B&G Foods, Inc. (BGS) Q4 2011 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the B&G Foods Inc. Fourth Quarter 2011 Financial Results Conference. As a reminder, today's call is being recorded. [Operator Instructions] I would now like to turn the conference over to David Weiner, Chief Executive Officer of B&G Foods. Please go ahead, sir.

Thank you. Good afternoon, everyone, and welcome to the B&G Foods Fourth Quarter and Full Year Fiscal 2011 Conference Call. You can access detailed financial information on the quarter and for the full year of fiscal 2011 and our earnings release issued today, which is available on our website at 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 all of you to our most recent annual report on Form 10-K and subsequent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. The company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. We will also be making reference on today's call to the non-GAAP financial measures: adjusted net income, adjusted diluted earnings per share and adjusted EBITDA. Reconciliations of these measures to the most directly comparable GAAP financial measures are provided in today's press release. We will start the call with our CFO, Bob Cantwell, discussing our financial results for the quarter and full year. After Bob's remarks, I'll discuss the various factors that affected our results for both periods, selected business highlights and our thoughts concerning the new year. Bob?

Thank you, Dave. First, I will review the full year briefly, then talk about the fourth quarter. Net sales for 2011 increased $30.5 million or 6% to $543.9 million compared to $513.3 million for 2010. The increase was attributable to an increase in unit volume of $29.6 million and pricing of $1.7 million, offset by an increase in coupon and slotting expenses of $0.8 million. Net sales of our Don Pepino and Sclafani brands, which we acquired during the fourth quarter of 2010, contributed $12.5 million to the overall increase for 2011. And net sales of the Culver Specialty Brands, which we acquired at the end of November 2011, contributed $6.5 million to the overall increase for 2011. Additionally, net sales increased by $5.1 million for Ortega, $5 million for Maple Grove Farms of Vermont, $3.1 million for Cream of Wheat, $2.5 million for Las Palmas, and $0.7 million for Underwood. Those increases were offset by a reduction in net sales of B&G of $1.2 million, Joan of Arc of $0.8 million, Trappey of $0.7 million, Grandma's of $0.7 million, and Emeril's of $0.7 million. All other brands decreased by $0.8 million in the aggregate. Gross profit for 2011 increased $10.1 million or 6% to $177.8 million from $167.7 million in 2010. Gross profit expressed as a percentage of net sales remained consistent at 32.7% in 2011 and 2010, attributable to pricing gains of $1.7 million and a sales mix shift to higher margin products offset by higher input and distribution costs. Operating income increased 8.4% to $113.5 million for 2011 from $104.7 million in 2010. Net interest expense decreased $3.7 million to $36.7 million in 2011 from $40.3 million in 2010 due to the termination of an interest rate swap, which reduced our effective interest rate on $130 million of term loan borrowings under our prior credit agreement. This was partially offset by an increase in interest expense for the additional debt incurred for the Culver Specialty Brands acquisition and a $2.1 million charge relating to the write-off of the remaining amount recorded in accumulated other comprehensive loss on the interest rate swap due to our early termination of the $130 million of term loan borrowings under our prior credit agreement. The company's adjusted net income, which excludes the impact of items affecting comparability relating to the interest rate swap, acquisition-related transaction costs and loss on extinguishment of debt was $53.1 million, a 22.8% increase as compared to adjusted net income of $43.2 million for 2010. Adjusted diluted earnings per share increased 21.1% from $0.90 per share in 2010 to $1.09 per share in 2011. For 2011, adjusted EBITDA, which excludes the impact of $1.4 million of transaction costs related to the Culver Specialty Brands acquisition, increased 9.5% to $131.1 million from $119.7 million for 2010. There were no adjustments to EBITDA for 2010. Adjusted EBITDA as a percentage of net sales increased to 24.1% for 2011 from 23.3% for 2010. Turning now to the fourth quarter of 2011. Net sales increased 5.7% to $150 million compared to $141.9 million for the fourth quarter of 2010. This $8.1 million increase was attributable to an increase in unit volume of $5.6 million and pricing of $3.1 million, partially offset by an increase in coupon and slotting expenses of $0.6 million. Net sales of the Culver Specialty Brands, which we acquired at the end of November 2011, contributed $6.5 million of the overall fourth-quarter increase, and net sales of the Don Pepino -- the company's Don Pepino and Sclafani brands, which we acquired during the fourth quarter of 2010, contributed $1.9 million to the overall fourth-quarter increase. Additionally, net sales increased by $0.7 million for Cream of Wheat, $0.7 million for Maple Grove Farms of Vermont and $0.3 million for Las Palmas. These increases were offset by decreases of $0.6 million for B&M, $0.4 million for Joan of Arc and $0.4 million for Trappey's. All other brands decreased by $0.6 million in the aggregate. Gross profit for the fourth quarter of 2011 increased $2.2 million or 4.7% to $49.3 million from $47.1 million in 2010. Gross profit expressed as a percentage of net sales decreased 0.3 percentage points to 32.9% for the fourth quarter of 2011 from 33.2% in the fourth quarter of 2010. The decrease in gross profit percentage as a percentage of net sales was primarily attributable to an increase in commodity and distribution costs, partially offset by increased pricing of $3.1 million and a sales mix shift to higher margin products. Excluding the acquisition-related transaction costs, selling, general and administrative expenses decreased $1.4 million to $15.1 million for the fourth of 2011 compared with $16.5 million for the fourth quarter of 2010. Expressed as a percentage of net sales, our selling, general and administrative expenses, excluding the acquisition-related transaction costs, decreased 160 basis points to 10.1% for the fourth quarter of 2011 from 11.7% in the fourth quarter of 2010. Operating income increased 7.2% to $31 million for the fourth quarter of 2011 from $28.9 million in the fourth quarter of 2010. Net interest expense for the fourth quarter of 2011 increased $3.3 million or 39.3% to $11.8 million from $8.5 million for the fourth quarter of 2010. The increase in net interest expense for the fourth quarter was primarily attributable to the additional debt incurred for the Culver Specialty Brands acquisition and a $2.1 million write-off of the remaining amount recorded in accumulated other comprehensive loss related to the interest rate swap due to our prepayment and termination of $130 million of term loan borrowings under our prior credit agreement. The company's adjusted net income, which excludes the impact of items affecting comparability relating to the interest rate swap and acquisition-related transaction cost, was $14.7 million, a 7.4% increase as compared to adjusted net income of $13.7 million for 2010. Adjusted diluted earnings per share increased 7.1% from $0.28 per share in 2010 to $0.30 per share in 2011. For the fourth quarter of 2011, adjusted EBITDA, which excludes the impact of $1.4 million of transaction costs relating to the Culver Specialty Brands acquisition, increased 11.8% to $36.7 million from $32.8 million for the fourth quarter of 2010. There were no adjustments to EBITDA for the fourth quarter of 2010. Adjusted EBITDA as a percentage of net sales increased to 24.4% for the fourth quarter of 2011 from 23.1% for the fourth quarter of 2010. Moving onto the balance sheet. Effective November 30, 2011, our current debt structure includes a tranche A term loan due November 2016 of $150 million, a tranche b term loan due November 2018 of $225 million, senior notes due January 2018 of $350 million and an available revolver of $200 million due November 2016, undrawn as of December 31, 2011. On February 15, 2012, our Board of Directors increased the company's dividend 17.4% from $0.23 to $0.27 per share of common stock per quarter. On an annualized basis, the dividend increases from $0.92 per annum to $1.08 per share or $52.3 million per annum. Our leverage was 4.4x as of December 31, 2011. Annual cash interest expense for 2011 was $31.4 million. Cash interest expense for 2012 is expected to be approximately $44 million. Capital expenditures for fiscal 2011 were $10.6 million and are expected to be approximately $12 million for 2012. I will now turn the call back over to Dave for his remarks.

Thank you, Bob. Good afternoon, everyone. Before I get into the business commentary for the quarter, I'd like to highlight some of the accomplishments for the year, as cited in the headlines for our press release. First, annual net sales increased by 6%, and I'll cover the details of that in a moment. Adjusted net income increased by 22.8% for the year. Adjusted diluted earnings per share increased by 21.1% to $1.09 a share. Adjusted EBITDA increased by 9.5% to $131.1 million in 2011. Our stock price increased from $13.73 to $24.07 per share at year end, a 75% gain. We declared dividends of $0.86 per share during the year and increased the dividend twice. That's quite a year on top of very good years in 2009 and 2010. And as you can see in the numbers Bob just cited, fourth quarter was another strong quarter for our business with net sales increasing by 5.7,%, though as a result of somewhat different factors than we saw in the first 3 quarters of 2011. As with much of the food industry, base volume was soft for the quarter. Our volume growth for the quarter, while good at 3.9%, came from acquisitions, and our overall growth also benefited from price gains. The acquisition of the Culver Specialty Brands, which closed at the end of November, combined with the final benefit from the Sclafani and Don Pepino brands acquired in late November 2010, adding $8.4 million to net sales for the quarter. The latter 2 brands will be in the base business comparables going forward, while we will continue to see incremental sales from the Culver Specialty Brands for the first 11 months of 2012. Pricing, which was generally in place as of September of last year, added another $3.1 million to net sales and helped to offset higher coupon expenses for the quarter as well as increased manufacturing and distribution costs. Net of acquisition growth and pricing, fourth quarter net sales volume was down 2% overall. For the year, our overall business was up 6% in net sales, with acquisitions contributing approximately 60% of the growth, and the base business, the remaining 40%. Pricing gains for the full year were minimal as the gains in the fourth quarter offset slight price erosion in the first 9 months. Our sales trends by channel for the fourth quarter followed the pattern of the first 9 months, we grew nicely in mass merchants and alternate channels but saw a softness in sales to supermarket customers, particularly in the eastern United States. Our sales in that region have been following general retailer trends in that we're seeing sales declines with retailers who are struggling in their overall business and, unfortunately, not making up all of that decline with the more successful retailers. This kind of inefficiency, if you will, is not unusual and takes time to even out as consumers find our products in chains or venues that are relatively new to them. It's notable that the softness in supermarkets occurred early in the quarter and may have been at least partly due to buy-ins ahead of our September price increases. Third quarter was a very good sales quarter. And though we did not see any unusually large purchases, it may have reflected this sales shift to some extent. The fact that October and, to some extent, November sales were soft seems to bear that theory out. December sales were generally strong across the board, further reinforcing the buy-in proposition, and our early first quarter 2012 sales trends have been positive. While we saw softness in the supermarkets, we did quite well with other channels, including mass merchants, warehouse clubs, dollar and drugstores. Our sales to mass merchants increased by 14% for the quarter and by 10% for the full year, implying building momentum with these customers. Warehouse club business was up 10% for the quarter and 3% for the year. And our business with dollar and drugstores doubled in the fourth quarter. As I said in prior calls, the last is an impressive number, but the base is relatively small at not quite 2% of our annual net sales. Still, our success in all 3 of these alternatives to supermarkets is gratifying. To us, it says that our products, established SKUs as well as new ones, are able to follow consumers as they shift their buying habits in a constructive manner. Food service sales were down slightly for the quarter after a relatively flat first 9 months. Private-label price competition pressured sales in several areas as most of our food service sales are branded. We've responded with promotional activity to offset this competition, but operators remained very cost conscious in this current environment. This is not a universal phenomenon, however. A number of our brands such as Maple Grove, Polaner and Trappey's are doing quite well in the channel. In addition, sales in this channel were also affected by a crop shortage in tomatoes caused by Hurricane Irene and the heavy rains associated with that storm. The overall food service business remains stable. Sales in 2011 for the channel were down just 1%, but the tone is still tentative and very dependent on overall economic conditions. The performance of our 3 tiers of brands reflected the overall business trends for the quarter. Net sales of Tier I brands grew by only 1.2%, with Ortega relatively flat for the quarter and the other brands in the tier growing in the 3% to 4% range. These brands are very much retail oriented and saw sales patterns as I described earlier: weakness in supermarket customers and strength in other merchants. In December, these brands returned to sales trends more in line with the first 9 months, growing by over 5%, lending further credence to our belief that early fourth quarter weakness was an anomaly. Tier I brands grew by 4.8% for the full year. The great majority of that volume growth again more oriented towards alternate channels. Consistent with our strategy for Tier I brands, we continue to launch new products in support of sales growth. Fourth quarter saw the launch of a new Cream of Wheat instant cereal item, a chocolate flavored product that delivers many of the same nutritional benefits of regular Cream of Wheat with an indulgent chocolate flavor. 2012 has a slate of new products lined up for the brands, many of which will launch in the first half of the year. Tier II brands grew by 3.7% in the fourth quarter, and results were mixed among the brands depending on their relative exposure to supermarkets versus mass merchants and alternate channels. The overall performance, however, was solid. Sales for this tier grew by 8.2% for the year, but that number was aided by acquisition growth. Tier III brand net sales were down 1.4% for the quarter and up 1.4% for the year. These brands have much more exposure to northeastern supermarkets than our overall portfolio and saw the effect of weakness with these customers in the fourth quarter. We also saw a small amount of promotional dislocation with several brands. Tier III brands tend to be more sensitive to promotional activity than others. And as we saw in early 2010, retailers resist increases in promotional price points, at least until the higher price points become the new norm. Several promotional events did not repeat on these brands due to price point changes, but we expect that to resolve as 2012 proceeds, much has happened in 2010. Fourth quarter did see price gains across the portfolio. These were expected but still a welcome sight as costs increased in line with our expectations. The $3.1 million price gain seen in the quarter is very consistent with the September price increases that averaged 2% of net sales. As I just said, cost increases played out much as expected for the quarter. Our long-term positions on commodity such as wheat advanced in price in line with our contracts. This leaves our cost outlook basically as we've outlined in the past calls. With the exception of maple syrup, we are generally maintaining 12-month forward positions on commodities with meaningful cost to us as we have in the past years. Our cost on most of these commodities will climb as 2012 progresses and hit the current spot prices sometime after midyear, depending on the commodity. The harvest on minor crops whose price is typically set annually, such as beans and other vegetables, brought sizable increases as expected. Kidney bean prices, for example, increased by over 60%. This was anticipated, and we include it in our estimate for 2011 and 2012 cost increases. We continue to actively pursue cost reductions to offset these increases and have made steady progress. Our past estimate of 2012 cost increases on the order of 2% of net sales has dipped to slightly less than that, largely due to cost improvements in packaging. Fuel surcharges have been fairly stable for the past 7 months and are expected to flatten on a year-over-year comparison in about 4 weeks, eliminating that as a factor in future cost increases if it holds at that level. Given all of this, we expect 2012 to be a relatively calm cost year, barring unusual global events, of course, and believe that we have a good balance between price increases already in place and known cost increases. SG&A expenses remained under very good control for the quarter and the year. Our results for the quarter and the year are adjusted to exclude transaction expenses related to the acquisition of the Culver Specialty Brands. And so as adjusted EBITDA increased by 11.8% for the quarter and by 9.5% for the year. Included in this comparison is a $1.3 million onetime gain we experienced in 2010 as a result of a legal settlement. Excluding that onetime gain, adjusted EBITDA increased by 16.4% for the quarter and 10.7% for the full year. A very exciting news in the quarter was, of course, the acquisition of the Culver Specialty Brands from Unilever on November 30. This acquisition very much fits our strategy of acquiring highly profitable, high free cash flow, niche brands. As I have discussed in other presentations, each brand has its strengths and opportunities, and we look forward to applying the B&G Foods formula of new products and new distributions to the brands while maintaining their attractive margins. We substantially completed the transition of the U.S. portion of the business to B&G Foods systems and infrastructure on January 14, and we expect to complete the Canadian transition by the end of March. We believe that the Canadian segment of this business gives us enough mass in that market to shift our base business sales in Canada to a more direct method of distribution, eliminating distributors and reducing our cost of doing business in Canada. As you would expect, following the acquisition of the Culver Specialty Brands and in light of the performance of our base business over the last few years, we are very excited about our prospects for fiscal 2012. At this point, we are projecting 2012 adjusted EBITDA to fall within a range of $166 million to $170 million, with much of that spread dependent on the performance of the Culver Specialty Brands. At the bottom of that range, EBITDA would improve by nearly 26% over 2011's adjusted EBITDA and by nearly 30% at the high end of the range. In light of these prospects, our Board of Directors yesterday declared a quarterly dividend of $0.27 per share, a 17.4% increase in our dividend rate. That increase is the third dividend increase announced since the beginning of 2011 and is in keeping with our philosophy of returning a meaningful proportion of the free cash flow in our business to our shareholders. We believe that the solid performance in our base business, selective acquisitions that are accretive to earnings and free cash flow and a healthy level of dividends are the best means to provide our shareholders with the returns they have come to expect from B&G Foods. We think we did a great job of achieving all 3 in fiscal 2011, and we'll work hard towards the same performance in 2012. At this point, we'd like to open up the call for questions. Sarah?

[Operator Instructions] And we'll take our first question today from Bryan Hunt with Wells Fargo Securities.

Dave, I was wondering if you could just talk about what your outlook may be for the growth by channel in 2012 and whether you anticipate any material changes in channel growth rates given what you saw in 2011?

I think we expect -- as pretty much happened through most of 2011, except in the fourth quarter, we expect the supermarkets to be relatively low growth, and we expect to continue to grow in that other 30%, 40% of the business that is represented by the super centers, the mass merchants, warehouse clubs, dollar and drug. I mean, consumer buying patterns are, to some extent, shifting to those channels, so that's where the fish are. But especially in the east, we have a number of supermarket operators that are struggling, and it's kind of a drag on the business as we try and shift our business to the ones that are succeeding

And when you look at your new product launches, I mean, part of what you put in the last couple presentations has been -- that the company is designing specific products for new channels of distribution. Are you trying to fuel that fire with a greater amount of new products for that channel overall? Or are the new products the company's designing are targeted for all the channels in general?

Well, it's a little bit of both. I mean, things like the Chocolate Cream of Wheat is a grocery launch that'll go into supermarkets and mass merchants, but it will also have a variant that goes into dollar stores, it'll have a variant that goes into drugstores. So it's really -- specific products are designed for specific channels and the way they do business. And we're trying to cover all the bases as we do that. Now with the existing lines, since they're already in supermarkets, you have more of a -- we're designing it for alternate channels. But new products, we're certainly comprehending all the opportunities when we put new products out.

Okay. And my next question is, when you look at your new products, you said you're going launch a majority of them in the first half of the year. When you look at the number of new product launches on your existing business, do you have a greater degree of new products this year relative to a year ago? Or would you say, when you look at the number of SKUs, they were relatively similar?

It's actually down a little bit. As I said in the last call, we've trimmed the offerings a little bit so that we can really focus on the ones we do, get a lot more emphasis on what we believe will be successful products and not dilute our efforts as much as we might have in the past. Hopefully, we'll get more impact out of fewer products.

Great. And then lastly, when you look at cost increases, and you said you've locked a majority of those cost increases, is there any product in particular that you're seeing an inordinate amount of cost increases on relative to the rest of the portfolio?

Like I said, everything is pretty much up. It's a rare commodity or rare product -- agricultural product certainly that is not up. And it really is crop specific as to how much it's up. I mean, we buy peanut butter, it's COPAC for us. We had a 50%, 60% cost increase on that. And that, I guess, that's a great illustration of how little forgiveness there is in the system when there's any incident at all with a crop, how fast the cost can move and why it's prudent to lock in your costs.

Next we'll hear from Sean Naughton with Piper Jaffray.

So obviously, the Culver acquisition, very exciting bringing that in. Can you talk a little bit about the potential for Mrs. Dash in its current distribution or potential for distribution expansion? And then also, any seasonality we could potentially expect with the acquisition overall?

There's actually not much seasonality to the business. It's a pretty steady business overall. So there's a little bit of seasonality to things like Static Guard. But when you look at the business in total, it's pretty smooth over the year. As far as Mrs. Dash goes, there hasn't been any new product activity for a number of years. And you're seeing what you would expect to see in light of that, which is an erosion of existing distribution. I mean,is there Mrs. Dash product virtually everywhere you go? Yes. Is there much as we think there should be? No. So we're pushing out flankers that otherwise would have lost distribution, trying to get that back. And one of the ways to do that is to get excitement back in that part of the category by launching some new products and talking about the programs you're going to put in place and things like that. So we certainly expect to expand Mrs. Dash, but as far as new distribution opportunities, it's more about expanding the presence that's already there than it is getting in to new places. It's already in dollar stores. It's already in drugstores. It's got a very good club business. So there's not a lot of new ground that's untouched out there, but there is certainly a lot of opportunity to flush out what is there.

Okay. And then just in terms of some of the innovation there, is that -- is this one of these categories you guys are currently working on for this year? Or is that something that could be second half of this year into 2013?

Well, it's going to take little while to get the new products together and get them out there, but we certainly hope to do some of that in the first half of the year. We tend to move pretty quickly. And there's things in work right now, so we're not sitting still. Mrs. Dash will be a point of emphasis. Mrs. Dash is 2/3 of the Culver acquisition. It's a very profitable brand. It will definitely be a Tier I brand, and it will definitely an emphasis for the company.

Okay, great. And then secondly, it sounds like things have gone a little bit better as we started 2012. Should we expect -- have you seen an improvement in the base business, excluding acquisition, as we've headed into the new year here?

Yes. As I said, a little bit different than what I'm reading for other food companies. Our weakness in the fourth quarter was front-end loaded. And as I said, one of the premises we have is that it may have been people buying some inventory in the third quarter with the price increases. We certainly haven't seen the decline some other people have seen in the base business. Ours was fairly modest and definitely stopped around mid November. And December was actually a very good month, and we've had a good start to the first quarter in 2012. So whatever it was in the early part of fourth quarter, we appear to have shrugged it off pretty quickly and are more -- back to a more normal operating pattern.

Next, we'll hear from Ed Aaron, RBC Capital Markets.

I just want to follow-up on that last question about kind of just the consumer. I mean, how you mentioned the difference between your recent trends and those of your peers. And I think we're all kind of scratching our heads a little bit as to what's going on out there. And now I'm wondering how much of that just might be a reflection of your products and your categories maybe being a little bit less inflationary than others. If you look at some of the categories that you're in where there's maybe more pricing going through than others, are you seeing that same trend of sort of sequential volume improvement month by month as you seem to be seeing for your business overall?

Well, there's no question that I think the more exposed the product line was to cost increases and the higher price increase you took and/or the higher promotional price you then put in place, you did have a certain sticker shock effect. And as I said, that happened to some extent with our Tier III brands where you actually saw sales declines and a few as retailers resisted new promotional price points and things like that. So I think that's a very good theory. I think when I look at some of our competitors or other food companies, where they've taken some sizable price increases, there's no question there's a sticker shock effect either at the retailer and/or at the consumer. That doesn't apply to most of our business because, as I said, we took a 2% price increase on average; not a number that's going to shock you when you walk up to the shelf. Some took more, some took less, but we don't have that exposure to inflation, as you said, that other people do, so I don't think we shocked the system like other people might have.

Right. That make sense. And then the -- just on the channel shifts that are going on out there. I know you said kind of in Q4, you saw similar things there that you saw earlier in the year last year. As you think about just the last couple of months, since that's where some of the volumes seem like they've gotten a little bit more squishy across the industry, have those trends kind of even held less [ph]? Even, I guess, in the first quarter, are you still seeing, from a channel perspective, the same things that you saw last quarter?

We definitely are seeing the same things still. Some of it may be that we're trying to grow in those channels, so our efforts are being rewarded. But we're trying to grow in those channels because we perceive the consumers are doing more of their shopping in those channels. So it's kind of a cycle, a virtuous cycle, if you will. But yes, we're definitely continuing to see that shift to alternate channels. And if not away from grocery, then as I've said before, the incremental growth in the businesses is in those channels and not in supermarkets.

And then just the last question, if I could, just more from a balance sheet perspective. I know you obviously just did the Culver deal pretty recently. What's you're short-term leverage tolerance if there was as asset out there that became available that you might have interest in? I mean, is it something that you would -- how high would you be willing to take up the leverage on a short-term basis to do that?

Well, we certainly -- we feel that we can do that. We think at some point, somewhere south of 5x. Some potential shareholders, if not our shareholders, start filtering out the stock as something they want to buy just because of the leverage. The sad part of that is, you really have to understand the cash flow story to understand that leverage at that level is not something that's a danger to the company at all. I mean, it's not that much higher leverage than we're at today, and we are very, very comfortably accommodating the interest on the debt that we have today. But we do understand that out there in the market, our BGS stock would probably at least be handicapped by too high a leverage. So we're certainly aware of that. And we think for lack of a real scientific study, we think that, that's somewhere around the 5x level.

Next, we'll hear from Andrew Lazar with Barclays Capital.

Just a couple of things. First off, maybe a quick one, a number of companies, even including Smucker, today talked about some inventory deloading at a couple of key retail partners. I just want to know if that played a role in maybe in any of the base volume weakness at all, do you think? How do you feel about your sort of inventory positions at key customers to the extent you've got a handle on that?

Well, a few customers took inventory down, but those customers typically have taken inventory down in the past at the end the year. So we didn't think that was a factor. One of our major wholesaler customers did shut a warehouse in the fourth quarter, and that certainly has an inventory effect. That inventory sort of vaporizes and you lose those sales for a short amount of time. That definitely happened, and that definitely was part of the effect in the northeast.

Got it. Thanks. And then, I think last quarter, correct me if I'm wrong, you mentioned that you're going to be leading some pricing maybe even more than you typically have and needed to kind of get a better sense as time went on, on how some of your key competitors in these certain areas kind of either followed suit or how things kind of played out. Any update on that in terms of how the competitive angle has played out with respect to the pricing you've taken?

I would say, by and large, people have followed where we did lead. There are some exceptions, and we're dealing with those exceptions in terms of our exposure to loss volume. They're minimal and very easily accommodated.

And then, the CEO of Smucker's today again talked about thinking that the industry sort of learned their lesson sort, if you will, back in 2010 when there's some deflation and all the food companies ramped up promotions to try and drive volume, which was actually quite unsuccessful at the end of the day. So the worry now, of course, or one of the worries in the space is that once we get some deflation, although that's not here yet, given that volumes have been so remarkably weak across the industry that, that sort of, as he termed it, race to the bottom could happen again. He was pretty confident that the industry learned its lesson last time, and it's not where we would go. Obviously, a little less exposed to -- just given what you've already talked about, but I'm just curious on your take on that. Are you equally as confident, I guess, is what I would ask?

I guess since I've been doing this for 20 years now, I have the ability to say I've never seen people get totally smart. I preached this for a long time that it's a zero-sum game, and that kind of activity gets you nowhere, but everybody making less money at the end of the day because people can only eat so much and they only have so much room in their pantry. But frankly, my outlook for 2012 is that I think most of the food companies are in the same place we're in, in that they've locked in their cost. And that those costs are going to ramp up to some degree through 2012 as those purchasing positions roll in. So even if commodities do back down a little bit, I don't think people are going to see it until, like, the fourth quarter at best. So it's not something that I hope we have to concern ourselves about for most, if not all, of 2012.

Got it. And last thing, I appreciate your perspective is, when we think about your base business in terms of pricing and volume as we think about 2012 as a full year, is it safe to say, obviously, you still got, for much of the year, the incremental kind of 2% pricing that started to flow through in your fourth quarter. So we'd see some positive pricing there until you lapped that. And then, volume, obviously, the base business, volume came off a little bit in the fourth quarter, but it seems like at least that's reasonably back on track. Would your expectation be for, call it, 1% to 2% pricing for the full year, and volume to be low single-digit, modestly positive? Or how do you think about that?

That's exactly how I think about that. We're going to see the price increases roll through for at least the first 9 months. And if you look at 2011, our volume growth in 2011 was not quite 2.5%. 2012 at that level wouldn't surprise me.

Moving on to Gary Albanese with Auriga.

Just about the Culver acquisition/integration, I was wondering -- just sort of add some color. In terms of as you get more exposure to the brands, as you sort of take them under your wing a little bit more, how is that perceived in terms of -- is it been better-than-you-expected? Has it been worse? Have there been more challenges or opportunities from when we last spoke?

I think it's about where we thought it was when we last spoke. It's a very typical acquisition in terms of the state of the business. It may not be declining as much as some of the other things we have bought, but it certainly, as I said earlier, has had no new product activity and not a lot of emphasis from the sales point of view, which we look at frankly as an opportunity. That's unplowed ground that we can dive into and make use of. So it's very typical. I think we're going to be able to perform on it like we have with our other acquisitions. We love the business. I think we're very pleasantly surprised with things like Static Guard. I don't think we comprehended what a great little brand that was just because we're not that familiar with household. So I think we're very pleased with where we stand right now and looking forward to the year.

Okay. And I know you covered fuel costs earlier in regards to how it affects your P&L. But historically, when we've seen fuel spikes in the past for gas, how is the effect of the consumer buying trends, especially with some of your brands? I mean, has there been any shifts away or towards brands when we see these spikes?

Well, I think our portfolio is affected, by and large, when things get tough, our portfolio generally prospers. I mean, food service is not quite 20% of our business. That part of the business tends to get softer when gas spikes and inflation kicks in and all of that. But bad economies drive people to eat at home and they eat things like Ortega and B&M and all the brands that we have. We've never seen our portfolio suffer in bad economic times. It actually is a benefit to some extent.

[Operator Instructions] Next, we'll hear from Thomas Scherr with Federated Investors.

Can you discuss your expectations for cash taxes in 2012?

We're looking at about just a little over $20 million in cash taxes based on the kind of guidance of EBITDA we gave out.

Next, we'll hear from Soraya Benitez with Cougar Trading.

Just one quick clarification. When you talked about the trends by channel, you talked about the dollar of mass market and warehouse. Was that the dollar -- represents 2% of sales? Or those channels collectively represent 2% of your sales?

Just the dollar and drugstores.

And so where do you see that, like, maybe in a year or 2? I mean, you've talked about -- it's obviously been a small part of the base for some time. Where do you think it could get to in a year or 2?

Well, I think in a couple of years, we'd maybe double that. We're growing very quickly. It was up, as I said, 100% in the fourth quarter. There's only so much room in dollar stores. So the opportunity is finite in that sense. But I think, we could see another 50% growth in 2012, and then we'll see where it goes from there.

And then just on your capital expenditures, thank you for the guidance, $12 million. It looks like that's a little bit of a high run rate versus what you've done in the last few recent years. Just wondering, is that part of the Culver acquisition or is there something more behind that number?

The Culver products are all COPACs, so there's minimal CapEx there. We're just guiding to that partly because of inflation and partly because as we really dig into costs, we think we may have some projects that are very good opportunities to reduce costs, and if so, we're going to put CapEx against them.

And then just to clarify on some of the new product introductions you're doing in 2012, can you give us some color by tier, your top 4 tiers?

Well, the focus is absolutely on the Tier I brands. That's why they are Tier I brands because they're going to get a lot of new product activity. And sometimes, as I said, it's as simple as a variant of an existing product that is now designed to go into warehouse clubs, dollar stores, drugstores, all of that. It's not necessarily a revolutionary new product. But as you go down through the tiers, the new product activity tapers off, but not necessarily goes away. It depends on the opportunities. Another product line we launched in the fourth quarter that will fall under the Ac'cent line in terms of where we book the sales is we've licensed the Crock-Pot name for a few seasonings that we will sell. It's something to do with pot roast in a crockpot and things like that. Those are being -- out being sold in the marketplace now. We're out presenting those. So that's not a Tier I brand, but we saw a great opportunity to do a line of seasonings under -- within that name. And it looks to be a good proposition going forward.

Next, we'll hear from Paul Moomaw from Goshawk Investments.

Yes. I was going to ask if you could elaborate a little bit on your comments about moving into Canada and any distribution possibilities that, that opens up for you there?

Well, we're in Canada now very modestly with our base business. We sell Cream of Wheat. We sell Ac'cent. We sell Underwood up there. But as I say, it's modest, probably not even 2% of sales. With the Culver acquisition, the Sugar Twin business does most of its business up in Canada. And it gives us enough critical mass that we're going to take the product lines that we've been selling up there, take them out of the distributor and move them into more traditional, if you will, distribution, warehouse right to a grocery warehouse. That lowers our cost considerably. It eliminates the distributor markup, and allows us to increase our price to get the same shelf price and basically put most of the distributor margin in our pocket versus the distributor's pocket. So there's a benefit on the base business from that point of view. It also takes you more mainstream and gives you the opportunity to more directly put products into distribution, into the supermarket. Now we're going to walk before we run here. So first we're going to get this infrastructure in place and get everything going with the new broker, the new means of distribution, and then we're going to look at our opportunities to take more of our base business into Canada if it's appropriate.

Okay. And sort of a follow-up on the previous leverage question. Have you described the company's criterion ever for issuing equity as a way of evening out of the capital structure?

No, we really haven't. I mean, we've done that once to retire some high-yield debt that had very high interest rates. And it was actually accretive to our earnings per share to do that. With the dividend we pay, it's an interesting dynamic between the debt you require, which has obviously a tax break, and the dividends you pay on those shares, which obviously does not have a tax break. And it's a question of how dilutive that issue would be, but no, we've never outlined that.

And next, we'll hear from Rob Moskow, Crédit Suisse.

David, I always thought of 2011 as the year where you got out ahead of the commodity inflation and hedged early. And I'm wondering, if you look back, do you think that was a competitive advantage? And you look towards 2012, do you feel like it might be a tough comp because maybe that was a fortuitous year or maybe you're just as far ahead this year, but does it strike you that there might be a tough comparison this year?

I really don't think so. As we've said, we have very modest inflation. We just don't have a lot of mainstream commodity exposure. 1.5% cost increase -- 1.5% of net sales cost increases last year. We're forecasting not quite 2% of net sales cost increases this year. To be -- to buy better on those kind of cost increases really doesn't give you much of an edge. And the people who are in the categories that have those cost increases or -- have that same exposure. So there's not just a huge edge there. If you were -- if I was selling flour and I bought flour much, much better than my competitors, and flour costs went up 30%, I would say I have a competitive edge. But when you're talking in these kind of percentages, I just don't think it gives you a lot of an edge.

And just as a follow-up, because the commodity inflation is not that noisy, it's just kind of mildly rising, is it fair to say that there isn't much risk that -- of price declines as we head to the back half of the year? There's a lot of food categories where I am concerned you might see that because of either hyper promotion or commodities falling.

As I said earlier, I just don't -- I don't see that in 2012, because I think people have positions that are going to roll over as the year goes on and they'll see -- if they do have the same kind of positions we have, they'll see cost increases through most of the year against those positions, and who knows where we'll be 6, 9 months from now as far as where costs on commodities are. So I think people would be foolish to do that. As Andrew pointed out, it doesn't really get you anywhere. Promotion is a very temporary high, if at all, because your competitors aren't going to sit still. They're going to respond. And it really -- and a price decrease, by the way, has to pretty much be done by promotion because an awful lot of time, if you take a list price decrease, the consumer will never see it. A decent number of retailers will put it in their pockets. So how that will play out, I really don't know. But I think people are going to be -- have their hedged positions give them modest, at least, cost increases as the year progresses for a while.

That concludes this question-and-answer session. Mr. Wenner, I would like to turn the conference back over to you for any additional or closing comments.

Thank you. Thank you, all, for joining us. We really look back on 2011 and look at it as a remarkable year where we created tremendous shareholder value and gave our shareholders a terrific return on their investment. We aspire to do the same in 2012, and certainly the dividend increase that we announced yesterday is our first way of trying to do that. So we're looking forward to the year. We're extremely excited about performing on the Culver brands as the year goes on. And hope to do more of the same in 2012. Thank you.

That does conclude today's conference. We thank you, all, for joining us.