B&G Foods, Inc. Q4 FY2024 Earnings Call

Good day, and welcome to B&G Foods Fourth Quarter and Fiscal 2024 Earnings Call. Today's call, which is being recorded, is scheduled to last about 1 hour, including remarks by B&G Foods management and the question-and-answer session. I would now like to turn the call over to A.J. Schwabe, Senior Associate, 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 and full year 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 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, segment adjusted EBITDA, adjusted net income, adjusted diluted earnings per share, adjusted gross profit, adjusted gross profit percentage, 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 fiscal 2025 and beyond. Bruce will then discuss our financial results for the fourth quarter and fiscal 2024 and our guidance for fiscal 2025. I would now like to turn the call over to Casey.

Good afternoon. Thank you, A.J., and thank you all for joining us today for our fourth quarter and fiscal year 2024 earnings call. Today, I will cover an overview of fourth quarter results. Bruce will cover more specific financial results, perspective on full year 2024 performance, guidance moving into fiscal year 2025, and an update on our portfolio shaping efforts. Quarter four results: the fourth quarter results showed sequential improvement versus prior quarters in fiscal year 2024. Fourth quarter net sales of $551.6 million and adjusted EBITDA of $86.1 million were in line or slightly above expectations. Excluding Crisco, whose net sales were impacted by lower net pricing to reflect a decrease in soybean oil costs, base business net sales decreased by only 0.4% compared to the year-ago period, an improvement from prior quarters. The strongest sales performance was in our Spices & Flavor Solutions business unit, with fourth quarter net sales up 5% versus the fourth quarter of last year. Margins were also relatively improved in quarter four. Adjusted gross profit percentage for the fourth quarter was 22.2% compared to 21.9% in the fourth quarter of 2023. Adjusted EBITDA as a percentage of net sales improved to 15.6% from 15% in the fourth quarter of 2023. This reflects modest or no inflation on most input costs, with a few exceptions in black pepper, olive oil, etc. Margins are also benefiting from increased efforts on productivity and cost savings across our business teams. Fiscal year '24 performance: Fiscal year '24 was a more difficult year for both B&G Foods and the packaged food industry, with consumers continuing to adjust purchase patterns in the wake of higher inflation in recent years, and prices for food and other consumer goods that remain elevated. The exception has been our Spices & Seasonings business, which has shown positive trends in the last several quarters, influenced by the growth of fresh produce and proteins in the perimeter of the grocery store. In fiscal year '24, base business net sales declined 3.3% versus fiscal year '23, or approximately 2.5% excluding the net effect of approximately $15 million of lower Crisco oil pricing to reflect lower soybean oil costs with no gross profit impact attributable to the Crisco commodity pricing model. Adjusted EBITDA was down 7.1% versus fiscal year '23, but down only 2% excluding the approximately $8 million impact of the Green Giant U.S. shelf-stable divestiture in fiscal year '23 and the approximately $8.5 million foreign currency impacts related to the Mexican peso in fiscal year '24 relative to fiscal year '23 on the Green Giant frozen vegetables produced in Mexico and shipped into the U.S. Fiscal year '25 guidance: We continue to see uncertainty in the near term on center store trends, with sales and consumption declines in January and February 2025 relative to last year, but we fully expect to eventually lap the impact of changing consumer behaviors in food purchases. For fiscal year '25, we are projecting a net sales range of $1.89 billion to $1.95 billion. This assumes some improvement in our base business net sales trend, with the bottom of the range consistent with the base business trend in fiscal year '24. We expect that trend to be lower in the first half and improve in the second half as we begin to lap the consumer reactions to the inflationary food environment. Net sales will also benefit from the partial impact of a 53rd week in fiscal year '25. Fiscal year '25 adjusted EBITDA is expected to be in the range of $290 million to $300 million, reflecting flat to slightly down net sales, the partial impact of a 53rd week, and the possible recovery of foreign exchange from the Mexican peso. Portfolio shaping: B&G Foods remains committed to reshaping and restructuring our portfolio to sharpen focus, simplify our portfolio, improve margins and cash flow, and maximize future value creation. This is a very high priority for the company and critical to our future strategic direction and risk profile. The end game is to create a more highly focused B&G Foods with adjusted EBITDA as a percentage of net sales approaching 20%, increased cash flow generation, lower leverage closer to 5 times, a more efficient cost structure and clear synergies within the portfolio, and ultimately, to build a stable platform that can be the foundation for future focused M&A growth. As previously discussed, we are finalizing the strategic review of the frozen and remaining canned veg businesses for a possible divestiture and sale of some or all of the assets in the Frozen & Vegetables business unit. Green Giant remains a strong brand with broad awareness and distribution, and the frozen vegetables category is on trend with health and dietary trends. It may not be the right fit with B&G Foods' focus and capabilities, particularly since there are no plans to add more assets in the frozen portfolio, given the opportunities in our core shelf-stable businesses and overall capital constraints. Thank you. And I will now turn the call over to Bruce for more detail on the quarterly and full year performance and the outlook for fiscal 2025.

Thank you, Casey. Good afternoon, everyone. Thank you for joining us today. As you can see, we had a reasonably strong finish to a challenging fiscal 2024 year. For the fourth quarter of 2024, we generated $551.6 million in net sales, a net loss of $222.4 million or $2.81 per diluted share, adjusted net income of $24.6 million or $0.31 per adjusted diluted share, $86.1 million in adjusted EBITDA, and adjusted EBITDA as a percentage of net sales of 15.6%. For fiscal 2024, we generated $1.932 billion in net sales, a net loss of $251.3 million or $3.18 per diluted share, adjusted net income of $55.7 million or $0.70 per adjusted diluted share, $295.4 million in adjusted EBITDA, and 15.3% of adjusted EBITDA as a percentage of net sales. The company's net loss for the fourth quarter and fiscal 2024 was primarily attributable to pretax non-cash impairment charges to intangible assets. During fiscal 2024, the company recorded pretax non-cash impairment charges of $320 million related to intangible trademark assets for Green Giant, Victoria, Static Guard, and McCann's brands in the fourth quarter and $70.6 million related to goodwill for the company's frozen vegetables reporting unit in the first quarter. More details regarding the impairments are included in our earnings release and 10-K. As a reminder, we divested the Green Giant U.S. shelf-stable product line in November 2023, and we are thus lapping a partial quarter of results for that product line in the fourth quarter of 2024. The Green Giant U.S. shelf-stable product line generated $15.9 million in net sales during the period that we owned it in the fourth quarter of 2023. It generated net sales of $64.4 million and approximately $8 million or so in contribution for us in fiscal 2023. Net sales for the fourth quarter of 2024 decreased by $26.5 million or 4.6% to $551.6 million from $578.1 million for the fourth quarter of 2023. The decrease was primarily attributable to the Green Giant U.S. shelf-stable divestiture, a decrease in unit volume, and the negative impact of foreign currency, partially offset by an increase in net pricing and the impact of product mix. Our base business net sales, which excludes the Green Giant U.S. shelf-stable product line, decreased by $10.7 million or 1.9% in the fourth quarter of 2024 compared to the fourth quarter of 2023. The percentage decline in base business net sales is an improvement from the trends that we had seen during the first three quarters of the year. $12.4 million of the decline in base business net sales or 2.2 percentage points of the decline was driven by lower volumes, and $0.4 million or 0.1 percentage points were driven by the negative impact of foreign currency. These impacts were offset in part by the benefit of $2.1 million or 0.4 percentage points of positive net pricing and product mix. Net sales for our Crisco brand decreased by $9 million for the fourth quarter of 2024 as compared to the fourth quarter of 2023 as a result of our commodity pricing model for the brand, which resulted in net pricing decline of approximately $5 million, largely to reflect lower soybean oil and canola oil commodity costs as well as a decrease in volume of approximately $4 million. Excluding the Crisco brand, our base business net sales decreased by $1.7 million or 0.4% in the fourth quarter of 2024 compared to the fourth quarter of 2023. Gross profit was $118.7 million for the fourth quarter of 2024, or 21.5% of net sales. Adjusted gross profit, which excludes the negative impact of $3.7 million of acquisition, divestiture-related expenses and nonrecurring expenses included in our cost of goods sold during the quarter of 2024, was $122.3 million or 22.2% of net sales. Gross profit was $125.2 million for the fourth quarter of 2023, or 21.7% of net sales. Adjusted gross profit, which excludes the negative impact of $1.6 million of acquisition, divestiture-related expenses and nonrecurring expenses included in the cost of goods sold during the fourth quarter of 2023, was $126.7 million or 21.9% of net sales. While we have continued to see input cost inflation with regards to raw material costs across our basket of inputs and in our factories, the cost increases remain mostly modest in 2024. However, we are still seeing elevated costs and even inflationary pressures in some categories such as black pepper, garlic, olive oil, tomatoes, and core vegetables, all of which are expected to remain elevated throughout 2025. Meanwhile, foreign currency, which negatively impacted costs at our Green Giant manufacturing facility in Mexico during the fourth quarter and throughout fiscal 2024, has begun to ease as the unfavorable U.S. dollar-Mexican peso exchange rate moderated during the course of 2024 and is now in line with its long-term historical averages, helping to mitigate these cost increases, our continued favorability in some areas that felt the most extreme input cost inflation in 2022 and 2023, such as soybean oil and cans, more normalized rates for logistics, as well as our continuous improvement productivity efforts and cost savings initiatives at our factories. Selling, general and administrative expenses decreased by $2.9 million or 5.5% to $50.3 million for the fourth quarter of 2024 from $53.2 million for the fourth quarter of 2023. The decrease was composed of decreases in consumer marketing expenses of $1.7 million, general and administrative expenses of $1.1 million, warehousing expenses of $0.7 million, and selling expenses of $0.2 million, partially offset by an increase in acquisition, divestiture-related, and nonrecurring expenses of $0.8 million. Expressed as a percentage of net sales, selling, general and administrative expenses improved by 10 basis points to 9.1% for the fourth quarter of 2024 compared to 9.2% for the fourth quarter of 2023. As I mentioned earlier, we generated $86.1 million in adjusted EBITDA or 15.6% of net sales in the fourth quarter of 2024 compared to $86.8 million or 15% in the fourth quarter of 2023. In the fourth quarter, our ability to deliver improved margins despite modest inflation and the negative impact of foreign currency relative to the impact in the year-ago period on our cost of goods sold for the portion of our Green Giant frozen vegetables that are produced in our manufacturing facility in Mexico allowed us to generate similar adjusted EBITDA despite the divestiture of the Green Giant U.S. shelf-stable product line and lower net sales. Net interest expense decreased by $0.6 million or 1.4% to $39.6 million in the fourth quarter of 2024 compared to $40.2 million in the fourth quarter of 2023. The decrease was primarily attributable to a reduction in average long-term debt outstanding during the fourth quarter of 2024 as compared to the fourth quarter of 2023. This was partially offset by higher blended interest rates on our long-term debt during the fourth quarter of 2024 compared to the fourth quarter of 2023, as well as non-cash loss on extinguishment of debt during the fourth quarter of 2024 of $0.2 million, net of accelerated amortization of deferred debt financing fees related to the redemption in full of our then-remaining outstanding 5.25% notes due 2025. Depreciation and amortization was $16.9 million in the fourth quarter of 2024, which is in line with $17 million in the fourth quarter of last year. We had adjusted net income of $24.6 million or $0.31 per adjusted diluted share in the fourth quarter of 2024. In the fourth quarter of 2023, we had adjusted net income of $23.5 million or $0.30 per adjusted diluted share. Adjustments to our EBITDA and net income are described further in our earnings release. I would now like to touch on the results by business unit for the fourth quarter. Net sales for Specialty decreased by $10.5 million or 4.6% in the fourth quarter of 2024 to $216.7 million from $227.3 million in the fourth quarter of 2023. The decrease was primarily due to lower Crisco pricing driven by decreased commodity costs, coupled with modest declines in volumes across the Specialty business unit in the aggregate. Specialty segment adjusted EBITDA increased by $2.7 million or 4.8% in the fourth quarter of 2024 compared to the fourth quarter of 2023. The increase was primarily due to favorable costs in certain raw materials, partially offset by a decrease in net sales. Net sales for Meals decreased by $2.4 million or 1.9% in the fourth quarter of 2024 to $122.9 million from $125.3 million for the fourth quarter of 2023. The decrease was primarily due to lower volumes across the Meals business unit, partially offset by a modest increase in net pricing and improved product mix. Meals segment adjusted EBITDA increased by approximately $0.2 million as improved margins offset lower net sales. Net sales for Frozen & Vegetables, excluding the impact of the Green Giant U.S. shelf-stable product line divestiture, were down by $2.5 million or 2.2% in the fourth quarter of 2024 compared to the fourth quarter of 2023. Frozen & Vegetables segment adjusted EBITDA decreased by $4.7 million in the fourth quarter of 2024 compared to the fourth quarter of 2023. Approximately $3.5 million of the decline was due to the negative impact of foreign currency relative to the prior year period on our cost of goods sold for the portion of our Green Giant frozen vegetable products that are produced at our manufacturing facility in Mexico. Increased pack costs on core vegetable products, including corn on the cob and peas, contributed approximately $1.5 million to the decline. Investments in trade reduced segment adjusted EBITDA by another $625,000. These declines were offset in part by improved performance in our Canadian operations of approximately $1 million compared to the fourth quarter of 2023. Net sales for Spices & Flavor Solutions increased by $4.8 million or 5% in the fourth quarter of 2024 to $101.8 million from $97 million in the fourth quarter of 2023. The increase was primarily due to higher volumes across the Spices & Flavor Solutions business unit, coupled with higher net pricing and product mix. Spices & Flavor Solutions segment adjusted EBITDA increased by $0.6 million or 2.5% in the fourth quarter of 2024 compared to the fourth quarter of 2023. The increase in segment adjusted EBITDA was largely driven by a combination of increased volumes and improved net pricing and product mix, which were offset in part by increases in raw material costs such as black pepper and garlic. Now moving on to our balance sheet. We reduced our net debt to $1.994 billion at the end of the fourth quarter of 2024 compared to $2.05 billion at the end of the third quarter of 2024. As we highlighted on our last earnings call, we also redeemed this fall the remaining $265 million of senior notes due April 2025 back in October of 2024. As a result, we no longer have any near-term maturities, with our closest maturity now being our senior notes due September 2027. Approximately 35% of our long-term debt is tied to floating interest rates. A 50 basis point decrease in rates would reduce our interest expense by approximately $3.5 million on an annualized basis. A 100 basis point rate reduction would be expected to reduce our interest expense by approximately $7 million. We also continue to reduce our inventory. Our inventory was $511.2 million at the end of the fourth quarter of 2024 compared to $618.1 million at the end of the third quarter of 2024 and $569 million at the end of the fourth quarter of 2023. As a reminder, before we get into our fiscal 2025 guidance, we are still living in unpredictable times. Based on current information, we expect continued volume challenges for the industry and for us in the first half of 2025 and slow improvement with flat to modest increases in our volume during the second half of the year. We also expect a net sales benefit of approximately $10 million to $15 million in the second half of the year from a 53rd week in fiscal 2025, which will occur in the fourth quarter. As Casey and I mentioned earlier, we had a tough 2024 with regards to foreign currency, primarily driven by movements in the U.S. dollar to Mexican peso exchange rate. This has largely reversed, but because we carry most of these costs in our inventory, we won't begin to see benefits until we begin to hit the second half of the year. Our model assumes that there are no major upticks in inflation. As a result and as noted in our earnings release, we expect 2025 net sales of $1.89 billion to $1.95 billion, adjusted EBITDA of $290 million to $300 million, and adjusted EBITDA as a percentage of net sales to remain approximately 15% to 15.5%. And based on this guidance, we expect adjusted diluted earnings per share to be in a range of $0.65 to $0.75. Additionally, we expect for the full year 2025: interest expense of $147.5 million to $152.5 million, including cash interest of $142.5 million to $147.5 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% to 27%; and CapEx of $35 million to $40 million. And now I will turn the call back over to Casey for further remarks.

Thank you, Bruce. In closing, B&G Foods is laser-focused on the few critical priorities: one, improving the base business net sales trends of the core business to the long-term objective of plus 1%; reshaping the portfolio for future growth, stability, higher margins and cash flows, as well as structuring key platforms for future acquisition growth; and finally, reducing leverage below 5.5 times through divestitures and excess cash flow to facilitate strategic acquisitions. This concludes our remarks, and now we would like to begin the Q&A portion of our call. Operator?

Thank you. We will now be conducting a question-and-answer session. The first question comes from the line of Andrew Lazar at Barclays. Please go ahead.

Great. Thanks so much. Good afternoon, everybody.

Hey, Andrew.

Hey, Andrew.

I’m curious about what the impairment charge on Green Giant frozen indicates or doesn’t indicate regarding the value that potential suitors may see in the business now that it is under strategic review.

Yeah. It's really driven by accounting, Andrew, and business performance as opposed to us highlighting what we think the expected value in a potential sale would be. We were carrying the value of this at something north of $600 million at some point, which obviously, we're probably not going to achieve that in the sale.

Yeah. Got it. And then I think you said $10 million to $15 million benefit full year from a 53rd week. Typically just like calendar math, it's usually closer to like a 2% benefit on the top line. But I think the $10 million to $15 million is only like 0.6% or so. I'm just curious...

Yeah. I think for us, it's about three days.

Okay. Got it. And then...

Based on the actual calendar year.

Sure. From an industry perspective, the packaged food sector has gone through various cycles with challenging headwinds. Historically, the sector has managed to recover over time. There are always winners and losers, but overall, the industry has demonstrated an ability to adapt. However, the way food stocks are performing now suggests that investors may believe this time is different, feeling that the current challenges are more structural or long-lasting. While no one is dismissing the current issues, I'd like to hear your thoughts on whether you think these headwinds are truly different this time or if it will simply take more time for the industry to find its way forward, if you understand what I’m saying.

I believe we're currently experiencing a temporary response from consumers to ongoing high prices. People are adjusting their budgets and making different food purchase decisions, including opting for smaller sizes or cheaper alternatives. I anticipate that this pattern will change over the next few months. Consumers tend to react to price increases once and then settle into new buying habits. While I don't expect prices to drop significantly unless there are major decreases in production costs, I think we'll gradually return to a more stable buying pattern. Our product portfolio is primarily focused on meals rather than snacks, which shields us from certain risks, such as potential impacts from the GLP-1 trend unless there's a drastic reduction in calorie intake, which we haven't observed yet. I see these challenges as temporary and expect to move past them in due time, reflecting on the consumption trends across the industry year-over-year.

Thanks for your thoughts.

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

Thank you. Good afternoon.

Hey, Michael.

I wanted to follow up on the recent growth trends. You mentioned several times, including in response to Andrew's question, that it seems to be primarily about consumers adjusting. However, many of the higher prices have been in the market for some time. There have been modest volume declines in grocery and across all food categories for over two years now. What is causing this? At what point do you anticipate a change, and how do you see the consumer perspective shaping up for the year?

I think we're focusing on what we are comparing against. We're trying to identify when we will start to see the consumption trends. Specifically, we're interested in when we will begin to see improvement over the negative consumption trends from last year. This was particularly noticeable in dollar terms, rather than unit volumes, since we experienced a slight decline in unit sales right after the price increases. However, there was a lag in how consumers responded to those changes. I'm specifically looking for when consumption trends turned negative and when we can compare that to the same period last year. In January, for example, our consumption trends were relatively stable compared to the previous year. We're monitoring this pattern to establish when we might expect more stability in our top-line results.

Okay. That's helpful. And hard to know, just in the political regulatory world, there's not that much certainty these days. But it seems like just today or yesterday, Trump reiterated the Mexican tariffs set to go and who knows if that happens or not. But can you just touch on what, if any, contingency planning you can do? How impactful that might be if you've run those numbers, and just how to think about what some of that might mean?

It's challenging for us to forecast political developments, especially regarding that topic. What we focus on is whether we're different from the competition in specific categories. For instance, if we’re importing goods from Asia and our competitors are doing the same, that's more of a broader market issue rather than specific to us. When considering our manufacturing facility in Mexico, there may be some offsets; however, I can't say for sure that they're always correlated. If tariffs were to be imposed, we noticed significant depreciation in the currency around the time we anticipated tariffs would be implemented. Therefore, we could potentially face negative effects from tariffs alongside currency fluctuations. This isn't delving too deeply into politics; it's more about the leverage the U.S. potentially has. Ultimately, it will vary based on whether the impact is industry-wide or unique to us, making it difficult to predict.

Our impact would mainly be in Mexico because we currently source and sell Canadian products. We source our vegetables in Canada and sell them there. The vegetables we grow and produce in Mexico are sent to the United States. While we are doing some modeling on the potential effects, it's still early to speculate on the outcomes. Previous instances have shown volatility, and I'm uncertain if agricultural products will face tariffs. We need to monitor the situation to understand the possible impact or resolution, but we are preparing through our modeling efforts.

Regarding guidance, are any of these scenarios possible, or does it simply reflect the current state as it is?

Our guidance largely reflects status quo.

Okay. Thanks so much.

Yeah.

Thank you. Next question comes from the line of Rob Dickerson with Jefferies. Please go ahead.

Thank you. My first question is about trade spending. The industry has faced volume pressures for a couple of years, and it seems like you're suggesting that conditions might remain soft in the next quarter or two. Regarding your relationship with retailers, I recall you mentioned something about trade standards in your prepared remarks, which I didn't fully catch. As we look towards 2025, are there any additional costs you're absorbing or need to invest in to maintain your sales momentum? I'm referring to more than just marketing dollars or innovation, but any broader support you're providing to your retail customers.

So I think our lever for the most part is trade to move volumes, right? It's all part of pricing. Crisco, as we've talked about, is one of the few areas where we actually lowered the list price, per se. But it's really this combination of trade and list gets you your net pricing. Some of the trade looks wonky as we've moved around some of the list pricing for Crisco. And then for us, if you think about the cadence, and we talked about this during the course of most of the quarters last year, we took price down through trade beginning really like in the fourth quarter of 2023. And so as we were lapping the first three quarters of '24 against '23, it was higher trade and then fourth quarter was kind of like-for-like. Because we had already moved, it's very different on a brand-for-brand basis. But there's some give and take there. And then, obviously, in some of our other areas, historically, when we've seen price increases on black pepper or garlic, we've moved price. And when we've seen price decreases, we've moved price. But generally speaking, it's trade that we're moving price around with not necessarily list.

That's helpful. I have two questions regarding pricing. First, for the year concerning organic sales growth, when you mention an improvement in the second half being somewhat better than the first half, should we assume pricing will remain relatively flat? It seems like your comments are mainly focused on volumes.

I mean I think it's flat to just slightly up. We do have a couple of areas where we've got some input cost increases. But I think for the most part, we expect to use productivity and cost savings to offset any modest inflation of kind of maybe 1%. And that 1% would be skewed towards a couple of categories where we've seen increases like black pepper, garlic, olive oil. And we may or may not use pricing there, but we'll also use productivity and cost savings to help offset. So I think we're back to kind of a low inflation environment where you try and cover a good deal of inflation with productivity.

When discussing price, trade, and inflation, it's worth noting that in the nearly five years since acquiring Crisco, we have prioritized margin management. When costs increased significantly, we implemented substantial price hikes. While this wasn't always smooth on a monthly basis, it proved effective over the year. As input costs decreased, we reduced prices accordingly. Throughout 2024, the situation was relatively stable compared to the fluctuations we experienced in 2023. We've consistently focused on managing that business for margin.

Actually for gross profit dollars. Margins would move up and down, but we would manage to maintain gross profit dollars from the...

Yeah. And that's how we would do that, again, if price moved up or down. It'd be great if we get continued relief there and consumers would love it.

Yeah. Okay. All makes sense. And then just quickly, look, sales, I think, kind of came through maybe a little bit better in Q4 than maybe some had thought. It kind of feels like kind of what's implied in the guide and the commentary that maybe Q1 could be like a little bit down versus Q4 before it gets better. So I'm just curious, kind of what you've seen so far in Q1, given your March quarter end. I mean also kind of given. We heard a number of companies speak last week. We kind of felt like maybe January and kind of the kickoff of the year was just a little bit maybe softer coming out of the holidays. That’s all. Thanks so much.

I think that's how we see it, too. We're not obviously through the Q1 period, but we know that January was a little bit softer than we anticipated just like the rest of the industry saw. I mean I think we know some retailers took down kind of holiday and seasonal merchandising faster. So we think January was a tougher month. With January was a tougher month. And so that's kind of how we see Q1 shaping up, although we expect to see some improvement as we get out of there. But just like the rest of the industry, January, we saw some we saw lower shipments than we expected in January.

Yes. And I would continue to remind folks to look at the consumption data as it comes in. We're generally pretty close to where consumption comes out, absent something that happens either in Canada, foodservice or we do have a partner brand with a leading club store. And so when we think about last year, we probably underperformed in foodservice in that first quarter. We probably had pretty good performance in the fourth quarter for foodservice for Canada and for some of our partner brands. But by and large, it's a tough consumption environment and you see that in the tracked channels. That's going to dictate reality. We're optimistic that that turns, but I was wrong every quarter last year.

Okay, Bruce. Thanks so much, guys. Really appreciate it.

Yeah.

Thank you.

Thank you. Next question comes from the line of William Reuter with Bank of America. Please go ahead.

Hi. Good afternoon. I'm not asking you to predict what's going to happen with tariffs. But what is the dollar amount of vegetables and other products that currently are shipped from Mexico to the U.S.?

We haven't disclosed, but generally speaking, the products that are manufactured or produced impact in Mexico, it's Green Giant frozen. It is largely our core frozen vegetable offerings. You should think about like bag-in-a-box and bag and some frozen IQF that's used in other parts.

Got it. That's helpful. And then in terms of your conversations with your retail partners, were there any changes in shelf space recently or have there been any changes in their interest in private label? I know you compete a lot with private label, whether you're seeing any changes there?

I mean from a B&G overall standpoint, the answer is probably not really. If you went across 50 brands, I'm sure we could think of some positive examples and some negatives.

But there hasn't been any macro trend that we've seen in our major categories.

Great. That’s all I had. I’ll pass to others. Thank you.

Great. Thanks.

Thank you. Next question comes from the line of Robert Moskow with TD Cowen. Please go ahead.

Hi. Thanks. Good evening.

Hi, Rob.

Hi. I was wondering if you could comment on free cash flow in 2024? Like I didn't hear it, and I don't think the cash flow statement is out yet. So how did you end up for the year? And how should we think about 2025? Like, is it working capital use of cash again in 2025 or not?

You can find cash from operations on Page 13 of our press release. We don't have the complete statement, but we do have the line item. In the fourth quarter, our performance was quite similar to the fourth quarter of last year. In 2023, our cash from operations significantly improved because we reduced inventory so much. However, we don't expect 2024 to replicate that, and 2025 is unlikely to do so either. I believe 2025 could be similar to 2024, perhaps slightly better.

Part of the '23 was the divestiture of the canned vegetable business.

Okay. And so…

Yeah. And so just think about like big inventory moves are going to boost us in the cash from operations. We, right now, without the canned business, we're not as extreme from an inventory build in the third quarter, or that quarter being not a great cash from operations quarter. But there still is a fair amount of seasonality just with some of the other pieces of the business, whether it's the frozen Green Giant or whether it's things like Crisco and Clabber that participate in a peak season or Bear Creek in the super season. So we generally generate a fair amount of cash in the fourth quarter.

Okay. But at the end of the year, Bruce, the debt was about the same as it was at the end of 2023. I thought there would be a bit more remaining after the dividend to pay it down. Am I calculating that incorrectly? Is this roughly where you expected to be at the end of the year?

From a leverage standpoint, we are not as low as we expected to be when we began 2024 because we expected much higher EBITDA. From a net debt standpoint, we are probably down during the course of 2024 from where we started the year. Would have liked that number to be $50 million, $60 million. So down, not flat, but probably not as down as much as we'd like.

Got it. Okay. Thank you.

Yeah.

Thank you. Next question comes from the line of David Palmer with Evercore ISI. Please go ahead.

Thanks. Just have a question about your segments, your three focus segments going forward, Spices and Specialty and Meals. I'm wondering how they're all fairly healthy EBITDA margin businesses, all in the 20s, a little higher for spices, for example, but how are you going to manage these businesses differently? How do you think of them in terms of a focus on your growth spending, the potential to respond to growth spending ones that you might not even really manage to the top line very much? I would imagine the specialty segment that has Crisco, you might be thinking about managing to EBITDA on that segment, but maybe not so much managing the EBITDA in the others. So any color about how you're thinking about that?

We have previously discussed this, but the Spices & Flavor Solutions business unit is showing positive trends. We're experiencing some favorable growth related to the increasing interest in fresh proteins and vegetables, which enhances what customers are purchasing around the store's perimeter. This unit has robust margins and a solid market stance, and we anticipate it will grow by a few percent, aligning with the category growth of 2% to 3%. We're planning to invest in it, ensuring we have the appropriate capital structure, assets, and capacity in place. We're also launching some licensed brands to enter new segments, indicating that we expect long-term growth here, which is already happening. In 2024, we recorded a 5% increase in this business unit for the fourth quarter. I also foresee growth in our Meals business unit, which primarily consists of the Mexican taco category, including our Ortega brand and Las Palmas enchilada sauces. We believe these categories will continue to grow along with Hispanic meal trends, and we've invested in additional capacity for our taco sauce production. We're also engaging more with consumers in this area. Additionally, the hot breakfast segment, which surged after COVID, has stabilized a bit, but we still regard it positively, with brands like McCann's oatmeal and Cream of Wheat performing well. I expect at least 1% long-term growth from this business unit, given the competitive landscape. Regarding our specialty business, primarily focused on baking staples, we see this sector as relatively flat in terms of growth. Our priority for these products—shortening, oil, baking powder, and molasses—is to manage them for margins and cash flow, targeting good financial performance without necessarily seeking top-line growth. They do maintain strong margins, so it’s crucial to sustain those and the associated EBITDA cash flow. On the other hand, Green Giant is facing challenges. We are confronted with high costs in this business due to limited frozen infrastructure, and we are not planning to increase our frozen assets. While we do invest in innovation in the frozen sector, it is currently our lowest-margin business, which makes it less attractive for substantial investment. This unit is under strategic review as we assess its future within our portfolio.

Is there one of the three that you're not reviewing? Is there one that you believe will receive the most improved award in '25, considering what you observed in '24, any missed opportunities, trends, or innovations? Do you think it will perform better than the others?

I believe our spices business has been performing well and is aligned with our top-line performance goals. Our Meals business unit shows promising innovation, particularly in our Mexican platform, and I expect it to return to growth by the end of the year. I am optimistic about this area due to our plans and the additional initiatives we've implemented, including innovation and initial marketing efforts. We aim to see some growth in this segment, contrasting the decline we experienced in '24. In particular, we would like to stabilize the specialty area. As Bruce mentioned, much of the impact stemmed from pricing adjustments in Crisco due to lower oil costs. We are satisfied with its performance in '24, but the sales decline was primarily driven by the changes in the Crisco pricing model. We have consistently indicated that our long-term goal for the three businesses not under strategic review is at least 1% growth, with aspirations of 1% to 2%. We believe we can achieve this growth. Once we navigate the consumer response to the inflationary environment and adapt to shifting purchasing behaviors, we are confident that our portfolio can support consistent low growth. While our expectations are modest, we are aiming for stable growth that we can build upon.

Thank you.

Thank you. Next question comes from the line of Karru Martinson with Jefferies Company. Please go ahead.

Good afternoon. When you guys talked about consumer spending shifts and sizing and so forth, is there any thought or changes when we look at the guidance here of package size shifts for you all?

I don't believe there will be shifts in package sizes. We might highlight different sizes in our portfolio regarding what we promote and where we promote it, but we don't have any plans to downsize at this moment. About a year and a half ago, we reduced the size of our Crisco product from 48 ounces to 40 ounces due to the surge in soybean oil prices, which was a strategic decision, and some of our competitors followed suit. However, we currently do not have intentions to implement similar changes in our other businesses.

It seems like a lot of that was in that 2022, 2023 time period. But as Casey said, no major plans across the portfolio.

Yeah. But we will look at like the smaller size in our portfolio, how do we emphasize those for consumers that might be looking to trade down.

And then when you look at the cost and productivity saves, is this more of just kind of the continuous improvement or is there a target of what you want to achieve in 2025?

Yeah. We've set targets for each of our businesses to get between 2% to 3% productivity or savings on a COGS basis. So they're actively working on kind of a 3% target.

All right. Thank you very much.

On our COGS, yes.

Thank you. The first question comes from the line of Hale Holden, Barclays. Please go ahead.

Thank you. The first one I had is just to circle back on tariffs. The exclusion of maple syrup or syrups in Canada, is that something we should think about is just not material enough to be a driver if that comes into play?

I think sales on that business overall are probably something around $70 million. So could there be an impact? Yes. Do we want there to be an impact? No? But think about it in that context. And then as Casey mentioned earlier, when we think about our Green Giant Canadian business, that is largely sourced in Canada and sold in Canada business. And so there really wouldn't be any tariff on that business that could be material in any way. That business, we've got like currency risk at translation, but not really transaction. It's kind of a margin neutral from those things.

Thank you, Bruce. My second question is not another political one, but do you have any examples of how the portfolio would be affected by significant reductions to SNAP, or any general thoughts on the potential risks if that were to happen?

We likely don't have as accurate SNAP data as some retailers since they receive it directly. We believe, based on some public research, that our exposure to SNAP is lower than that of other businesses. Ultimately, if low-end consumers have less cash to spend, they're left with less money. So it would be unrealistic to say there’s no impact. I still believe that in a challenging environment, companies in the center store packaged food sector tend to perform well and will eventually rebound. As I mentioned earlier, I was incorrect for several consecutive quarters when predicting an inflection point. However, our industry generally fares well during periods of modest inflation and in softer economies. We are a mass-oriented retailer of products.

I believe that there is minimal risk for us regarding SNAP, as our offerings focus on traditional meal preparation. I don't think we would be classified as excess calories or junk food in the context of the Maha movement. Therefore, we likely won't face any significant risk related to SNAP benefits being directed toward specific categories; we should be fine.

If the overall level of SNAP comes down, probably, there's some impact.

There's some impact. But if it becomes targeted against certain categories, then I don't think we'd be in there.

I was trying to think about how to make P&G great again, but thank you for this year.

I've been reading too many newspapers.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Thank you.

Thank you, everyone.