B+G Foods: Reports Strong Q1-2020 Earnings Growth

Parsippany / NJ. (bgs) B+G Foods Inc. announced financial results for the first quarter of 2020 and provided an update as to how the Covid-19 pandemic is impacting the Company.

First Quarter 2020 Financial Summary

Summary versus first quarter 2019 where applicable:

• Net sales increased 8.9 percent to USD 449.4 million
• Base business net sales increased 4.3 percent to USD 430.5 million
• Diluted earnings per share increased 69.2 percent to USD 0.44
• Adjusted diluted earnings per share increased 4.5 percent to USD 0.46
• Net income increased 67.3 percent to USD 28.1 million
• Adjusted net income increased 0.6 percent to USD 29.2 million
• Adjusted Ebitda increased 6.4 percent to USD 80.7 million

Update Regarding Impact and Expected Future Impact of Covid-19 on the Company

Business Impact: Commenting on the impact the Covid-19 pandemic has had on the Company, Kenneth G. Romanzi, President and Chief Executive Officer of B+G Foods, stated, «The onset of the terrible Covid-19 pandemic and the resultant stay-at-home orders throughout the country drove significant changes in consumers’ lives requiring them to cook and eat at home. This drove a significant increase in consumption across our portfolio of brands beginning in mid-March that has continued into early May. As a result, we had a very positive first quarter that was ahead of our expectations and have strong momentum entering the second quarter.»

«Consistent with our core values, the health and safety of our employees and the quality and safety of our products have been, and continue to be, our highest priorities. At B+G Foods, we have implemented a wide range of precautionary measures at our manufacturing facilities and other work locations in response to Covid-19. We have also been working closely with our supply chain partners and our customers to ensure that we can continue to provide uninterrupted service. Thanks to the tremendous efforts of our employees, especially those throughout our supply chain, our ability to serve our customers has not, to date, been materially impacted. Our employees are our true heroes and we are very proud of how they are performing through this crisis.»

Precautionary measures that B+G Foods has taken to protect its employees, customers, suppliers and other business partners, and to maintain the Company’s ability to supply food products, include, among many others, the following:

• the establishment of a Covid-19 task force consisting of Company executives and other members of senior management;
• social distancing and the required wearing of face masks at all manufacturing locations and the installation of plexiglass barriers at spots where line workers must work in close proximity;
• enhanced sanitization procedures at all manufacturing and other work locations;
• screening of all employees, including temperature checks, before entering manufacturing facilities;
• quarantining for at least 14 days (with pay) of all employees who may have been exposed to Covid-19 or who are exhibiting any symptoms of Covid-19;
• manufacturing plant shutdowns for sanitization upon any Covid-19 positive test;
• the notification of manufacturing employees of any Covid-19 positive tests at their manufacturing location and the quarantining for at least 14 days (with pay) any employee who may have had contact with the employee who tested positive;
• instituting a work from home policy for office workers until at least June 1, 2020; and
• constant communication with the Company’s customers and supply chain partners.

Romanzi also stated, «We have rewarded our dedicated employees at our manufacturing facilities by increasing wages for hourly employees by USD 2.00 per hour from March 30 through at least May 22 and providing supervisors and managers with bonuses of up to USD 500 per employee.»

«We continue to monitor the latest guidance from the CDC, FDA and other federal, state and local authorities regarding Covid-19 and will continue to support our employees and our communities and do our part to keep our nation supplied with food during this difficult time.»

Financial Impact to Date: The Company had a strong first quarter of 2020, driven by an out-sized March as the Covid-19 pandemic had a significant impact on consumer behavior. After a slow start in the first part of the quarter, the Company began to see a significant increase in net sales in the second half of March 2020 as the Covid-19 pandemic reached the United States and consumers began pantry loading and increasing their at-home consumption as a result of increased social distancing and stay-at-home mandates.

Increases in net sales by the Company to supermarkets, mass merchants, warehouse clubs, wholesalers and e-commerce customers have more than offset declines at foodservice customers. This trend has continued in April, with the Company’s net sales in April 2020 increasing more than USD 70 million, or more than 60 percent, as compared to net sales in April 2019.

As reflected above, the pandemic has to date had a positive impact on the Company’s operating results and therefore the Company’s net cash provided by operating activities. However, out of an abundance of caution, the Company made a revolver draw of USD 100.0 million in mid-March 2020 under the Company’s USD 700.0 million revolving credit facility. As a result, the Company ended the first quarter of 2020 with cash and cash equivalents of USD 127.1 million. Net of letters of credit of USD 1.6 million, the Company has remaining available borrowing capacity under its revolving credit facility of USD 598.4 million.

Guidance: Although B+G Foods’ management believes that B+G Foods’ net sales and adjusted Ebitda for full year fiscal 2020 will materially exceed the full year fiscal 2020 net sales and adjusted Ebitda guidance provided by management when the Company reported fiscal 2019 results in February 2020, the Company’s management is unable to fully estimate the impact the Covid-19 pandemic will have on the Company’s second quarter, third quarter and full year fiscal 2020 results and therefore is unable at this time to provide guidance for the remainder of 2020. The ultimate impact of the Covid-19 pandemic on the Company’s business will depend on many factors, including, among others, the duration of social distancing and stay-at-home mandates and whether a second or third wave of Covid-19 will affect the United States and the rest of North America, the Company’s ability to continue to operate its manufacturing facilities and maintain its supply chain without material disruption, and the extent to which macroeconomic conditions resulting from the pandemic and the pace of the subsequent recovery may impact consumer eating habits.

Financial Results for the First Quarter of 2020

Net sales for the first quarter of 2020 increased USD 36.7 million, or 8.9 percent, to USD 449.4 million from USD 412.7 million for the first quarter of 2019. The increase was attributable to the Clabber Girl acquisition and materially increased net sales in March (as compared to March 2019) resulting from increased demand for the Company’s products due to the Covid-19 pandemic. Net sales of Clabber Girl, which was acquired on May 15, 2019 and therefore not part of the Company’s first quarter of 2019 results, contributed USD 18.7 million to the Company’s net sales for the first quarter of 2020.

Base business net sales for the first quarter of 2020 increased USD 17.8 million, or 4.3 percent, to USD 430.5 million from USD 412.7 million for the first quarter of 2019. The increase in base business net sales reflected an increase in net pricing (inclusive of list price increases announced in 2019 and promotional trade spend optimization) of USD 9.2 million, or 2.2 percent of base business net sales, an increase in unit volume of USD 8.2 million and the positive impact of foreign currency of USD 0.4 million.

Net sales of Green Giant (including Le Sueur) increased USD 22.2 million, or 16.3 percent; net sales of Cream of Wheat increased USD 1.5 million, or 8.7 percent; net sales of Ortega increased USD 1.5 million, or 4.1 percent; and net sales of Maple Grove Farms increased USD 0.5 million, or 3.0 percent, in the first quarter of 2020, as compared to the first quarter of 2019. Net sales of the Company’s spices + seasonings decreased USD 12.9 million, or 15.0 percent, for the first quarter of 2020 as compared to the first quarter of 2019. Net sales of all other brands in the aggregate increased USD 5.0 million, or 4.0 percent, for the first quarter of 2020.

Gross profit was USD 104.9 million for the first quarter of 2020, or 23.3 percent of net sales. Excluding the negative impact of USD 2.3 million of acquisition/divestiture-related and non-recurring expenses during the first quarter of 2020, the Company’s gross profit would have been USD 107.2 million, or 23.9 percent of net sales. Gross profit was USD 88.1 million for the first quarter of 2019, or 21.3 percent of net sales. Excluding the negative impact of USD 13.1 million of acquisition/divestiture-related and non-recurring expenses during the first quarter of 2019, which includes expenses relating to the non-cash accounting impact of the Company’s 2018 inventory reduction plan, the Company’s gross profit would have been USD 101.2 million, or 24.5 percent of net sales.

Selling, general and administrative expenses increased USD 1.7 million, or 4.4 percent, to USD 40.0 million for the first quarter of 2020 from USD 38.3 million for the first quarter of 2019. The increase was composed of increases in selling expenses of USD 2.0 million and other general and administrative expenses of USD 1.7 million, partially offset by decreases in acquisition/divestiture-related and non-recurring expenses of USD 1.2 million, consumer marketing expenses of USD 0.5 million and warehousing expenses of USD 0.3 million. Expressed as a percentage of net sales, selling, general and administrative expenses improved by 0.4 percentage points to 8.9 percent for the first quarter of 2020, compared to 9.3 percent for the first quarter of 2019.

Net interest expense increased USD 2.9 million, or 12.8 percent, to USD 26.0 million for the first quarter of 2020 from USD 23.1 million in the first quarter of 2019. The increase was primarily attributable to an increase in average long-term debt outstanding during the first quarter of 2020 as compared to the first quarter of 2019, primarily as a result of borrowings made during the last three quarters of fiscal 2019 primarily to fund the Clabber Girl acquisition, to pay cash taxes resulting from the 2018 gain on sale of Pirate Brands and to fund the repurchase of shares of the Company’s common stock as part of the Company’s stock repurchase program, and the USD 100.0 million revolver draw made by the Company in March 2020 described above.

The Company’s net income was USD 28.1 million, or USD 0.44 per diluted share, for the first quarter of 2020, compared to net income of USD 16.8 million, or USD 0.26 per diluted share, for the first quarter of 2019. The Company’s adjusted net income for the first quarter of 2020 was USD 29.2 million, or USD 0.46 per adjusted diluted share, compared to USD 29.1 million, or USD 0.44 per adjusted diluted share, for the first quarter of 2019.

For the first quarter of 2020, adjusted Ebitda was USD 80.7 million, an increase of USD 4.9 million, or 6.4 percent, compared to USD 75.8 million for the first quarter of 2019. The increase in adjusted Ebitda was primarily attributable to the positive impact of the Covid-19 pandemic on the Company’s net sales, as well as the acquisition of Clabber Girl in the second quarter of 2019. Adjusted Ebitda as a percentage of net sales was 18.0 percent for the first quarter of 2020, compared to 18.4 percent in the first quarter of 2019.