B&G Foods, Inc. Q2 FY2023 Earnings Call

Good day, ladies and gentlemen, and welcome to the B&G Foods, Inc. Second Quarter 2023 Financial Results Conference 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 Michael Bauer, Director of Corporate Strategy and Business Development for B&G Foods. Please go ahead.

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 we issued today, which is available at the Investor Relations section of bgfoods.com. Before we begin our formal remarks, I need to remind everyone that part of the discussion today includes forward-looking statements. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer you to B&G's 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 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 2023. Bruce will then discuss our financial results for the second quarter of 2023 and our guidance for fiscal 2023. I would now like to turn the call over to Casey.

Good afternoon. Thank you, Michael, and thank you all for joining us today for our second quarter 2023 earnings call. Second-quarter results continued strong profit and margin recovery. Adjusted EBITDA increased 26.4% versus last year to $68.5 million. Margins improved significantly with adjusted EBITDA as a percentage of net sales at 14.6%, increasing 330 basis points from Q2 2022. Base business net sales, which excludes net sales from the recently divested Back to Nature brand, were up slightly at 1.1% versus Q2 2022. On a two-year stack, base business trends remained strong, up 0.38% versus Q2 2021. Some of the key drivers of the results were pricing recovery. In total, Q2 pricing realization, including product mix, contributed $54.1 million versus Q2 last year. Pricing flowed through to offset higher costs and inflation, with Q2 gross profit as a percentage of net sales, excluding items affecting comparability at 21.9%, up from 16.5% last year. Almost all pricing actions have been implemented to recover total inflation in fiscal year '23, which is currently tracking at roughly 4% to 5%, well below fiscal year '22 levels. Volume sales in Q2 were down versus last year, offset by higher pricing. The major volume drivers were Crisco and Green Giant, price elasticities, and to a lesser extent, retail inventory reductions. Excluding Crisco and Green Giant, net sales of the remainder of our brands in the aggregate increased 3.6% in Q2 versus last year. Specifically on Crisco, price elasticities remain high, greater than one, above the key $5 and $6 per bottle price points. We are reducing our net prices to reflect lower commodity oil costs and expect to drop back below key price thresholds on shelf during baking season this fall and project volumes to improve at lower price points. As previously discussed, the objective on Crisco is to maintain gross profit dollars and margin in a volatile commodity market. Second, for Green Giant, volume declines continue to reflect the discontinuation and rationalization of lower-margin innovation in the frozen portfolio, which we will begin to lap at the end of Q3. For shelf-stable products, we have also seen Del Monte and others become very aggressive on pricing and promotion to work down higher prior season pack inventories. Supply and service on a company-wide basis, customer service, and fill rates improved during the quarter, reaching over 97% in June. We are on track to deliver above 98% CFR, our long-term target before year-end. Inventory decreased by $25 million to $675 million in Q2 from the ending position in Q1 and down $52 million from fiscal year '22 year-end. We are well on track to reduce inventories year-over-year at the end of Q4 2023. The major drivers are unit efficiencies, lower soybean oil costs, and a smaller seasonal pack on Green Giant shelf-stable versus last fall. For our outlook for the balance of the year, we expect a more modest year-over-year margin and adjusted EBITDA recovery in Q3 and to be relatively flat in Q4 against the strong last year. Last year, pricing actions began to partially offset inflation in Q3 and fully recover higher costs in Q4. We remain on track to deliver within the communicated guidance of adjusted EBITDA in the range of $310 million to $330 million. We expect second-half base business net sales to be between flat to 1.5% growth versus last year, an improvement from the first-half trend of minus 0.6%. Cash flow generation was very strong in Q2. Net cash from operations was $62.9 million in Q2, increasing from negative $4.1 million last year, with year-to-date net cash from operations of $132.4 million. Pro forma net leverage came down to 6.74 times from 7.2 times in Q1. We are on track to continue to reduce leverage by the end of 2023, driven by adjusted EBITDA recovery, lower working capital and inventory needs, and debt reduction from available cash flow. Through June, we have reduced the principal amount of our debt by $147.9 million compared to year-end. Further, the new business unit organization is becoming fully operational with multifunctional teams accountable for and driving P&L performance for the portfolio responsibility. Finally, we continue to evaluate exiting businesses that have lower margin and cash flow, higher working capital complexity, or do not fit with our core capabilities and business unit structure, with Back to Nature as the first step last January. There is a target list being worked to reshape the portfolio with no specified timeframe, but we expect that any proceeds from divestitures would primarily be used to reduce long-term debt. Thank you, and I will now turn the call over to Bruce for more detail on the quarterly performance and outlook for the year.

Thank you, Casey. Good afternoon, everyone. Thank you for joining us on our second quarter 2023 earnings call. As you can see, we had another strong quarter. For the second quarter, gross profit as a percentage of net sales increased by more than 500 basis points and adjusted EBITDA as a percentage of net sales increased by more than 300 basis points. We also had strong net cash from operations and an improved balance sheet, including a continuing reduction in our net leverage, as well as a slight uptick in our base business net sales when compared to the second quarter of last year. In the second quarter of 2023, we generated $469.6 million in net sales, $68.5 million in adjusted EBITDA, adjusted EBITDA as a percentage of net sales of 14.6%, and adjusted diluted earnings per share of $0.15. Base business net sales, which excludes net sales from the Back to Nature brand, increased by approximately $0.4 million or 0.1% in the second quarter of 2023 compared to the year-ago period. Base business net sales remained robust despite our pricing activity and were up by $17 million or 3.8% on a two-year stack basis. Pricing was obviously the big driver of our sales performance and contributed just over $54.1 million to our base business net sales. Volume declines largely driven by pricing-related elasticity and timing negatively impacted base business net sales by $52.1 million. FX drove the remaining $1.6 million of decline. We continue to watch our volumes closely, particularly for brands where we have taken the most pricing. We expect the pace of our volume declines to continue to moderate as we head into the back half of the year and lap the majority of our price increases. Driven in part by our pricing initiatives, our second quarter 2023 adjusted EBITDA increased by $14.4 million or 26.4% compared to the first quarter of 2022 to $68.5 million. Adjusted EBITDA as a percentage of net sales increased by approximately 330 basis points to 14.6% in the second quarter of 2023 compared to adjusted EBITDA as a percentage of net sales of 11.3% in the second quarter of 2022. While the levels of adjusted EBITDA increases are staggering, this is exactly what we said would happen as pricing would finally catch up to costs across the portfolio, particularly with brands that had major cost increases like Clabber Girl and Crisco. Also, supply chain disruption and logistics costs are continuing to normalize this year. And while we are seeing inflation across much of our portfolio, the pace of inflation has slowed, which is what allowed pricing to catch up with costs and restore margins to our P&L. Net sales were mixed across the portfolio. Amongst our largest brands, Clabber Girl was once again one of the top performers in the second quarter. Net sales of Clabber Girl go were up by $8.3 million or 43.7% compared to the year-ago period. Clabber Girl is continuing to see strength across all product lines, including baking powder, baking soda, and cornstarch and channels, including branded retail, private label and industrial. Victoria recovered nicely from some of the pricing-related elasticity and promotional timing headwinds that it faced in the first quarter. Net sales of Victoria were up by approximately $1.6 million or 16.1% compared to last year. We feel very strongly about Victoria's position as one of the leading premium authentic pasta sauces in America. Net sales of New York Style were up by $1.3 million or 18.5% in the second quarter of 2023 compared to last year. With improved performance in our Yadkinville facility, we also think that this business will continue its recovery with a lot of upside. Net sales of Maple Grove Farms were up $0.6 million or 2.9%. Net sales of Prima Wheat were up by $0.3 million or 1.9%. Ortega, which had a challenging first quarter recovered in the second quarter. Net sales of Ortega were essentially flat for the quarter or down just $0.2 million or 0.5% compared to last year. While net sales of Crisco and Green Giant were both lower in the second quarter compared to the year-ago period, the pace of decline has moderated significantly for both brands when compared to their first quarter performances. Net sales of Crisco were down $4.8 million or 6.7% in the second quarter compared to the prior year, but were up $8.6 million or 14.6% compared to the second quarter of 2021. More importantly, contribution and contribution margins for Crisco were up in the second quarter of this year compared to last year, just as they were in the first quarter of this year compared to the prior year. Net sales of Green Giant were down $4.9 million or 4.4% in the second quarter compared to the prior year period, but were up $1.9 million or 1.8% compared to the second quarter of 2021. Following a very strong first quarter, net sales of our spices and seasonings business were down in the second quarter by approximately $6.4 million or 6.7% compared to last year. However, net sales of our spices and seasonings business have increased by $2.1 million or 1.1% on a year-to-date basis. Base business net sales of all other brands in the aggregate increased by $4.6 million or 5.8% for the second quarter of 2023 as compared to the second quarter of 2022. Gross profit was $102.3 million for the second quarter of 2023 or 21.8% of net sales. Excluding the negative impact of $0.4 million of acquisition divestiture-related expenses and nonrecurring expenses included in the cost of goods sold during the second quarter of 2023, the company's gross profit would have been $102.7 million or 21.9% of net sales. Gross profit was $76.5 million for the second quarter of 2022 or 16% of net sales. Excluding the negative impact of $2.3 million of acquisition, divestiture-related expenses, and nonrecurring expenses included in the cost of goods sold during the second quarter of 2022, the company's gross profit would have been $78.8 million or 16.5% of net sales. Gross profit as a percentage of net sales, excluding the impact of acquisition divestiture-related and nonrecurring expenses was up by approximately 540 basis points in the second quarter of 2023 compared to last year's second quarter. The improved margins were driven by increased pricing and a moderation in input costs and logistics inflation, representing a continued turnaround compared to the first three quarters of fiscal 2022, where we suffered from severe input cost inflation that was seen industry-wide and which led to large declines in our gross profit and margins. Selling, general, and administrative expenses increased by $3.7 million or 8.3% to $47.9 million in the second quarter of 2023 from $44.2 million in the second quarter of 2022. The increase was composed of increases in general and administrative expenses of $3 million, consumer marketing expenses of $2 million, selling expenses of $0.6 million, and warehousing expenses of $0.1 million. These were partially offset by decreases in acquisition divestiture-related and nonrecurring expenses of $2 million. Expressed as a percentage of net sales, selling, general, and administrative expenses increased by 100 basis points to 10.2% for the second quarter of 2023 as compared to 9.2% for the second quarter of 2022. As I mentioned earlier, we generated $68.5 million in adjusted EBITDA for the second quarter of 2023 compared to $54.1 million in the second quarter of 2022. The increase in adjusted EBITDA is primarily attributable to our pricing initiatives, which finally caught up to industry-wide input cost inflation and logistics inflation beginning in last year's fourth quarter. Adjusted EBITDA as a percentage of net sales was 14.6% in the second quarter of 2023 compared to 11.3% in the second quarter of 2022, an increase of approximately 330 basis points. Net interest expense was $35.8 million in the second quarter of 2023 compared to $29.9 million in the second quarter of 2022. The increase was primarily attributable to higher interest rates on our variable rate borrowings, partially offset by a reduction in our average long-term debt outstanding and a $0.8 million gain on extinguishment of debt as a result of the repurchase of our bonds. Depreciation and amortization was $17.3 million in the second quarter of 2023 compared to $20.5 million in the second quarter of last year. We generated $0.15 in adjusted diluted earnings per share in the second quarter of 2023 compared to $0.07 last year. We remain very encouraged by the progress that we have made over the past year in terms of restoring our P&L. In addition to our P&L improvements, we are also continuing to make progress in the improvement of our cash flows and our balance sheet. We generated $62.9 million in net cash from operations in the second quarter and $132.4 million in net cash from operations during the first half of 2023 compared to net cash used in operations of $4.1 million in the second quarter of 2022 and net cash from operations of $21.1 million in the first half of 2022. Increased operating profits, improved margins, and more favorable working capital were the primary drivers of the improved cash from operations performance, which was offset in part by increased interest expense. We reduced our inventory by another $25 million or so in the second quarter. Our inventory stood at approximately $675 million at the end of the second quarter, which is more than $50 million lower than it was at the start of the year. We have also reduced the principal amount of our long-term debt by $36.9 million in the second quarter and by $147.9 million in the first six months of the year. During the quarter, we repurchased $24.4 million of our senior unsecured bonds due in 2025 at an average price of 95.74% of face value. Additionally, we reduced our revolver balance by $12.5 million during the second quarter compared to the end of the first quarter. Our net leverage ratio, as defined by our credit facility, has also improved, dropping below seven times to 6.74 times at the end of the second quarter. We are focused on continuing to lower this ratio, and over time, we do expect to return to our long-term goal of a ratio of 4.5 to 5.5 times pro forma net debt to adjusted EBITDA before share-based compensation expense. Our fiscal 2023 guidance remains dependent in part on many industry-wide or macro factors that have proven to be beyond our control over the last few years. However, through six months, we are largely on track to achieve the targets we laid out at the beginning of the year. We are adjusting our net sales target to $2.11 billion to $2.13 billion. Through six months, our net sales are essentially flat. We're recovering from the worst of our expected elasticity drag. Our updated guidance reflects base business net sales performance of approximately 0% to 1.5% growth during the back half of the year. As a reminder, the recently divested Back to Nature brand contributed approximately $10.2 million of net sales in the third quarter of 2022 and $11.9 million of net sales in the fourth quarter of 2022. A primary driver in the adjustment in net sales guidance is related to Crisco, given that input costs have come down over the course of the year. Our initial net sales target assumed higher selling prices for Crisco; however, we now expect to be able to reduce selling prices for Crisco relative to their selling prices at the end of 2022 while still preserving our profits. Softer-than-expected volumes in our Green Giant cans and bag-in-the-box business have also impacted the outlook for the year. Meanwhile, we are reaffirming our adjusted EBITDA guidance of $310 million to $330 million. Adjusted earnings per share is somewhat dependent on movements in interest rates, but we are also reaffirming our fiscal-year guidance for adjusted diluted earnings per share of $0.95 to $1.15. The majority of the heavy lifting in our adjusted EBITDA margin and dollar recovery has largely happened, and as we mentioned in our previous calls, we expect improvements in the back half of the year to be somewhat more modest. We still believe that our third quarter can show a modest improvement in 2023 versus 2022, while we also expect the fourth quarter of 2023 to look similar in many regards to the fourth quarter of 2022. For the full fiscal year 2023, we expect an interest expense of $145 million to $150 million, including cash interest of $140 million to $145 million; depreciation expense of $47.5 million to $52.5 million; amortization expense of $20 million to $22 million; an effective tax rate of 26.5% to 27.5%; and CapEx of $35 million to $40 million. Now I will turn the call back over to Casey for further remarks.

Thank you, Bruce. In closing, Q2 results demonstrated strong year-over-year improvement with pricing covering inflationary costs, improved margins, and a reduction in leverage. We remain on track to achieve fiscal year '23 guidance of adjusted EBITDA and adjusted diluted earnings per share, as well as deliver improved base business sales trends in the back half of the year. This concludes our prepared remarks, and we would now like to begin the Q&A portion of the call. Operator?

Thank you. Your first question comes from Andrew Lazar from Barclays. Please go ahead.

Thanks a lot. Good afternoon, Casey and Bruce. I guess, first off, I'd love to maybe explore a little bit further the relationship between sort of volume and price that you expect on the base business in the back half. I think you said base business sales flat to up 1.5% in the second half. It sounded like you still maybe expected volumes to be down year-over-year, but at a more modest pace than what you saw, obviously, in the first half. So correct me if I'm wrong there. But if that's the case, it means you still expect, I guess, some year-over-year benefit from pricing, even though I know that Crisco pricing on a pass-through basis is going to be coming down. So I'm just trying to get a sense of maybe the magnitude of some of these things. I guess are you still expecting a positive price benefit even with the Crisco adjustment and volumes to still be negative? So I'm trying to get a sense of how those work out. Because obviously, it looks like some of these things should invert on each of these metrics versus what you saw in the first half just because of the comps and such?

Yes, if I look at the balance of the business, excluding Crisco and Green Giant due to differing factors, we are seeing elasticities with pricing in the range of 0.7 to 0.8 as discussed previously. We still anticipate some pricing benefits for the rest of the year since we will be comparing against prior periods, but we might experience some elasticity impact as well. However, we expect the year-over-year differential to be lower. For Crisco, we think pricing will decrease because commodity and oil costs are lower in the latter half of the year, especially starting in August and September as we head into the baking season. This is likely to result in improved volume trends, but pricing will drop. Overall, these factors will balance out to yield better sales trends, though the trends for Crisco and the rest of the business will differ. Regarding the Green Giant business, we have accounted for the rationalization we implemented at the end of Q3. There are many moving parts, but overall, we are seeing elasticities across most of the business. Although we anticipated a higher elasticity for Crisco due to previous pricing, we expect that as prices decrease approaching the baking season, volumes will improve and pricing will be another influence.

Okay. Recently, several peer food companies have reported that they've noticed some changes in consumer behavior that aren't very positive. There's been an increase in promotional activity, which is somewhat expected as capacity increases and constraints diminish. We're also seeing a bit more elasticity in the market. I'm interested to know if you've noticed any clear changes in consumer behavior as well. Some companies have mentioned that consumers are being more cautious and trying to avoid waste, and there's also been some destocking in retail, which you briefly mentioned. Could you share any observations regarding these behaviors and how they relate to your business?

Yes. Regarding Crisco, we've observed a significant increase in price sensitivity since we have reached price points that are unprecedented in this category, such as $5 and $6 for a bottle of oil. Consequently, we noticed a higher elasticity there. For the rest of our business, the changes are less pronounced, although there may be a slight increase in elasticity. Overall, we are hearing that consumers are extending their purchase cycles. They used to maintain more household inventory for items like spices or oil, but they are now buying less frequently and reducing their stock at home. Additionally, when prices are exceptionally high compared to historical levels, we see some consumers switching to private label products, especially in the oil category. We hope that as prices decrease, we'll see some recovery in these behaviors. However, we consistently hear from consumers that they are extending their purchase cycles, depleting their home inventories, and adjusting their buying habits in response to high prices, including downgrading to cheaper alternatives when necessary.

And I think that's kind of a continuation of what we were seeing in the first quarter and throughout the year as opposed to some radical shift that just happened over the last couple of weeks?

And we've seen some customers kind of taking inventory levels down which, by the way, is what we're doing. So we're not shocked by that. But I would say that's a smaller extent to the other things that we're talking about.

Thank you. Your next question comes from Michael Lavery from Piper Sandler. Please go ahead.

Thank you. Good evening. I was curious if you could discuss unmeasured channels or perhaps expand on the inventory destocking you mentioned. Your reported number was several points above what we are observing in the consumption and scanner data sell-through. How should we think about this for Q3 or the second half? Will it reverse, and what are your thoughts on the drivers and outlook?

Yes, I believe there wasn't a significant difference between the consumption data and shipments, as both appear fairly tight. The distinction lies in the fact that 8% to 9% of our sales occur outside the U.S., primarily in Canada. For some of our sectors, especially spices and foodservice, there is a movement into untracked channels. Additionally, there are some private label sales through our partnership with Cobega, particularly in spices. Overall, we feel we align closely with the consumption data, and for this quarter, we didn't see any substantial discrepancies.

Okay. That's helpful. And just on the balance sheet, you mentioned some of the debt you paid down in the quarter. Is there any sort of cadence should a similar amount be likely any given quarter? Or how should we think about just the progression there?

Yes. Typically, our third quarter is an inventory build, which will lead to maybe a little bit of an upturn in leverage. I think our pack is going to be smaller this year, so it won't be as pronounced as it has been in other years. And outside of that, we typically like to burn inventory and reduce leverage. Our goal is to keep bringing leverage down.

Thank you. Your next question comes from Nik Modi from RBC Capital Markets. Please go ahead.

Thank you. Good evening, everyone. Just a few questions on my end. I mean, just going back to the threshold pricing on the Crisco business. Do you think that, that kind of thought process is also relevant in other segments of the packaged food categories and across your portfolio? I mean we've seem to have crossed some critical thresholds for a lot of different subsegments and categories. And so I just would love to get your thoughts on that. And then the second question is really out-of-home versus in-home, would love your point of view on what you're seeing in the market right now in that regard.

Yes, on the first point, I've been in this business for a long time, and it's been consistently observed that price changes drive greater consumer responsiveness. Consumers tend to react more to significant price points, which is evident across most categories. For instance, when prices are under $5, such as between $4.50 and $4.80, there isn't a marked change in consumer behavior. However, once the price exceeds $5, consumers view that as a threshold and respond differently. We've notably observed this in the Crisco business when crossing some significant price thresholds. In other categories where we've adjusted pricing, we monitor how consumers react when we cross these thresholds. Sometimes, if we experience reductions in commodity costs, we may lower prices back below that threshold, as we see improved demand. We've implemented this strategy on a few items, though not universally. Currently, this dynamic holds true in the Food segment. It's clear that as we surpass price thresholds, consumer behavior shifts, and the elasticity of demand increases with those marginal price changes. What was your second question, I apologize?

Yes, it was just out of home dynamics, I was curious what you're seeing.

Honestly, this situation is quite dynamic as we've emerged from COVID. Many forget that at the start of 2022, we dealt with Omicron and a significant amount of stay-at-home behavior in the first quarter. Consequently, we observed a substantial increase in foodservice compared to the previous year as people returned to dining out more regularly. We noticed some of that trend continuing in Q2 within the foodservice sector. However, over the past couple of months, we are beginning to see a potential slowdown in traffic at certain out-of-home channels and foodservice outlets. This will differ by customer and location. I believe we're starting to stabilize year-over-year in the latter half of this year. Depending on the economy, if it slows down or enters a mild recession, we may see consumers shift back towards in-home dining rather than eating out. Currently, the situation seems more typical, but there are indicators suggesting that foodservice traffic may be slowing. Does that help?

Yes. Thank you so much. I'll pass it on.

Thank you. Your next question comes from William Roder from Bank of America. Please go ahead.

Good afternoon. Just thinking about a couple of potential tailwinds next year. When you look at your basket of food prices and where they are at this point and let's kind of avoiding the Crisco issue and the resets and price that happened there. Do you have a sense for whether as a whole, your cost could be lower from an input cost perspective next year and a magnitude for that?

It's challenging to predict a lower cost at this time, but the rate of inflation has noticeably slowed down. For example, Crisco costs are now lower than they were a year ago, which is beneficial as it allows us to adjust prices, likely improving volumes. Additionally, logistics costs and diesel fuel prices are also down compared to last year. However, we are still experiencing some slight inflation across our overall portfolio.

Got it. And then...

We are currently estimating that this year's inflation will be around 4% to 5%, in contrast to the 20% to 21% we experienced last year. For the next year, we anticipate inflation to fall in the 3% to 4% range initially. This is the outlook based on a few commodities, though it is likely to change over the next six months.

Yes. Okay. Understood. And then I guess, secondarily, I know some retailers reset their shelves in twice a year and some do it kind of in the August timeframe. Were there any resets that either benefited you or where you lost sales space kind of this end of the summer for all?

The resets occur at different times throughout the year in various categories. Currently, some frozen sets are being reset, and we have performed reasonably well. Most of our new innovations have been shipped and accepted, and our total distribution points appear stable compared to last year. The only significant movement I am aware of is within the frozen portfolio. While we haven't observed many changes in other major categories, some adjustments took place earlier this year, and we are already past those.

Got it. Okay. Thank you.

Thank you. Your next question comes from Hale Holden from Barclays. Please go ahead.

So I had two questions. One is maybe a little bit more color just on the volume weakness in spices in the quarter, if there's anything specific to read in there or anything we should be thinking about?

Honestly, I don't think so. I think it's really a tale of how the first two quarters lapped what they lapped last year. So I don't really half you remember, in the first quarter of last year, we had really low service levels in our spices business. Our factory was having trouble running. We had Omicron call-outs. We were really not shipping very well. So you saw you producing. We really had production and service profits in the first quarter. So you saw our first quarter numbers were a huge growth year-over-year. In the second quarter, because we went down, we got everything back up and running kind of in the April, May timeframe. In the second quarter, we were refilling pipeline with customers, inventories with customers. So we actually shipped kind of ahead of consumption in the second quarter last year. This year, we're lapping that. So I think, as Bruce said, so you saw a big growth in the first quarter, a decline in the second quarter. The net of that was over 1% growth over the first half of this year. So I think we're fine. It's just a matter of how the business is flowing versus the problems last year in production and service. And I expect that you're going to see growth in the second half of the year. We do have actually some resets happening on spices coming up very shortly, which we're very positive. We've had good acceptance of some of our new items. And so I feel good about the second half and how it's going to flow.

Got it. And then on the second half, I fully understand the Crisco discussion, so we just take that off the table. For the base business ex Crisco, you sort of talk through the puts and takes on volume pricing and the improvement or normalization in volume that you're looking at? And how much risk do you think or tail risk you think there is in that part of the equation?

Regarding the rest of the business, excluding Crisco, we've indicated that we will be experiencing the effects of last year's price increases. This means that the price differences for the rest of the business will be less pronounced since we implemented fewer price hikes in the latter half of last year, with most occurring by July and a few in August, the last one being on October 1. As we move forward, we anticipate reduced pricing benefits, but I also expect a smaller decline in volume, as these factors will influence each other regarding elasticity. Essentially, if we exclude Crisco, we foresee lower pricing benefits coupled with reduced volume declines in the latter half of the year, as we have mostly passed the significant pricing actions and are no longer experiencing a significant pricing advantage compared to the previous year.

It does help. And I apologize for asking almost the same question Andrew did maybe.

I don't think it was clear enough with Andrew...

All right. Thank you, guys. Appreciate it.

Your next question comes from Connor Rattigan from Consumer Research. Please go ahead.

Good afternoon, guys. Thanks for taking the question. So we talked on other reporters about a more challenging promo environment emerging with select brands, opting to dial it promotions. And I mean you called out Del Monté in the prepared remarks. And just, I guess, in the data that we're seeing, private label looks to be continuing to gain share across your portfolio. And just, I guess, how should we sort of think about the trade-off of price realization and promo activity in the second half as it relates to the frequency and intensity?

Yes. We anticipated several developments at the beginning of the year, including significant price increases to protect our margins. Last year was challenging, and we expected those price hikes to impact volumes, which they did. This trend is noticeable throughout the packaged food industry, and it aligns with our plans to restore EBITDA and EBITDA margins. Regarding private label and the promotional landscape, while both are improving, they are still generally below 2019 levels, especially in terms of promotions. Though promotion levels have increased over the past couple of years, they remain steady rather than erratic. Private label is gaining market share, particularly in areas like Crisco vegetable oil, which has seen private label gains as prices fall. However, private label is still performing below levels from the onset of the pandemic. These are both key areas to monitor moving forward, but we haven't observed any abrupt changes so far.

Okay. Great. And then also just one more for me. Just wanted to check in on the portfolio strategic review. I just want to see, are you guys continuing to evaluate brands or categories just in the context of divestitures? Or is that largely concluded with Back to Nature?

We are continuing to evaluate our options. As B&G, we typically engage in a substantial amount of mergers and acquisitions and are always exploring opportunities. Currently, our primary focus is on identifying what we need to prune from the portfolio, and we will discuss it further when the time is right.

Okay. All right. Sounds great. Thanks, guys.

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

Thank you. Casey, I remember you wanted to get more to a sort of real-time pricing pass-through with the Crisco business, maybe limiting profit dollar volatility even if we were to continue to see sales and margins ebb and flow, could you talk about maybe what you expect from that brand in terms of profit dollar contribution per quarter on a normalized basis if there is such a thing?

I mean, honestly, we have our new pricing model that we implemented kind of at the end of last year is working beautifully. We're maintaining the gross profit dollars pretty consistent with where we want to see them. And margins have been pretty close to. Obviously, you have an effect when you have much higher sales and higher pricing, but those gross profit dollars have been very strong. So the new pricing model, commodity-based pricing model is working. So we get pricing reflected within 60 days. We agree on the market price with the customers. And that's what we price to. We buy consistently with the windows so that our purchases and our pricing are kind of matched up. But we expect to deliver at or better than the EBITDA and gross profit that we bought the Crisco business at with this pricing model. And so far, that's really working well.

Yes. Maybe it's a suggestion because one of the comments you made in the opening remarks was how your business was doing Green Giant and Crisco because those businesses are different in their price pass-through mechanisms. And if you were to describe those businesses differently in terms of sort of the profit capture and say that'll be your target but also give a more big description of that, that would be helpful and probably align with how you're looking at your business. But just a suggestion?

But I think we - we haven't really disclosed individual profitability by brand. But I could tell you that despite the fact that Crisco sales were down in the second quarter, our gross profit and our EBITDA was way up on that business.

Yes. In the near term, considering the fluctuations, you mentioned reducing prices for Crisco. However, if we examine the recent trends in edible oil, prices have surged recently. It's interesting that a 60-day delay can significantly impact the situation. It seems you may be considering another price increase in 60 days due to this recent spike. Could you explain how this process works?

Yes. We need to purchase oil at least 60 days in advance when we sell it. Let's say we agree on a price window for oil. We determine that price, agree with the customer, and we're already buying a lot of oil at that price or at least around the same time we're communicating with them. This is necessary because we need to have oil delivered to meet production demands within a 60 to 90-day timeframe. Although the price can fluctuate, once we implement a new pricing strategy, we reassess that pricing each quarter. Overall, this system helps us align our costs with market prices, ensuring we maintain gross profit. Does that clarify things for you?

I believe it makes sense, and it would be beneficial if you can stabilize those dollars as mentioned; I think it will make a significant difference compared to the past.

Thank you. Your next question comes from Carla Casella from JPMorgan. Please go ahead.

Hi. Thanks for taking the question. I'm wondering if you've done any more buybacks bond buyback since quarter end?

So if we did, we wouldn't be able to disclose it on the call.

Okay. And then you mentioned you're always active in the M&A market. Can you just talk about where you think that market is? I know there had been some talk before that buyers than sellers have different ideas in pricing? Is the market getting more rational today?

There's been a lot of chatter and people talking about deals that might come to market. There hasn't been a lot of stuff that's been completed. But certainly, the level of dialogue seems to be picking up. So we'll see.

Okay. Great. And then how much of your business overall is typically foodservice?

It's certainly less than 15%.

Okay. And just one last question. You mentioned private label and its market share. Has the pricing difference between your branded products and private label changed significantly recently, or would you say it remains a healthy balance?

I mean we kind of target differentials of private label in different categories kind of in a percentage basis on an absolute dollar basis. But I think what's happened in a couple of categories is where you've had really big inflation, and the prices have gone up a lot, like $1 or $2, that even though that percentage differential to private label may be the same as it was before, as the absolute higher price point, people are saying, well, on the margin, a few people are trading down to private label. That is what we hear and see in the data. So it's just a matter of when people might make a different decision at $5 a bottle than they would at $3.50 a bottle when the percentage difference to the private label might be the same at $5 versus the $3.50, but that absolute dollar outlay they might say a trade down. But that's on the margin. You see a few consumers doing that on the margin.

Thank you. There are no further questions at this time. You may proceed.

Thank you, everyone. I appreciate you getting on the call and all of the questions, and we look forward to talking with you next quarter.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Thank you.