Good day, and welcome to the B&G Foods First Quarter 2023 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 Michael Bauer, Director, Corporate Strategy and Business Development for B&G Foods. Mike?

Good afternoon, and thank you for joining us. With me today are Casey Keller, our Chief Executive Officer; and Bruce Wacha, our Chief Financial Officer. You can access detailed financial information on the quarter in the earnings release we issued today, which is available at the Investor Relations section of bgfoods.com. Before we begin our formal remarks, I need to remind everyone that part of the discussion today includes forward-looking statements. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer you to B&G Foods annual report on Form 10-K and subsequent SEC filings for a more detailed discussion on 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 not concerning the outlook for the remainder of fiscal 2023. We Bruce will then discuss our financial results for the first quarter of 2023 and our guidance for fiscal 2023. I would now like to turn the call over to Casey.

Good afternoon. Thank you, Mike, and thank you all for joining us today for our first quarter 2023 earnings call. First quarter results continued strong pricing recovery against inflationary costs. Adjusted EBITDA increased plus 12.9% versus last year to $82.4 million. Margins improved significantly with adjusted EBITDA as a percentage of net sales at 16.1%, increasing plus 240 basis points from Q1 2022. Excluding items affecting comparability, gross profit as a percentage of net sales improved to 22.4% in Q1 2023, increasing plus 300 basis points versus 19.4% last year. Base business net sales, which excludes net sales from the recently divested Back to Nature brand, were down slightly at minus 1.2% versus Q1 2022, but up substantially plus 3.8% versus the 2-year comparison to Q1 2021. Last year, Q1 sales were elevated, plus 5.4% growth by the higher at-home demand and retailer inventory resulting from the Omicron partial lockdowns in January and February 2022. Some key perspectives on the results, inflation. Q1 inflation across packaging and commodities was above last year but has moderated from Q4 levels. Total fiscal year '23 input costs are projected to remain higher than average cost throughout 2022, particularly in the first half. However, we are seeing declines in key commodities, including soybeans, corn, wheat and fuel versus the highs reached in the middle of 2022. Soybean oil is now trading on the spot market in the $0.50 to $0.55 per pound range relative to the high $0.70 range in late spring 2022. Pricing. In total, pricing realization, including product mix, contributed $63.2 million in Q1 versus Q1 last year, reflecting pricing actions taken across the portfolio in 2022. We implemented new pricing actions in February to recover higher costs on tomatoes, glass and starches, specifically on pasta and taco sauces and baking powder.…

Thank you, Casey. Good afternoon, everyone. Thank you for joining us on our first quarter 2023 earnings call. As you can see, our first quarter 2023 results reflect, in many ways, a continuation of the strong operating performance that we delivered in the fourth quarter of last year. In the first quarter of 2023, we generated $511.8 million in net sales, $82.4 million in adjusted EBITDA, adjusted EBITDA as a percentage of net sales of 16.1% and adjusted diluted earnings per share of $0.27. Base business net sales, which excludes net sales from the recently divested Back to Nature brand remained robust despite being slightly behind last year's elevated demand from partial lockdowns related to the Omicron resurgence. On a 2-year stack, base business net sales increased by approximately 3.8% in the first quarter of 2023 when compared to the first quarter of 2021. Meanwhile, our profits and margins have continued to recover. For example, adjusted EBITDA and our adjusted EBITDA as a percentage of net sales continued to show a very nice improvement from the inflationary challenges that we faced throughout 2022. Our first quarter 2023 adjusted EBITDA of $82.4 million increased by $9.4 million or 12.9% compared to the first quarter of 2022. Adjusted EBITDA as a percentage of net sales increased by approximately 240 basis points to 16.1% in the first quarter of 2023 compared to adjusted EBITDA as a percentage of net sales of 13.7% in the first quarter of 2022. And while we are still seeing inflation across much of our portfolio, the pace of this inflation has finally slowed, allowing pricing to catch up with costs and continue restoring margins in our P&L. Separately, in some cases, we are even seeing some favorability in certain commodities and other input costs in our portfolio that…

Thank you, Bruce. In closing, Q1 results demonstrated continued recovery with pricing covering inflationary costs, improved margins and a positive reduction in leverage. We remain on track to achieve stronger year-over-year performance in Q2 and Q3, further reduced leverage and deliver within guidance for fiscal year '23. This concludes our remarks, and now we would like to begin the Q&A portion of our call. Operator?

Our first question comes from the line of Hale Holden with Barclays.

I had 2 questions for you guys. The first one is that was a pretty outstanding number from labor girl, but it was surprising to me to see the labor growth in the context of a down Crisco quarter. So maybe just some thoughts on what drove that...

Sure. I think starting out with Crisco, for example, this is one of the brands in our portfolio that's had the highest input cost inflation over the inflationary cycle. And we were aggressive, as we said we would be in terms of protecting our margins. And so within Crisco, we actually have a pretty good profit number relative to prior years, but we increased price a lot, and this is a category with private label with competition, we crossed some important lines from a price point, and we saw some elasticity. The fortunate thing is input costs are coming down for that brand, and that will ultimately be reflected in a little bit more promotion and eventually pricing. The dynamics on the Crisco and the Collaborate girl business are very different. So we took pricing on collaborator and the rest of our baking powder, baking soda portfolio in February of the first quarter to reflect higher costs on starches corn starch, sodium bicarbonate, some other things. And we took pricing not only on the labor Girl brand and the branded powders, but we also took pricing on private label as part of kind of our annual contracts and agreements with retailers. So collaborator growth is being driven by not just our branded products with pricing, but also the private label business that was priced respectively, to the commodity input increases.

Got it. And then second question I had was Brico made a comment that Green Giant margins had improved sequentially. And I was wondering if you could give us some context of where they are now, either relative to where they've been or just where they are on an absolute basis?

Yes. We haven't provided that level of detail specifically for Green Giant. But for the quarter, the amount of improvement that we saw in the base business was pretty good. Green Giant was actually better improvement than the overall base business was just to give you some context. I mean the only other thing I'd add to that is, we'll disclose obviously more specific information when we report business unit segments in the future. But the Green Giant frozen portfolio, where we've been really trying to improve the mix and improve the profitability. That -- the gross profit margin on that business was up several hundred basis points.

That's great to hear. Thanks so much for the time follows...

Thank you. Our next question is from the line of Carla Casella with JPMorgan. Our next question comes from the line of Michael overly with Piper Sandler.

Could you just give a little more color on the Crisco pass-through pricing and some of the mechanics there. What kind of timing lags does it have? How do you think about the outlook for that in terms of what's reflected in guidance? Just anything you can add? And also just any color on how it impacts -- is it meant to protect gross profit dollars or margin? Or can you just help us understand how to think about the rest of the year relative to all that.

Yes, sure. Remember, I think we've talked on previous calls that the pricing strategy on Crisco that we have aligned with customers and we execute with customers is that we are pricing to protect gross profit dollars. So we basically have an arrangement that every quarter, we reset prices based on kind of recent market costs on soybean oil. We reset our pricing with customers based on the input commodity costs. And the goal there is to have pricing move up and down with the commodity but to protect gross profit dollars. So that's how you should think about it. Crisco, we will protect gross profit dollars. And the complication becomes how much movement do we have in the input costs and what does that do on pricing relative to volume I think what you heard us say on the call today is that one of the things we're learning on Crisco oil, so shortening has actually been a little less elastic on pricing. But as we cross the $5 per threshold, $5 per bottle threshold in the market in the first quarter because in last baking season, we were largely selling at about a $5 price point during big season with all the promotion activity, including Walmart. As we cross that threshold in the first quarter, we began to get data that showed the elasticity is much higher once you cross that $5 mark and over 1. So before we were saying it was kind of an elasticity of 0.8 that was what we were kind of forecasting. Now we're seeing it once across the 5 that over 1. And this is the first time we have be able to read price points to that level. And we've now reduced the price with our last round of customer agreements. So it's coming back down. And my expectation is because of the trend of the soybean input cost is we will be below $5 a bottle in the back half of the year, and we'll get quite a bit of volume pickup and volume recovery at a 1.2 or whatever elasticity. So it's a little complicated because elasticities change as you hit certain price thresholds and we just didn't have any data before on that. But I think you should think about us protecting gross profit margin dollars with our pricing structure, but the price point may move up and down and volume and pricing effects may move around on the business as well. So I hope that helps...

Yes. No, that's helpful. And a little bit related, if -- it sounds like critical pricing could take another step down. It sounds like you just did one that's maybe more modest. But -- just putting it all together with the February pricing, some of the moving parts on Crisco in the easier comp in 2Q relative to just a smaller price hike last year or some heavier promotion, would 1Q likely be the peak for pricing? Or would 2Q still be pretty similar? How should we just think about the...

One is the peak. Q1 will be the peak. And then I think it will come down in Q2 and Q3. Remember, we haven't -- so we have an agreement that we price kind of -- we have about a 60-day lag in the pricing, but we based on the most recent market conditions. So as the prices come down, I think you'll still see our Crisco pricing model come down. Yes. And Michael, I think the important thing to remember when you think about the model, assuming good execution and consumer behavior that makes sense. But you would see potentially an impact to sales and an impact to pricing, plus or minus. But effectively, your gross profit dollars, your product contribution dollars for the brand so essentially remain in line right? So you might have pressure on your sales, but you have stable EBITDA. Same thing when it was going on the way up, we had input cost increases, but we were able to raise price and therefore, relatively neutral on the profit dollars.

And sir, I just wanted to clarify, the follow-up I was adding was total company in terms of just -- it would 1Q still be around the peak pricing level, not just for Crisco?

I mean we really only move on a commodity pricing structure with Crisco. So Crisco is the one that will move...

And I guess, sorry, you mentioned some of the February pricing. Is that significant...

Yes, we talked -- I'm sorry, yes. Yes. So yes, we took pricing in February to reflect all the new commodity increases that we were seeing new in 2023. So that's all done. So yes, I don't anticipate that we're really going to take much additional pricing in the course of the year because we basically covered inflation with the February actions that we're experiencing in 2023 relative to 2022.

Thank you. Our next question is from the line of Carla Casella with JPMorgan.

Yes. Sorry about that. Col difficulty. On that few lines of elasticity, can you just give us any more color, aside from Crisco, which categories or brands you have them see the most or the lease elasticity and if you're seeing any change in those elasticities as we kind of move through the year?

The only -- I think we've only seen elasticity changes, the biggest is on Crisco and is across the $5 threshold, which kind of makes sense. But that's probably the biggest change that we've seen. Most of our other businesses haven't taken the magnitude of pricing that Crisco has. So we haven't really seen a big change from the elasticity that we are modeling kind of at the -- in the Q4 time frame. The only other one I would say is Green Giant canned vegetables less is a little bit higher from the recent reads as the price has gone up with the last pack last fall, but not huge. I mean some increase in our elasticity from that one. But for the most part, the -- outside of Crisco and canned vegetals we've seen elasticity staying pretty much in that overall average of 0.7, 0.8 that we've talked about before.

Okay. Great. And then back to nature that sale successful. But are there any further thoughts about asset sales? And I guess, what would drive you to look back at the portfolio for potential asset sales?

Yes. I mean I think we're always looking both at our existing portfolio as well as what's out there and available for us to buy. Hard to really promise or comment on M&A before it happens. But we're always looking. And certainly, for us, in terms of any portfolio rationalization and things coming out of the portfolio, it's going to be driven by things that fit or don't fit with the new strategy. And so back to nature it's the first one, but it's one that made perfect sense. We're no longer in snacks in a big way. It's not a priority for us. So a smallish cookie and cracker business, even though it's a really nice business, just isn't a fit for us. And so that's the thought process there. And to the extent there's anything to update, we'll do so going forward.

We will probably divest businesses in the future. But obviously, we're not going to fire sales. So we're going to be deliberate about when and how we do it. But it is aligned with the strategy of what categories and portfolio pieces we want to stay in and the longer term and which ones we don't feel we have enough scale or enough capabilities to stay in.

Okay. Great. And then just one last housekeeping item. I'm not sure if you already mentioned it. Do you have a leverage target for year-end attached with your guidance?

I wouldn't say that we've got like an official guidance number with regards to the leverage target, but our expectation is to bring it down below 7x by the end of the year.

Thank you.

[Operator Instructions ] As a reminder, ladies and gentlemen, one One moment please while we poll for questions. Appears we have no further questions at this time. I'd like to turn the floor back over to Casey Keller for closing comments.

Thank you all for joining us for this quarterly earnings call, and we look forward to speaking with you next quarter. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.+