Good day, and welcome to the B&G Foods Fourth Quarter 2021 Earnings Conference 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 your host, Sarah Jarolem, Senior Director of Corporate Strategy and Business Development for B&G Foods. Sarah?

Good afternoon, and thank you for joining us. With me today are Casey Keller, our Chief Executive Officer; and Bruce Wacha, our Chief Financial Officer. You can access detailed financial information on the quarter 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 the B&G Foods annual report on Form 10-K and subsequent SEC filings for a more detailed discussion of the risks that could impact our company's future operating results and financial condition. B&G Foods undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We will also be making references on today's call to the non-GAAP financial measures, adjusted EBITDA, adjusted net income, adjusted diluted earnings per share and base business net sales. Reconciliations of these financial measures to the most directly comparable GAAP financial measures are provided in today's earnings release. Casey will begin the call with opening remarks and discuss various factors that affected our results, selected business highlights and his thoughts concerning the outlook for fiscal 2022 and beyond. Bruce will then discuss our financial results for the fourth quarter and fiscal 2021 and our guidance for fiscal 2022. I would now like to turn the call over to Casey.

Good afternoon. Thank you, Sarah, and thank you all for joining us today for our fourth quarter earnings call. The company's performance in the fourth quarter was solid. Net sales increased plus 12.1% versus last year, driven by an additional 2 months of Crisco in the quarter. Base business net sales were down modestly minus 1.1% versus last year and were roughly flat versus the same period 2 years ago. Adjusted EBITDA was up 16% versus last year, with adjusted EBITDA as a percentage of net sales increasing plus 50 basis points to 14.9%. And recall, Q4 is typically our lowest margin quarter because of seasonal mix and promotions. However, sales performance was mixed during the quarter. Net sales started strong during October and November, but were significantly impacted by the spread of the Omicron variant in December. Supply chains were disrupted with labor shortages, call-outs across our facilities, distribution networks and customer store and warehouse operations. Our December net sales fell short of our initial estimates by $20 million to $25 million as a result of the supply chain disruptions and customers' inability to receive shipments. The good news is that the impact of Omicron has improved dramatically in late January and February, with shipments exceeding last year and above our forecast. Supply challenges and shortages remain, but at levels consistent with service prior to Omicron. As a result of a softer December, B&G Foods finished the fiscal year at the low end of our net sales and adjusted EBITDA guidance. Net sales were $2.056 billion, within the $2.05 billion to $2.1 billion guidance; and adjusted EBITDA finished at $358 million, on the low end of our $358 million to $365 million range provided at the Q3 call. 2021 net sales performance reflected both the addition of the Crisco…

Thank you, Casey. Good afternoon, everyone. As Casey just discussed, 2021 was not a year without challenges. But that said, it was also a year in which we generated record net sales at B&G Foods as consumers continue to flock to our brands during a time of prolonged uncertainty, and we were able to successfully integrate the Crisco brand which we acquired in December 2020, another acquisition that is consistent with our growth by acquisition strategy. During 2021, we generated net sales of $2.056 billion, adjusted EBITDA of $358 million and adjusted diluted earnings per share of $1.88. Our net sales finished just above the bottom of our guidance range that we set early last year, but was negatively impacted by the industry-wide supply chain disruption, which increased significantly during the last month of the year due to the spread of the Omicron COVID variant. We believe that the supply chain disruptions caused in large part by the Omicron variant negatively impacted our fourth quarter net sales by approximately $20 million to $25 million. This is in addition to lost sales resulting from industry-wide supply chain disruptions throughout the year that prevented us from fully meeting the demand for our products. But it is difficult to quantify how much net sales were negatively impacted during the first 3 quarters of the year. Despite these challenges, 2021 marked the first time that we exceeded $2 billion in annual net sales in our company's history. Net sales for fiscal 2021 increased by $88.4 million or 4.5% to $2.056 billion from $1.968 billion for fiscal 2020. The increase was primarily due to an extra 11 months of net sales of the Crisco brand, largely offset by comparisons against extraordinary demand resulting from the COVID-19 pandemic during fiscal 2020 and as well as 1…

Thank you, Bruce. As I said at the beginning of the call, we had a strong fiscal 2021 despite the challenges faced during the year from inflation, COVID variants and supply disruptions. Our fiscal year 2022 is off to a good start, and we remain cautiously optimistic that COVID-19 could be almost behind us. This concludes our remarks, and now we would like to begin the Q&A portion of the call. Operator?

[Operator Instructions]. Our first question comes from Andrew Lazar with Barclays.

I guess to start off, I think maybe in the past, you've communicated your sort of level of confidence in keeping leverage at a level that would allow you to sort of cover the dividend and that stock sales in the past have been used more to create flexibility for potential acquisitions. And obviously, this time, it seems like the stock sale was a little bit more geared towards maybe operational needs and such. Do I have that right? And if so, maybe what changed such that the equity sales were kind of deemed necessary?

Yes. So Andrew, actually, I kind of disagree a little bit with that. When we bought Crisco, we paid all cash over $0.5 billion. And our intention was always at a point in time to do, as you suggested, which is use equity to delever the balance sheet following an acquisition. And so the equity offering was intended for those purposes. We knew that we had a short-term benefit from our COVID-enhanced sales and EBITDA, which kept leverage manageable at the height of COVID even after the Crisco acquisition, but there is always, in our mind, some view of an acquisition and then delevering afterwards with equity, and that's exactly what we did here.

Got it. Okay. And then I know it's awfully tough, obviously, to forecast to finally in this kind of environment. But I would imagine that you, like others, are going to see a lot more volatility in the way sort of the margin profile lays out in terms of the cadence as you go through the year. I guess to the extent that you could provide a little bit more clarity on maybe how you see margins playing out sort of earlier in the year versus later in the year because I imagine you don't want to try -- and just get sort of expectations in a more reasonable place. And it's tougher on the outside to maybe model the kind of extreme volatility that we as staple analysts aren't as used to modeling quarter-to-quarter.

Yes. And there's probably two parts to that answer. And so part one, since we've owned Green Giant, our third quarter has been our highest margin quarter and our fourth quarter has been our lowest margin quarter. That's probably going to continue this year. However, I think as you're highlighting, and this is part of the unknown, but expectation would be that margins will be a little bit more challenged in the front half of the year from the input cost increases and then the lag effect on the pricing that we're taking to offset that. So we would expect some natural improvement in margins over time, but not so great that we're going to disrupt that fourth quarter being our lowest margin quarter as we get to the end of this year. And then there's obviously a big unknown in terms of -- if you talked to us 3 months ago, we would have been talking about our expectation for possible input cost relief in the back half of this year. With all the events going on in the world and in Europe today, that may be different. And so like you said, there's a lot of unknown that makes those predictions hard to do.

Our next question comes from Nik Modi with RBC Capital Markets.

Yes. Just two quick questions from my side. General Mills at CAGNY indicated that they were seeing some meal prep fatigue as they called them and they said they were going to keep a watchful eye on that. So I just wanted to get your reaction to that and you've seen any of that type of consumer behavior in any of your research. And the second question is really just kind of on the cost side. Indonesia has restricted palm oil export. And I just wanted to see kind of how you guys were thinking about the downstream impact of that on your cost of business as the year progresses.

So Nik, just to make sure -- this is Casey. You said comment on meal prep fatigue? Is that what you said?

Yes, meal prep. Yes, that's what General Mills was commenting on [indiscernible]

Yes, okay. Got it. We actually have not seen that. I said what the 2 trends that we're kind of seeing in our research are number one, people continue to work somewhat remotely, even if they're coming back to the office. To some extent, they still are working more remotely and from home than they were before the pandemic driving more meal consumption at home, particularly in the breakfast and lunch occasion. Second, in our -- I guess, when our meal prep business is that we -- or at least would be related to that like Ortega, we've seen consumption hold up fairly strongly on those businesses. So we haven't necessarily seen that in our businesses yet. I mean the real impact we talked about was sort of the disruption of Omicron on our supply chain in December, but our consumption numbers held up pretty nicely. So I'm not seeing that yet. I'm seeing the 2 -- the trend of more breakfast and lunch occasions at home as people work remotely. And to some extent, even some casual dinner occasions. And then the second thing is we continue to hear from people that during COVID, they learned how to cook. So they are continuing to show interest in cooking and preparing meals at home probably slightly higher than they were in the pre-pandemic phase. So that's what we see in our research, and that's what I would comment on in our portfolio.

Great. And on the palm oil experts, any thoughts on the cost impact? And really how you're thinking about the cost for this year. I mean, is this really the guidance is built on spot rates? Or is there more forward kind of forecast curves that you're using?

Or -- I mean, palm oil is one of the things that we're looking at and tracking pretty closely. Honestly, the war in Ukraine is obviously sent things that are sensitive to oil or even wheat has gone up. So we forecast for the year. We -- in typical fashion, we will have significant coverage through the year, except on things that we're managing coverage up and down based on volatility in the commodities markets. So we we're constantly adjusting these forecasts. But for the most part, we are passing on increases in our own pricing to recover gross margin dollars impact of higher input costs.

Our next question comes from Michael Lavery with Piper Sandler.

Just curious if you could unpack guidance a tad further. The EBITDA high end of the range is just above consensus. But if I have the numbers right, the EPS is pretty well below the Street. You touched on some of the pieces there, but can you point to where that gap may be? And just what some of your assumptions might be about buybacks as well?

For fiscal '22?

Right, yes.

Yes. So the one thing that's worth looking through in the press release and the 10-K when it's filed is details around the stock sale. And so we sold about $110 million of stock late last year, which probably isn't captured in your forecast around EPS. And I'm not really sure what you're using for tax rate. So that could also be throwing things off.

Well, I was just using the consensus number, so it could be a little bit of a blend.

Yes.

But as far as turning back around to buying back shares, is that on the table at all? Or are you assuming none for 2022?

Well, we do have an authorization in place, and I think it depends in large part on what happens with share price.

Fair enough. And just following up on elasticity. I think your language was that you have you assumed some modest elasticity or just that it doesn't hold quite at the levels that you've seen. Do you assume -- am I hearing it right that that's not -- you don't model in your guidance, assuming to normal levels? And can you just maybe give a little bit of sense of magnitude of what you do expect .

So we have been expecting and modeling out elasticity in all of our price increase analysis that we've done. What we've experienced so far, and so this is a so far comment, is that any elasticity that we've actually experienced has been less than what we modeled out. And part of that, I think, is if you go through the grocery store, this is not a B&G going out and raising price. This is most manufacturers of most products of most things sold in the grocery store are seeing input cost inflation and turn around and appropriately raising price. And so we're seeing that phenomenon across the grocery store. And probably also impacting that is you see that in restaurants and other services. And so the alternative to an expensive night out on the town and dinner is eating at home, which, while that may cost a little bit more, it's still going to be less than eating out.

And just to elaborate on that. So we -- as we started taking price increases in the second half of this year, we were modeling elasticity based on historical data. And what I said was, so far, we have not seen -- we've seen elasticity coming in lower than that. So we have been assuming elasticity effects going forward into 2022, not as high as our initial modeling would have suggested, but we are still assuming that there will be elasticity conservatively going forward.

Our next question is from Ken Zaslow with Bank of Montreal.

You have said something about that the acquisition actually exceeded your expectations on the sales line. Did it exceed your expectations on the EBITDA line? Or was not -- and I didn't catch it if it was. I just didn't understand when you said that it exceeded your expectations.

Yes. Probably a little bit of both, but we didn't disclose the EBITDA for Crisco. But overall, read between the lines, it had a great year. It did very well.

I mean, I think if you look at the top line, it was obviously enhanced by the pricing. So then we said lower.

I agree.

Yes. We said we had lower elasticity than we expected. So the pricing actually flowed through in the top line very nicely. EBITDA was more closely in line with our expectations because, obviously, we had to cover higher soybean oil costs. And we weren't -- when we took the business out from Smucker's, we weren't covered that far out. So.

But the biggest thing to keep in mind in our reaction to sitting back after years, we look -- we made an acquisition, a very large one. We saw input costs increase at a certain point in time, more than 100% for soybean oil. And through pretty good management of the business, we're able to perform somewhere between in line and better than expected. So very, very happy with that acquisition.

Okay. The second question is -- and we heard this a lot at CAGNY as well is more aggressive and people maybe aligning their strategy a little bit more with you guys where a lot more portfolio management -- active portfolio management. One of the opening comments you said is that we are looking to -- the timing to exit certain businesses. What's your criteria to exit, it's not typically what you guys are usually acquired? I know there's been some divestitures at good prices, but not actively divesting assets. Is there a little bit of a change? Is there a thought process? And can you elaborate on what are the key criteria for which that you would seek to divest certain businesses.

Sure. I think, look, net, I think you should expect us to be a net acquirer versus exit, but we will selectively look at businesses that we don't fit -- that we don't believe fit within the portfolio long term. And probably later this year, when we come back to you and talk to you more specifically about our strategies and our plans and how we want to manage the portfolio, we'll be a lot more explicit about this. But the criteria for me would be looking at businesses that don't really fit our operating model, don't have a lot of synergies with how we run our businesses and where I don't believe we have kind of the capabilities and the right to grow those businesses sustainably over time. So I don't want to go further than that, but it's basically about shaping the portfolio to the places where I think we manage that well. We manage it well to get some growth. We manage it well to bring in acquisitions and similar business lines and categories and find synergies and build those and add to our capabilities. So we'll look at selectively exiting some businesses that don't fit that criteria, but -- and then we'll make some conscious choices about even business lines that might not look like they fit within kind of our focused portfolio structure where we can manage those businesses efficiently. I'm really going to look at only exiting businesses where I don't think we could manage them efficiently or effectively within our structure.

Okay. So there's a little bit more of a sense of streamlining than maybe previous managements have had. Is that at least a fair point, and I'm not trying to put words in your mouth, I'm just...

No. I said we are going to be a net acquirer, which means, I think -- but we will look at some -- yes.

Okay.

Yes. But we will look at some places that we can prune the portfolio where I think it's not the best fit with where we want to go. But look, net, I think we're going to be acquiring more than we're going to be divesting.

Okay. And then last question is you said that you're going to take pricing later this year. Have you recaptured all the recent inflation? And is that anticipatory? Or is that, hey, we think that we're a little bit lagging, and we need another price increase, we just have to tell the retailers. How is that positioning? And then I'll leave it there, and I appreciate your time.

Yes. Honestly, this is kind of a fluid dynamic. If you would have asked me 2 months ago, had we priced for everything that we were seeing, I might have said yes. Today, with the war in Ukraine and some new commodity kind of increases coming on -- look at soybean oil, soybean oil, I thought would be kind of in the 50s now is really up at 68 is the last spot market I saw. So we're sort of adjusting to that. And when I said we may have to do new price increases. It's to reflect new things, new commodity cost inputs that we're seeing in the marketplace. We, in particular, if you've seen recently, soybean oil is up because I think it's sensitive to the cost of oil over -- I mean to the price of oil overall. So we will be taking further actions where we see it's necessary to recover cost input increases that are relatively new that we have -- that we weren't experiencing kind of in Q4.

Our next question comes from Eric Larson with Seaport Research Partners.

So my question comes really on your revenue guidance. So when you look at your revenue guidance, you're looking for an increase this year of 1% to 3%. So when you look at your pricing actions from last year and then what's potentially going to happen again this year, you should be able to pencil in probably a high single-digit revenue increase just from pricing, take away a little bit of promotion expense, et cetera. So you may have a $10 million, $15 million leakage from $35 million of your extra week last year and then a $20 million to $25 million shortfall in COVID. But where is the rest of the leakage coming from on that? Can you help us get from point A to point B on that?

Yes. Okay. Yes. Remember that I said we are modeling some elasticity, right? So we're not getting all the pricing free. It's going to come at some volume consequence. And we've seen some elasticity in our pricing move already. And we've been -- I think we've appropriately modeled elasticity going into next year. But look, the way to think about our top line guidance for next year is 3 things. One is we are definitely going to get pricing realization benefit on the portfolio. Second, we are looking at where there has been elevated demand for COVID that may taper off a little bit in some categories, still stay high relative to 2019 in pre-COVID levels, but down from the 2021. So we do model a little bit of that effect as well, which is an offset, obviously, to the pricing realization. And then third, we do have new capacity coming on some of our product lines like Ortega, where we will expect to get some growth out of that from a volume standpoint. So I think -- look, you can't just take the net pricing impact that we're taking in the marketplace and assume that that's all going to flow through because we will have some elasticity impact, and we will have some drop off in the elevated demand in some of the categories going into 2020. As we get fully through the COVID-19 kind of pandemic and it moves towards more than endemic and people's -- the consumer behavior normalizes again. Does that help?

Yes. No, that does help. So where you're seeing the most elasticity, one would assume that those are in the categories where you've taken your biggest pricing adjustments. And that would be like a Crisco where just the cost of oil is such a high percentage of the underlying cost of goods sold for that product line. So where are you seeing your elasticity? And is my assumption right that it's in those product lines that have a high percentage of commodity component to them?

It's probably right for some of those and not for others.

I mean, you got to think about for canned vegetables would have steel, steel cans has gone up dramatically. So you will have some elasticity impact there as well.

Okay.

So I mean if we detailed all the pricing that we're actually taking with our customers on a percentage basis, and you would see that we're getting a net help from that but it's going to be offset by, obviously, some volume elasticity, but not -- certainly less than 1:1.

Okay.

Our next question is from Robert Moskow with Credit Suisse.

Actually, a couple of questions. First on Crisco, it seems like that's a major swing factor for 2022 because of the pricing commodity relationship and maybe even it was in 2021 as well. Is there any way to like dimensionalize like what's baked into your assumptions for 2022 on margin recapture? And did you expect profit growth in 2022 or not? And then secondly, a broader question. A lot of companies that presented last week at CAGNY talked about -- used a lot of jargon on artificial intelligence, new technologies, standardizing processes to improve operational efficiency. Have you seen anything new out there? Or are you implementing anything new that all these other bigger companies are doing to improve operational effectiveness as well?

I'll take the Crisco question and let Casey take the jargon question. For Crisco, yes, margins held up pretty well for Crisco, probably a little bit lighter than we initially modeled out for fiscal '21, but held up pretty well despite the input cost inflation due to the pricing. I think Crisco will continue to follow the market if input costs stay elevated and rise more, we will take more pricing. I wouldn't be surprised if you saw that across the category. And so ultimately, we believe the margins of the business that we bought will remain intact. Kind of hard for me to say, will I forecast increased margins for Crisco this year or increased profits for Crisco this year versus last year. Crisco delivered in 2021, we expect it to again in 2022.

Okay. So on the jargon question, here's, I guess, the way I talk about it in simple terms is I think there are some places where we are trying to streamline and simplify our operations. I would say, number one, we're investing in automation in our plants because labor is so tight, and it's been so difficult to manage in the COVID-19. So we have spent quite a bit of money on automation in our plants, which to me, is about restructuring our costs and streamlining our cost structure and our labor. And that's just -- that's facing the realities in the current labor environment that we're in today. Second, we have invested in some of the systems to drive greater efficiency and control. We have a new trade promotion system that we've implemented in the last 1.5 years that I think is now really just coming into its stride in terms of our ability to optimize our trade spending and make sure that we're making the right decisions from a return standpoint. If you ask me what are the things that we really have to focus on to improve our operations, it is clarifying how we're going to manage different parts of our portfolio because right now, we have kind of a big basket of 50-plus brands in 30 categories, and we're trying to manage all that centrally within the company and from a functional standpoint. And I think we need to get more efficient in breaking that down and saying, where are we going to focus, how are we going to resource it, and pushing some accountability for managing the growth in the P&L of these businesses to improve our performance and to improve our visibility and clarity and speed up our decision-making in how we're running these businesses. So if you ask me, that's probably the biggest thing I'm focused on. It's not a lot of jargon. It's about how do we simplify and clarify the accountability in our business and drive it harder for future success.

That's helpful. Can you tell me whether Crisco achieved your original acquisition targets for EBITDA?

Yes, it did.

We've reached the end of the question-and-answer session. I would now like to turn the call back over to Casey Keller for closing comments.

Thank you all for your attention. Obviously, this was an interesting quarter from that standpoint of dealing with the Omicron variant. But as I said, the good news is that we feel like we're past that now, and we're seeing big improvements in our workforce and call-outs and everything else. So I think we're on track. 2022 will be another year of continued challenges with inflation and pricing, but I think the team is up for the task, and we're ready to go with it. So thank you for your attention, and we'll speak to you next time.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.