B+G Foods: Reports Q2-2018 Financial Results

Parsippany / NJ. (bgs) B+G Foods Inc. announced financial results for the second quarter 2018. Executive Summary versus year-ago quarter where applicable:

• Net sales increased 7.4 percent to USD 388.4 million
• Base business net sales1 increased 3.1 percent to USD 370.2 million
• Diluted earnings per share decreased 63.6 percent to USD 0.12
• Adjusted diluted earnings per share1 decreased 7.3 percent to USD 0.38
• Adjusted Ebitda1 decreased 4.7 percent to USD 74.4 million
• Net cash provided by operating activities increased to USD 104.8 million for the first two quarters of 2018 from USD 19.8 million in the first two quarters of 2017
• Updated guidance for full year fiscal 2018:
  • Net sales range of USD 1.73 billion to USD 1.75 billion
  • Adjusted Ebitda range of USD 345.0 million to USD 355.0 million
  • Adjusted diluted earnings per share range of USD 2.05 to USD 2.15
• Repurchased USD 18.5 million of common stock at an average price of USD 26.65 per share
• Prepaid USD 25.0 million of term loans
• Completed the acquisition of the McCann’s brand of premium Irish oatmeal early in the third quarter

«We had very strong top line growth in the second quarter, with our net sales up 7.4 percent and our base business net sales up 3.1 percent, which is outpacing our initial expectations for the full year,» stated Robert C. Cantwell, President and Chief Executive Officer of B+G Foods.

Mr. Cantwell continued, «Net sales of Green Giant frozen products grew by 19.7 percent, the fifth consecutive quarter of double digit growth. Pirate Brands also had a strong quarter, with net sales up 54.6 percent. Other key brands in our portfolio, including Cream of Wheat, Ortega and Victoria, also performed well during the first half of the year.

We generated USD 74.4 million of adjusted Ebitda in the second quarter, a decrease of USD 3.8 million compared to the second quarter of last year, which was expected due primarily to industry wide increases in freight costs, and the timing of our price increases, which were not fully implemented until late in the quarter. Supportive of our full year guidance, we expect to see the full benefit of our price increases and additional benefit from our cost savings initiatives in the second half of the year. In addition, we believe the rate of increase in freight costs has begun to moderate.»

Financial Results for the Second Quarter of 2018

Net sales increased USD 26.7 million, or 7.4 percent, to USD 388.4 million for the second quarter of 2018 from USD 361.7 million for the second quarter of 2017. Net sales of Back to Nature, acquired on October 2, 2017, contributed USD 17.6 million to the Company’s overall net sales for the second quarter of 2018.

Base business net sales increased USD 11.0 million, or 3.1 percent, to USD 370.2 million from USD 359.2 million for the second quarter of 2017. The USD 11.0 million increase was attributable to an increase in net pricing of USD 4.3 million, or 1.2 percent, and unit volume of USD 6.7 million.

Net sales of Green Giant frozen increased USD 13.9 million, or 19.7 percent, compared to the second quarter of 2017. This growth was driven by Green Giant frozen innovation products. Net sales of Pirate Brands increased by 54.6 percent, largely due to the timing of promotional activities and increased distribution. This performance was offset, in part, by Green Giant shelf stable, whose net sales decreased 36.5 percent.

Gross profit was USD 81.2 million for the second quarter of 2018 compared to USD 104.6 million for the second quarter of 2017. Gross profit expressed as a percentage of net sales decreased to 20.9 percent in the second quarter of 2018 from 28.9 percent in the second quarter of 2017. Gross profit as a percentage of net sales was 26.1 percent for the quarter, excluding the negative impact of USD 20.1 million of non-recurring expenses, including the non-cash accounting impact of the Company’s inventory reduction plan, and acquisition-related expenses, including Back to Nature integration expenses. Gross profit percentage was also negatively impacted by industry-wide and anticipated increases in freight expenses, partially offset by procurement savings, a decrease in warehousing expenses and an increase in net pricing.

Selling, general and administrative expenses decreased USD 6.3 million, or 14.5 percent, to USD 37.3 million for the second quarter of 2018 from USD 43.6 million for the second quarter of 2017. The decrease was composed of a decrease in acquisition-related and non-recurring expenses of USD 5.8 million and reduced consumer marketing expenses of USD 2.3 million, partially offset by other increases of USD 1.8 million. Expressed as a percentage of net sales, selling, general and administrative expenses improved by 2.4 percentage points to 9.6 percent for the second quarter of 2018 compared to 12.0 percent for the second quarter of 2017.

Net interest expense increased USD 5.6 million, or 25.5 percent, to USD 27.6 million for the second quarter of 2018 from USD 22.0 million in the second quarter of 2017. The increase was primarily attributable to additional borrowings made 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.

The Company’s reported net income under U.S. generally accepted accounting principles (GAAP) was USD 8.0 million, or USD 0.12 per diluted share for the second quarter of 2018, as compared to reported net income of USD 22.1 million, or USD 0.33 per diluted share, for the second quarter of 2017. The Company’s adjusted net income for the second quarter of 2018, which excludes the after-tax impact of loss on extinguishment of debt, acquisition-related and non-recurring expenses and the non-cash accounting impact of the Company’s inventory reduction plan, was USD 25.1 million, or USD 0.38 per adjusted diluted share. The Company’s adjusted net income for the second quarter of 2017, which excludes the after-tax impact of loss on extinguishment of debt and acquisition-related and non-recurring expenses, was USD 27.6 million, or USD 0.41 per adjusted diluted share.

For the second quarter of 2018, adjusted Ebitda, which excludes acquisition-related and non-recurring expenses and the non-cash accounting impact of the Company’s inventory reduction plan, was USD 74.4 million, a decrease of 4.7 percent, or USD 3.8 million, compared to USD 78.2 million for the second quarter of 2017. Adjusted Ebitda as a percentage of net sales was 19.2 percent for the second quarter of 2018.

Financial Results for the First Two Quarters of 2018

Net sales increased USD 46.1 million, or 6.0 percent, to USD 820.1 million for the first two quarters of 2018 from USD 774.0 million for the first two quarters of 2017. Net sales of Back to Nature, acquired on October 2, 2017, contributed USD 37.7 million to the Company’s overall net sales for the first two quarters of 2018.

Base business net sales increased USD 12.1 million, or 1.6 percent, to USD 781.3 million from USD 769.2 million for the first two quarters of 2017. The USD 12.1 million increase was attributable to an increase in net pricing of USD 5.5 million, or 0.7 percent, and unit volume of USD 6.7 million.

Net sales of Green Giant frozen for the first two quarters of 2018 increased USD 24.6 million, or 15.9 percent, compared to the first two quarters of 2017. This growth was driven by Green Giant frozen innovation products. Other brands that performed well during the first two quarters include Pirate Brands, whose net sales increased 10.3 percent, Victoria, whose net sales increased 7.5 percent, Cream of Wheat, whose net sales increased 4.9 percent, Static Guard, whose net sales increased 28.7 percent, and Ortega, whose net sales increased by 1.3 percent. This performance was offset, in part, by Green Giant shelf stable, whose net sales decreased 19.8 percent, Las Palmas, whose net sales decreased 10.2 percent, Bear Creek Country Kitchens, whose net sales decreased 8.1 percent, and Mama Mary’s, whose net sales decreased 7.3 percent.

Gross profit was USD 184.5 million for the first two quarters of 2018 compared to USD 225.8 million for the first two quarters of 2017. Gross profit expressed as a percentage of net sales decreased to 22.5 percent in the first two quarters of 2018 from 29.2 percent in the first two quarters of 2017. Gross profit as a percentage of net sales was 26.9 percent for the first two quarters, excluding the negative impact of USD 36.2 million of non-recurring expenses, including the non-cash accounting impact of the Company’s inventory reduction plan, and acquisition-related expenses, including Back to Nature integration expenses. Gross profit percentage was also negatively impacted by industry-wide and anticipated increases in freight expenses, partially offset by procurement savings, a decrease in warehousing expenses and an increase in net pricing.

Selling, general and administrative expenses decreased USD 12.3 million, or 13.3 percent, to USD 79.8 million for the first two quarters of 2018 from USD 92.1 million for the first two quarters of 2017. The decrease was composed of a decrease in acquisition-related and non-recurring expenses of USD 11.2 million, reduced consumer marketing expenses of USD 4.1 million and reduced warehousing expenses of USD 0.7 million, partially offset by other increases of USD 3.7 million. Expressed as a percentage of net sales, selling, general and administrative expenses improved by 2.3 percentage points to 9.7 percent for the first two quarters of 2018 compared to 12.0 percent for the first two quarters of 2017.

Net interest expense increased USD 14.3 million, or 34.3 percent, to USD 55.9 million for the first two quarters of 2018 from USD 41.6 million in the first two quarters of 2017. The increase was primarily attributable to additional borrowings made 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.

The Company’s reported net income under U.S. generally accepted accounting principles (GAAP) was USD 28.5 million, or USD 0.43 per diluted share for the first two quarters of 2018, as compared to reported net income of USD 54.8 million, or USD 0.82 per diluted share, for the first two quarters of 2017. The Company’s adjusted net income for the first two quarters of 2018, which excludes the after-tax impact of loss on extinguishment of debt, acquisition-related and non-recurring expenses and the non-cash accounting impact of the Company’s inventory reduction plan, was USD 61.5 million, or USD 0.92 per adjusted diluted share. The Company’s adjusted net income for the first two quarters of 2017, which excludes the after-tax impact of loss on extinguishment of debt, acquisition-related and non-recurring expenses, acquisition-related inventory step-up, and loss on sale of assets, was USD 66.1 million, or USD 0.99 per adjusted diluted share.

For the first two quarters of 2018, adjusted Ebitda, which excludes acquisition-related and non-recurring expenses and the non-cash accounting impact of the Company’s inventory reduction plan, was USD 163.9 million, a decrease of 3.7 percent, or USD 6.3 million, compared to USD 170.2 million for the first two quarters of 2017. Adjusted Ebitda as a percentage of net sales was 20.0 percent for the first two quarters of 2018.

Guidance

B+G Foods revised its guidance for full year 2018. Net sales are expected to be approximately USD 1.73 billion to USD 1.75 billion, adjusted Ebitda is expected to be approximately USD 345.0 million to USD 355.0 million and adjusted diluted earnings per share is expected to be approximately USD 2.05 to USD 2.15. The full year 2018 net sales guidance includes the impact of the new FASB revenue recognition standard, which the Company estimates will reduce net sales in 2018 by approximately USD 21.5 million.2

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-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.