was also some other areas of COGS that were up double digits. What is the overall COGS inflation? And if you're breaking it out by your COGS in terms of where you're having the inflation, does that say something about how you think about pricing strategy, where there's some pass-through categories? And I thinking of Crisco, specifically, if that's a sort of category that has a little bit more of a cost-plus type pricing to it as a category?

Yes, I believe two points might help clarify my earlier comments. We're currently observing an average inflation rate of about 7% for our total costs throughout 2021. In the first half of the year, costs were lower because we had coverage on many commodities and expenses had not yet risen significantly. However, during the second half, our average inflation and costs are likely in the low double-digit to low teens range. It's important to consider how costs have flowed into our profit and loss this year. Overall, the average is 7%, but moving forward, we're anticipating inflation to be in the low single digits, low double digits, or low teens. That's our outlook on inflation. It varies considerably by product category, and we adjust our pricing accordingly. We collaborate with our retailers to set prices that allow us to recover costs tied to specific products. For example, Crisco has seen multiple substantial price increases due to canola oil costs doubling compared to a year ago. Our pricing strategy accounts for this, so Crisco, being our highest category, is also where we've set the highest prices to recover costs.

Thank you.

It appears there are no further questions at this time. I'll turn the conference back over to management for any additional comments or closing remarks.

Thank you, operator, and thank you all for being on the call. We look forward to talking to you in future discussions and calls and thanks for your attention today.

Ladies and gentlemen, this concludes today's call. Thank you for your participation and you may now disconnect your lines.