B&G Foods Reports Financial Results for Fourth Quarter and Full Year 2018

Business Wire 26-Feb-2019 4:05 PM

— Net Sales Increased 3.3% and Base Business Net Sales Increased 0.9% for Full Year 2018 —

— Net Cash Provided by Operating Activities Increased to $209.5 Million for Full Year 2018 —

B&G Foods, Inc. (NYSE:BGS) today announced financial results for the fourth quarter and full year 2018.

Fourth Quarter 2018 Financial Highlights (vs. Fourth Quarter 2017):

• Completed the sale of Pirate Brands to The Hershey Company for approximately $420.0 million early in the fourth quarter; recognized a pre-tax gain on sale of $176.4 million
• Net sales decreased 1.8% to $458.1 million due to the sale of Pirate Brands
• Base business net sales¹ increased 1.6% to $452.6 million
• Diluted earnings per share decreased 12.8% to $1.70
• Adjusted diluted earnings per share¹ decreased 40.4% to $0.34
• Net income decreased 13.8% to $111.9 million
• EBITDA¹ increased 283.1% to $188.6 million
• Adjusted EBITDA¹ decreased 15.2% to $58.5 million
• Net cash provided by operating activities increased to $70.4 million from $30.3 million
• Prepaid the entire remaining $500.1 million principal amount of term loans outstanding under the Company's credit facility with the proceeds of the Pirate Brands sale and additional revolver borrowings

Full Year 2018 Financial Highlights (vs. Full Year 2017):

• Net sales increased 3.3% to $1,700.8 million
• Base business net sales¹ increased 0.9% to $1,564.2 million
• Diluted earnings per share decreased 20.2% to $2.60
• Adjusted diluted earnings per share¹ decreased 12.7% to $1.85
• Net income decreased 20.7% to $172.4 million
• EBITDA¹ increased 36.9% to $397.4 million
• Adjusted EBITDA¹ decreased 5.7% to $314.2 million
• Net cash provided by operating activities increased to $209.5 million from $37.8 million

Guidance for Full Year Fiscal 2019

• Net sales range of $1.635 billion to $1.665 billion
• Adjusted EBITDA range of $305.0 million to $320.0 million
• Adjusted diluted earnings per share range of $1.85 to $2.00

Guidance for First Quarter of 2019

• Net sales range of $400.0 million to $412.0 million
• Adjusted EBITDA range of $78.0 million to $82.0 million
• Adjusted diluted earnings per share range of $0.47 to $0.52

Robert C. Cantwell, President and Chief Executive Officer of B&G Foods, stated, "2018 was a year of company record net sales, as we continue to march towards $2 billion in net sales. Our EBITDA, which benefited from the gain on the sale of Pirate Brands, was also a company record. And I am happy to report that we achieved the high end of our inventory reduction plan target for the year, reducing our inventory by approximately $100 million as compared to year end 2017. However, our margins and our adjusted EBTIDA fell short of our expectations, as we continue to face elevated input and freight costs that in 2018 we were unable to fully offset with price increases and cost savings initiatives."

Mr. Cantwell continued, "Looking forward in 2019, we expect to see continued benefits from our cost savings initiatives, which we plan to enhance in 2019, as well as the full year impact of our 2018 price increases and a partial year impact of an additional round of price increases for 2019 that we have already communicated to our customers and that we expect to realize beginning towards the end of the second quarter. While we are disappointed in our 2018 profitability, we are confident that the actions we are now taking will enable us to achieve our full year 2019 guidance."

"We remain committed to our business model, which is premised on high margin brands, a lean cost structure, strong excess cash generation, and growth through accretive acquisitions. Our very strong cash flow generation continues to support our growth by acquisition strategy, as well as our longstanding policy of returning a substantial portion of our excess cash to our shareholders in the form of dividends."

Financial Results for the Fourth Quarter of 2018

Net sales decreased $8.3 million, or 1.8%, to $458.1 million for the fourth quarter of 2018 from $466.4 million for the fourth quarter of 2017. The decrease was attributable to a decrease in unit volume of $9.8 million, partially offset by an increase in net pricing of $1.5 million. The decrease in unit volume was primarily attributable to the Pirate Brands divestiture, offset in part by the McCann's acquisition. Net sales of Pirate Brands, which was sold on October 17, 2018, were $2.1 million during the fourth quarter of 2018, compared to $19.3 million during the fourth quarter of 2017. Net sales of McCann's, which was acquired on July 16, 2018 and therefore not owned during the fourth quarter of 2017, contributed $3.2 million to the Company's overall net sales for the fourth quarter of 2018.

Base business net sales for the fourth quarter of 2018 increased $7.2 million, or 1.6%, to $452.6 million from $445.4 million for the fourth quarter of 2017. The increase was attributable to an increase in unit volume for the base business of $5.2 million, and an increase in net pricing for the base business of $2.0 million.

Net sales of all Green Giant products in the aggregate (including Le Sueur) increased $7.3 million, or 4.9%, in the fourth quarter of 2018, as net sales in both frozen and shelf stable products increased. Net sales of Green Giant frozen increased $7.0 million, or 7.3%, in the fourth quarter of 2018 compared to the fourth quarter of 2017, driven by strong customer and consumer acceptance of Green Giant Veggie Spirals, launched earlier in 2018, as well as continued demand for Green Giant Riced Veggies, Green Giant Veggie Tots and Green Giant Mashed Cauliflower. Net sales of Green Giant frozen products also benefited from the launch of Green Giant Cauliflower Pizza Crusts and Little Green Sprout's Organics, which began shipping in September 2018. Net sales of Green Giant shelf stable (including Le Sueur) increased $0.3 million, or 0.7%, for the quarter.

Net sales of Ortega increased $2.4 million, or 7.2%; Cream of Wheat increased $0.8 million, or 4.3%; New York Style increased $0.8 million, or 8.8%; and Maple Grove Farms increased $0.5 million, or 2.8%, for the fourth quarter of 2018 compared to the fourth quarter of 2017. Net sales of the Company's spices & seasonings² increased $6.5 million, or 8.4%, for the quarter. Net sales of Victoria decreased $2.5 million, or 20.3%, for the quarter. The decline in net sales of Victoria was primarily due to the shift of timing of a promotional event with a key customer. Net sales of all other brands in the aggregate accounted for a decrease of $8.6 million, or 6.8%, for the quarter.

Gross profit was $49.9 million for the fourth quarter of 2018, or 10.9% of net sales. Excluding the negative impact of non-recurring charges relating to the Company's inventory reduction plan of $27.7 million and acquisition/divestiture-related expenses of $9.2 million, the Company's gross profit would have been $86.8 million, or 19.0% of net sales. This compares to gross profit of $93.9 million for the fourth quarter of 2017, or 20.1% of net sales. For the fourth quarter of 2018, gross profit benefited approximately $1.5 million in net pricing and was also negatively impacted by input cost inflation, inclusive of freight, warehousing and procurement, as well as mix.

Selling, general and administrative expenses decreased $4.4 million, or 8.4%, to $47.6 million for the fourth quarter of 2018 from $52.0 million for the fourth quarter of 2017. The decrease was composed of a decrease in acquisition/divestiture-related and non-recurring expenses of $4.4 million, decreased consumer marketing expenses of $1.8 million and decreases in warehousing of $0.3 million, partially offset by other increases of $2.1 million. Expressed as a percentage of net sales, selling, general and administrative expenses improved by 0.7 percentage points to 10.4% for the fourth quarter of 2018 compared to 11.1% for the fourth quarter of 2017.

During the fourth quarter of 2018, the Company completed the sale of Pirate Brands to The Hershey Company for a purchase price of $420.0 million in cash. The Company recognized a pre-tax gain on the sale of Pirate Brands of $176.4 million.

Net interest expense decreased $2.3 million, or 8.5%, to $24.5 million for the fourth quarter of 2018 from $26.8 million in the fourth quarter of 2017. The decrease was mostly attributable to a decrease in long-term debt outstanding during the fourth quarter of 2018 as compared to the fourth quarter of 2017, primarily as a result of the use of the net proceeds from the sale of Pirate Brands, to prepay long-term debt during the fourth quarter of 2018 and earlier prepayments of long-term debt during the first and second quarters of 2018.

During the fourth quarter of 2018, the Company prepaid the entire remaining $500.1 million principal amount of term loans then outstanding under the Company's credit facility with the proceeds of the Pirate Brands sale and additional revolver borrowings. No term loans were outstanding under the Company's credit facility as of December 29, 2018. As a result of the prepayment, the Company recognized during the fourth quarter of 2018 a loss on extinguishment of debt of $9.8 million.

The Company's net income was $111.9 million, or $1.70 per diluted share, for the fourth quarter of 2018, as compared to net income of $129.9 million, or $1.95 per diluted share, for the fourth quarter of 2017. The Company's adjusted net income¹ for the fourth quarter of 2018 was $22.3 million, or $0.34 per adjusted diluted share, compared to $37.6 million, or $0.57 per adjusted diluted share, for the fourth quarter of 2017.

For the fourth quarter of 2018, EBITDA was $188.6 million, an increase of 283.1%, or $139.4 million, compared to $49.2 million for the fourth quarter of 2017. EBITDA as a percentage of net sales was 41.2% for the fourth quarter of 2018, compared to 10.6% for the fourth quarter of 2017.

For the fourth quarter of 2018, adjusted EBITDA was $58.5 million, a decrease of 15.2%, or $10.4 million, compared to $68.9 million for the fourth quarter of 2017. Adjusted EBITDA as a percentage of net sales was 12.8% for the fourth quarter of 2018, compared to 14.8% in the fourth quarter of 2017.

As part of the Company's inventory reduction plan, it reduced inventory from $487.4 million at the end of the third quarter of 2018 to $401.4 million at the end of the fourth quarter of 2018, compared to an increase from $487.4 million at the end of the third quarter of 2017 to $501.8 million at the end of the fourth quarter of 2017.

Financial Results for the Full Year Fiscal 2018

Net sales increased $54.4 million, or 3.3%, to $1,700.8 million for fiscal 2018 from $1,646.4 million for fiscal 2017. The $54.4 million increase in net sales was attributable to an increase in unit volume of $42.2 million and an increase in net pricing of $12.2 million. Net sales of McCann's, which was acquired on July 16, 2018 and therefore not owned during fiscal 2017, and an additional three quarters of net sales of Back to Nature, which was acquired on October 2, 2017, combined to contribute $60.2 million to the Company's overall net sales for fiscal 2018. The Company's net sales for 2018 were negatively impacted by the divestiture of Pirate Brands during the fourth quarter of 2018. Net sales of Pirate Brands were $87.7 million in fiscal 2017, compared to $74.9 million in fiscal 2018 through the date of divestiture, which was October 17, 2018.

Base business net sales increased $14.0 million, or 0.9%, to $1,564.2 million for fiscal 2018 from $1,550.2 million for fiscal 2017. The increase was attributable to an increase in unit volume for the base business of $4.0 million and an increase in net pricing of $10.0 million, or 0.6% of base business net sales.

Net sales of Green Giant frozen increased $42.7 million, or 12.9%, to $372.7 million for fiscal 2018 compared to fiscal 2017, driven by strong customer and consumer acceptance of Green Giant Veggie Spirals, launched earlier this year, as well as continued demand for Green Giant Riced Veggies, Green Giant Veggie Tots and Green Giant Mashed Cauliflower. Net sales of Green Giant frozen products also benefited from Green Giant Cauliflower Pizza Crusts and Little Green Sprout's Organics, which began shipping in September 2018. Net sales of all Green Giant products in the aggregate (including Le Sueur) increased $29.7 million, or 6.1%, to $518.9 million in fiscal 2018, as net sales growth of frozen products was offset in part by Green Giant shelf stable (including Le Sueur), whose net sales decreased $13.0 million, or 8.2%, to $146.2 million.

Net sales of Ortega increased $4.0 million, or 2.9%, for fiscal 2018 compared to fiscal 2017. Net sales of Cream of Wheat increased $1.7 million, or 2.8%; New York Style increased $1.7 million, or 4.7%; and Victoria increased $1.2 million, or 2.8%, for fiscal 2018. Net sales of all of the Company's spices & seasonings² decreased $3.5 million, or 1.0%, for fiscal 2018. Net sales of all other brands in the aggregate accounted for a decrease of $20.8 million, or 4.6%, for fiscal 2018.

Gross profit was $349.5 million for fiscal 2018, or 20.5% of net sales. Excluding the negative impact of non-recurring charges relating to the Company's inventory reduction plan of $66.3 million and acquisition/divestiture-related expenses of $10.0 million, the Company's gross profit would have been $425.8 million, or 25.0% of net sales. This compares to gross profit of $440.6 million for fiscal 2017, or 26.8% of net sales. For 2018, gross profit benefited from an increase in net pricing of $12.2 million and was also negatively impacted by input cost inflation, inclusive of freight, warehousing and procurement, as well as mix.

Selling, general and administrative expenses decreased $16.0 million, or 8.8%, to $167.4 million for fiscal 2018 from $183.4 million for fiscal 2017. The decrease was composed of a decrease in acquisition/divestiture-related and non-recurring expenses of $18.7 million and decreased consumer marketing expenses of $7.9 million, partially offset by increased warehousing expenses of $0.9 million, increased general and administrative expenses of $8.5 million (primarily consisting of compensation, professional and consulting fees, technology related expenses and real property leases) and other increases of $1.2 million. Expressed as a percentage of net sales, selling, general and administrative expenses improved by 1.3 percentage points to 9.8% for fiscal 2018 compared to 11.1% for fiscal 2017.

As discussed above, during fiscal 2018 the Company recognized a pre-tax gain on the Pirate Brands sale of $176.4 million. During fiscal 2017, the Company recorded a $1.6 million pre-tax loss on the sale of assets.

Net interest expense increased $16.5 million, or 18.0%, to $108.3 million for fiscal 2018 from $91.8 million in fiscal 2017. The increase was primarily attributable to additional borrowings made in the third quarter of 2018 to fund the McCann's acquisition, in the fourth quarter of 2017 to fund the Back to Nature acquisition, and in the second and fourth quarters of 2017 in connection with the Company's senior notes offerings, partially offset by the Company's prepayment in full of the tranche B term loans, as described above.

As a result of the prepayment of long-term debt described above, the Company recognized a loss on extinguishment of debt of $13.1 million in fiscal 2018, including $2.8 million in the first quarter of 2018, $0.5 million in the second quarter of 2018 and $9.8 million in the fourth quarter of 2018.

The Company's net income for fiscal 2018 was $172.4 million, or $2.60 per diluted share, compared to net income of $217.5 million, or $3.26 per diluted share, for fiscal 2017. The Company's adjusted net income for fiscal 2018 was $122.3 million, or $1.85 per adjusted diluted share, compared to $140.5 million, or $2.12 per adjusted diluted share for fiscal 2017.

For fiscal 2018, EBITDA was $397.4 million, an increase of 36.9%, or $107.2 million, compared to $290.2 million for fiscal 2017. EBITDA as a percentage of net sales was 23.4% for fiscal 2018, compared to 17.6% for fiscal 2017.

For fiscal 2018, adjusted EBITDA was $314.2 million, a decrease of 5.7%, or $19.0 million, compared to $333.2 million for fiscal 2017. Adjusted EBITDA as a percentage of net sales was 18.5% for fiscal 2018, compared to 20.2% for fiscal 2017.

As part of the Company's inventory reduction plan, it reduced inventory during fiscal 2018 from $501.8 million at the end of fiscal 2017 to $401.4 million at the end of fiscal 2018, compared to an increase from $356.6 million at the end of fiscal 2016 to $501.8 million at the end of fiscal 2017.

Full Year and First Quarter Fiscal 2019 Guidance

For fiscal 2019, net sales are expected to be approximately $1.635 billion to $1.665 billion, adjusted EBITDA is expected to be approximately $305.0 million to $320.0 million and adjusted diluted earnings per share is expected to be approximately $1.85 to $2.00.

For fiscal 2019, net interest expense is expected to be approximately $87.5 million to $91.5 million (including cash interest payments which are expected to be approximately $84.0 million to $88.0 million), depreciation expense is expected to be approximately $40.0 million, amortization expense is expected to be approximately $18.0 million, cash taxes, excluding the tax effects resulting from the gain on sale of Pirate Brands, are expected to be approximately $5.0 million or less and capital expenditures are expected to be approximately $45.0 million to $50.0 million.

For the first quarter of 2019, net sales are expected to be approximately $400.0 million to $412.0 million, adjusted EBITDA is expected to be approximately $78.0 million to $82.0 million and adjusted diluted earnings per share is expected to be approximately $0.47 to $0.52.

B&G Foods provides earnings guidance only on a non-GAAP basis and does not provide a reconciliation of the Company's forward-looking adjusted EBITDA and adjusted diluted earnings per share guidance to the most directly comparable GAAP financial measures because of the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including adjustments that could be made for deferred taxes; loss on extinguishment of debt; acquisition/divestiture-related and non-recurring expenses, gains and losses; the non-cash accounting impact of the Company's inventory reduction plan; restructuring expenses; gains and losses on the sale of assets and other charges reflected in the Company's reconciliation of historic non-GAAP financial measures, the amounts of which, based on past experience, could be material. For additional information regarding B&G Foods' non-GAAP financial measures, see "About Non-GAAP Financial Measures and Items Affecting Comparability" below.

Conference Call

B&G Foods will hold a conference call at 4:30 p.m. ET today, February 26, 2019. The call will be webcast live and can be accessed at www.bgfoods.com/investor-relations. The call can also be accessed live over the phone by dialing (866) 548-4713 for U.S. callers or (323) 794-2093 for international callers.

A replay of the call will be available two hours after the call and can be accessed by dialing (844) 512-2921 for U.S. callers or (412) 317-6671 for international callers; the password is 3551079. The replay will be available from February 26, 2019 through March 5, 2019. Investors may also access a web-based replay of the call at www.bgfoods.com/investor-relations.

About Non-GAAP Financial Measures and Items Affecting Comparability

"Adjusted net income" (net income adjusted for certain items that affect comparability), "adjusted diluted earnings per share," (diluted earnings per share adjusted for certain items that affect comparability), "base business net sales" (net sales without the impact of acquisitions until the acquisitions are included in both comparable periods and without the impact of discontinued or divested brands), "EBITDA" (net income before net interest expense, income taxes, depreciation and amortization and loss on extinguishment of debt) and "adjusted EBITDA" (EBITDA as adjusted for cash and non-cash acquisition/divestiture-related expenses, gains and losses (which may include third party fees and expenses, integration, restructuring and consolidation expenses, amortization of acquired inventory fair value step-up and gains and losses on sale of assets), non-recurring expenses, gains and losses and the non-cash accounting impact of the Company's inventory reduction plan) are "non-GAAP financial measures." A non-GAAP financial measure is a numerical measure of financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in B&G Foods' consolidated balance sheets and related consolidated statements of operations, comprehensive income, changes in stockholders' equity and cash flows. Non-GAAP financial measures should not be considered in isolation or as a substitute for the most directly comparable GAAP measures. The Company's non-GAAP financial measures may be different from non-GAAP financial measures used by other companies.

The Company uses non-GAAP financial measures to adjust for certain items that affect comparability. This information is provided in order to allow investors to make meaningful comparisons of the Company's operating performance between periods and to view the Company's business from the same perspective as the Company's management. Because the Company cannot predict the timing and amount of these items that affect comparability, management does not consider these items when evaluating the Company's performance or when making decisions regarding allocation of resources.

Additional information regarding EBITDA and adjusted EBITDA, and a reconciliation of EBITDA and adjusted EBITDA to net income and to net cash provided by operating activities, is included below for the fourth quarter and full year of 2018 and 2017, along with the components of EBITDA and adjusted EBITDA. Also included below are reconciliations of the non-GAAP terms adjusted net income, adjusted diluted earnings per share and base business net sales to the most directly comparable measure calculated and presented in accordance with GAAP in the Company's consolidated balance sheets and related consolidated statements of operations, comprehensive income, changes in stockholders' equity, and cash flows.

About B&G Foods, Inc.

Based in Parsippany, New Jersey, B&G Foods and its subsidiaries manufacture, sell and distribute high-quality, branded shelf-stable and frozen foods across the United States, Canada and Puerto Rico. With B&G Foods' diverse portfolio of more than 50 brands you know and love, including Back to Nature, B&G, B&M, Cream of Wheat, Green Giant, Las Palmas, Le Sueur, Mama Mary's, Maple Grove Farms, Mrs. Dash, New York Style, Ortega, Polaner, SnackWell's, Spice Islands and Victoria, there's a little something for everyone. For more information about B&G Foods and its brands, please visit www.bgfoods.com.

Forward-Looking Statements

Statements in this press release that are not statements of historical or current fact constitute "forward-looking statements." The forward-looking statements contained in this press release include, without limitation, statements related to B&G Foods' net sales, adjusted EBITDA, adjusted diluted earnings per share, cash interest payment, cash taxes, capital expenditure, cash flow and overall expectations for fiscal 2019, including our goal of marching towards $2 billion in net sales and the benefits we expect to achieve from cost savings initiatives and sales price increases. Such forward-looking statements involve known and unknown risks, uncertainties and other unknown factors that could cause the actual results of B&G Foods to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements. In addition to statements that explicitly describe such risks and uncertainties, readers are urged to consider statements labeled with the terms "believes," "belief," "expects," "projects," "intends," "anticipates," "assumes," "could," "should," "estimates," "potential," "seek," "predict," "may," "will" or "plans" and similar references to future periods to be uncertain and forward-looking. Factors that may affect actual results include, without limitation: the Company's substantial leverage; the effects of rising costs for the Company's raw materials, packaging and ingredients; crude oil prices and their impact on distribution, packaging and energy costs; the Company's ability to successfully implement sales price increases and cost saving measures to offset any cost increases; intense competition, changes in consumer preferences, demand for the Company's products and local economic and market conditions; the Company's continued ability to promote brand equity successfully, to anticipate and respond to new consumer trends, to develop new products and markets, to broaden brand portfolios in order to compete effectively with lower priced products and in markets that are consolidating at the retail and manufacturing levels and to improve productivity; the risks associated with the expansion of the Company's business; the Company's possible inability to identify new acquisitions or to integrate recent or future acquisitions or the Company's failure to realize anticipated revenue enhancements, cost savings or other synergies; tax reform and legislation, including the effects of the U.S. Tax Cuts and Jobs Act; the Company's ability to access the credit markets and the Company's borrowing costs and credit ratings, which may be influenced by credit markets generally and the credit ratings of the Company's competitors; unanticipated expenses, including, without limitation, litigation or legal settlement expenses; the effects of currency movements of the Canadian dollar and the Mexican peso as compared to the U.S. dollar; the effects of international trade disputes, tariffs, quotas, and other import or export restrictions on the Company's international procurement, sales and operations; future impairments of the Company's goodwill and intangible assets; the Company's ability to successfully implement a new enterprise resource planning (ERP) system; the Company's ability to protect information systems against, or effectively respond to, a cybersecurity incident or other disruption; the Company's sustainability initiatives and changes to environmental laws and regulations; and other factors that affect the food industry generally. The forward-looking statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in B&G Foods' filings with the Securities and Exchange Commission, including under Item 1A, "Risk Factors" in the Company's most recent Annual Report on Form 10-K and in its subsequent reports on Forms 10-Q and 8-K. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. B&G Foods undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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¹ Please see "About Non-GAAP Financial Measures and Items Affecting Comparability" below for the definition of the non-GAAP financial measures "base business net sales," "adjusted net income," "adjusted diluted earnings per share," "EBITDA" and "adjusted EBITDA," as well as information concerning certain items affecting comparability and reconciliations of the non-GAAP terms to the most comparable GAAP financial measures.

² Includes the spices & seasoning brands acquired in the fall of 2016, as well as the Company's legacy spices & seasonings brands such as Mrs. Dash and Ac'cent.

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