Title

Presentation

B&G Foods, Inc. beats earnings expectations. Reported EPS is $0.15, expectations were $0.09.

Operator: Good day, ladies and gentlemen, and welcome to the B&G Foods, Inc. Second Quarter 2020 Financial Results Conference Call. Today’s call, which is being recorded, is scheduled to last about 1 hour included 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 of Corporate Strategy and Business Development for B&G Foods. Please go ahead.

Michael Bauer: 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’s 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 the remainder of fiscal 2023. Bruce will then discuss our financial results for the second quarter of 2023 and our guidance for fiscal 2023.

I would now like to turn the call over to Casey.

Casey Keller: Good afternoon. Thank you, Michael, and thank you all for joining us today for our second quarter 2023 earnings call. Second quarter results continued strong profit and margin recovery. Adjusted EBITDA increased plus 26.4% versus last year to $68.5 million. Margins improved significantly with adjusted EBITDA as a percentage of net sales at 14.6%, increasing 330 basis points from Q2 2022. Base business net sales, which excludes net sales from the recently divested Back to Nature brand, were up slightly at plus 1.1% versus Q2 2022. On a 2-year stack, base business trends remained strong, up plus 0.38% [ph] versus Q2 2021. Some of the key drivers of the results, pricing recovery. In total, Q2 pricing realization, including product mix, contributed $54.1 million versus Q2 last year.

Pricing flow through to offset higher costs and inflation with Q2 gross profit as a percentage of net sales, excluding items affecting comparability at 21.9%, up from 16.5% last year. Almost all pricing actions have been implemented to recover total inflation in fiscal year ’23 and which is currently tracking at roughly 4% to 5%, well below fiscal year ’22 levels. Volume sales. Q2 volumes were down versus last year, offset by higher pricing. The major volume drivers were Crisco, Green Giant, price elasticities and to a lesser extent, retail inventory reductions. Excluding Crisco and Green Giant, which have unique factors impacting net sales performance, net sales of the remainder of our brands in the aggregate increased plus 3.6% in Q2 versus last year.

Specifically on Crisco, price elastities remain high, greater than one above the key $5 and $6 per bottle price point. We are reducing our net prices to reflect lower commodity oil costs and expect to drop back below key price thresholds on shelf during baking season this fall and project volumes to improve at lower price points. As previously discussed, the objective on Crisco is to maintain gross profit dollars and margin in a volatile commodity market. Second, Green Giant. Volume declines continue to reflect the discontinuation and rationalization of lower-margin innovation in the frozen portfolio, which we will begin to lap at the end of Q3. For shelf-stable products, we have also seen Delmonte [ph] and others become very aggressive on pricing and promotion to work down higher prior season pack inventories.

Supply and service. On a company-wide basis, customer service and fill rates improved during the quarter, reaching over 97% in June. We are on track to deliver above 98% CFR, our long-term target before year-end. Inventory. Total inventory decreased by $25 million to $675 million in Q2 from the ending position in Q1 and down $52 million from fiscal year ’22 year-end. We are well on track to reduce inventories year-over-year at the end of Q4 2023. The major drivers are unit efficiencies, lower soybean oil costs and a smaller seasonal pack on Green Giant shelf-stable versus last fall. For the balance of the year outlook, we expect a more modest year-over-year margin and adjusted EBITDA recovery in Q3 and to be relatively flat in Q4 against the strong last year.

Last year, pricing actions began to partially offset inflation in Q3 and fully recover higher costs in Q4. We remain on track to deliver within the communicated guidance of adjusted EBITDA in the range of $310 million to $330 million. We expect second half base business net sales to be between zero and plus 1.5% versus last year, an improvement from the first half trend of minus 0.6%. Cash flow generation was very strong in Q2. Net cash from operations was $62.9 million in Q2, increasing from negative $4.1 million last year, with year-to-date net cash from operations of $132.4 million. Pro forma net leverage came down to 6.74 times from 7.2n times in Q1. We are on track to continue to reduce leverage by the end of 2023, driven by adjusted EBITDA recovery, lower working capital and inventory needs and debt reduction from available cash flow.

Through June, we have reduced the principal amount of our debt by $147.9 million as compared to year-end. Further, the new business unit organization is becoming fully operational with multifunctional teams accounted for — accountable for and driving P&L performance for the portfolio responsibility. Finally, we continue to evaluate exiting businesses that have lower margin and cash flow, higher working capital complexity or do not fit with our core capabilities and BU structure with back to nature as the first step last January. There is a target list being worked to reshape the portfolio with no specified time frame, but we expect that any proceeds from divestitures would primarily be used to reduce long-term debt. Thank you, and I will now turn the call over to Bruce for more detail on the quarterly performance and outlook for the year.

Bruce Wacha: Thank you, Casey. Good afternoon, everyone. Thank you for joining us on our second quarter 2023 earnings call. As you can see, we had another strong quarter. For the second quarter, gross profit as a percentage of net sales increased by more than 500 basis points and adjusted EBITDA as a percentage of net sales increased by more than 300 basis points. We also had strong net cash from operations and improved balance sheet, including a continuing reduction in our net leverage as well as a slight uptick in our base business net sales when compared to the second quarter of last year. In the second quarter of 2023, we generated $469.6 million in net sales, $68.5 million in adjusted EBITDA, adjusted EBITDA as a percentage of net sales of 14.6% and adjusted diluted earnings per share of $0.15.

Base business net sales, which excludes net sales from the Back to Nature brand, increased by approximately $0.4 million or 0.1% in the second quarter of 2023 compared to the year ago period. Base business net sales remained robust despite our pricing activity and was up by $17 million or 3.8% on a 2-year stack basis. Pricing was obviously the big driver of our sales performance and contributed just over $54.1 million to our base business net sales. Volume declines largely driven by pricing related to elasticity and timing negatively impacted base business net sales by $52.1 million FX drove the remaining $1.6 million of decline. We continue to watch our volumes closely, particularly for brands where we have taken the most pricing. We expect the pace of our volume declines to continue to moderate as we head into the back half of the year and lap the majority of our price increases.

Driven in part by our pricing initiatives, our second quarter 2023 adjusted EBITDA increased by $14.4 million or 26.4% compared to the first quarter of 2022 to $68.5 million. Adjusted EBITDA as a percentage of net sales increased by approximately 330 basis points to 14.6% in the second quarter of 2023 compared to adjusted EBITDA as a percentage of net sales of 11.3% in the second quarter of 2022. While the levels of adjusted EBITDA increases are staggering, this is exactly what we said would happen as pricing would finally catch up to costs across the portfolio, particularly with brands that had major cost increases like Clabber Girl and Crisco. Also, supply chain disruption and logistics costs are continuing to normalize this year. And while we are seeing inflation across much of our portfolio, the pace of inflation has slowed, which is what allowed pricing to catch up with costs and restore margins to our P&L.

Net sales were mixed across the portfolio. Amongst our largest brands, Clabber Girl was once again one of the top performers in the second quarter. Net sales of Clabber Girl go were up by $8.3 million or 43.7% compared to the year ago period. Clabber Girl is continuing to see strength across all product lines, including baking powder, baking soda and cornstarch and channels, including branded retail, private label and industrial. Victoria recovered nicely from some of the pricing-related elasticity and promotional timing headwinds that it faced in the first quarter. Net sales of Victoria were up by approximately $1.6 million or 16.1% compared to last year. We feel very strongly about Victoria’s position as one of the leading premium authentic pasta sauces in America.

Net sales of New York Style were up by $1.3 million or 18.5% in the second quarter of 2023 compared to last year. With improved performance in our Yadkinville facility, we also think that this business will continue its recovery with a lot of upside. Net sales of Maple Grove Farms were up $0.6 million or 2.9%. Net sales of Prima Wheat were up by $0.3 million or 1.9%. Ortega, which had a challenging first quarter recovered in the second quarter. Net sales of Ortega were essentially flat for the quarter or down just $0.2 million or 0.5% compared to last year. While net sales of Crisco and Green Giant were both lower in the second quarter compared to the year ago period, the pace of decline has moderated significantly for both brands when compared to their first quarter performances.

Net sales of Crisco were down $4.8 million or 6.7% in the second quarter compared to the prior year, but were up $8.6 million or 14.6% compared to the second quarter of 2021. More importantly, contribution and contribution margins for Crisco were up in the second quarter of this year compared to last year, just as they were in the first quarter of this year compared to the prior year. Net sales of Green Giant were down $4.9 million or 4.4% in the second quarter compared to the prior year period, but were up $1.9 million or 1.8% compared to the second quarter of 2021. Following a very strong first quarter, net sales of our spices and seasonings business were down in the second quarter by approximately $6.4 million or 6.7% compared to last year.

However, net sales of our spices and seasonings business have increased by $2.1 million or 1.1% on a year-to-date basis. Base business net sales of all other brands in the aggregate increased by $4.6 million or 5.8% for the second quarter of 2023 as compared to the second quarter of 2022. Gross profit was $102.3 million for the second quarter of 2023 or 21.8% of net sales. Excluding the negative impact of $0.4 million of acquisition divestiture-related expenses and nonrecurring expenses, included in cost of goods sold during the second quarter of 2023, the company’s gross profit would have been $102.7 million or 21.9% of net sales. Gross profit was $76.5 million for the second quarter of 2022 or 16% of net sales. Excluding the negative impact of $2.3 million of acquisition, divestiture-related expenses and nonrecurring expenses included in cost of goods sold during the second quarter of 2022, the company’s gross profit would have been $78.8 million, a 16.5% of net sales.

Gross profit as a percentage of net sales, excluding the impact of acquisition divestiture-related and nonrecurring expenses was up by approximately 540 basis points in the second quarter of 2023 compared to last year’s second quarter. The improved margins were driven by increased pricing and a moderation in input costs and logistics inflation, representing a continued turnaround compared to the first 3 quarters of fiscal 2022, where we suffered from severe input cost inflation that was seen industry-wide and which led to large declines in our gross profit and margins. Selling, general and administrative expenses increased by $3.7 million or 8.3% to $47.9 million in the second quarter of 2023 from $44.2 million in the second quarter of 2022.

The increase was composed of increases in general and administrative expenses of $3 million, consumer marketing expenses of $2 million; selling expenses of $0.6 million and warehousing expenses of $0.1 million. These were partially offset by decreases in acquisition divestiture-related and nonrecurring expenses of $2 million. Expressed as a percentage of net sales, selling, general and administrative expenses increased by 100 basis points to 10.2% for the second quarter of 2023 as compared to 9.2% for the second quarter of 2022. As I mentioned earlier, we generated $68.5 million in adjusted EBITDA for the second quarter of 2023 compared to $54.1 million in the second quarter of 2022. The increase in adjusted EBITDA is primarily attributable to our pricing initiatives, which finally caught up to industry-wide input cost inflation and logistics inflation beginning in last year’s fourth quarter.

Adjusted EBITDA as a percentage of net sales was 14.6% in the second quarter of 2023 compared to 11.3% in the second quarter of 2022, an increase of approximately 330 basis points. Net interest expense was $35.8 million in the second quarter of 2023 compared to $29.9 million in the second quarter of 2022. The increase was primarily attributable to higher interest rates on our variable rate borrowings, partially offset by a reduction in our average long-term debt outstanding and a $0.8 million gain on extinguishment of debt as a result of the repurchase of our bonds. Depreciation and amortization was $17.3 million in the second quarter of 2023 compared to $20.5 million in the second quarter of last year. We generated $0.15 in adjusted diluted earnings per share in the second quarter of 2023 compared to $0.07 last year.

We remain very encouraged by the progress that we have made over the past year in terms of restoring our P&L. And in addition to our P&L improvements, we are also continuing to make progress in the improvement of our cash flows and our balance sheet. We generated $62.9 million in net cash from operations in the second quarter and $132.4 million in net cash from operations during the first half of 2023 compared to net cash used in operations of $4.1 million in the second quarter of 2022 and net cash from operations of $21.1 million in the first half of 2022. Increased operating profits, improved margins and more favorable working capital were the primary drivers of the improved cash from operations performance, which was offset in part by increased interest expense.

We reduced our inventory by another $25 million or so in the second quarter. Our inventory stood at approximately $675 million at the end of the second quarter, which is more than $50 million lower than it was at the start of the year. We have also reduced principal amount of our long-term debt by $36.9 million in the second quarter and by $147.9 million in the first 6 months of the year. During the quarter, we repurchased $24.4 million of our senior unsecured bonds due 2025 at an average price of 95.74% of face value. Additionally, we reduced our revolver balance by $12.5 million during the second quarter compared to the end of the first quarter. Our net leverage ratio, as defined by our credit facility has also improved, dropping below 7 times to 6.74times at the end of the second quarter.

We are focused on continuing to lower this ratio and over time, we do expect to return to our long-term goal of a ratio of 4.5 to 5.5 times pro forma net debt to adjusted EBITDA before share-based compensation expense. Our fiscal 2023 guidance remains dependent in part on many industry-wide or macro factors that have proven to be beyond our control over the last few years. However, through 6 months, we are largely on track to achieve the targets we laid out at the beginning of the year. We are adjusting our net sales target to $2.11 billion to $2.13 billion. Through 6 months, our net sales are essentially flat. We’re covering the worst of our expected elasticity drag. Our updated guidance reflects base business net sales performance of approximately 0% to 1.5% growth during the back half of the year.

And as a reminder, the recently divested Back to Nature brand contributed approximately $10.2 million of net sales in the third quarter of 2022 and $11.9 million of net sales in the fourth quarter of 2022. A primary driver in the adjustment in net sales guidance is related to Crisco, given that input costs have come down over the course of the year. Our initial net sales target assumed higher selling prices for Crisco. However, we now expect to be able to reduce selling prices for Crisco relative to their selling prices at the end of 2022, while still preserving our profits. Softer-than-expected volumes in our Green Giant cans and bag in the box business have also impacted the outlook for the year. Meanwhile, we are reaffirming our adjusted EBITDA guidance of $310 million to $330 million.

Adjusted earnings per share is somewhat dependent on movements in interest rates, but we are also reaffirming our fiscal year guidance for adjusted diluted earnings per share of $0.95 to $1.15 . The majority of the heavy lifting in our adjusted EBITDA margin and dollar recovery has largely happened. And as we mentioned in our previous curls, we expect improvements in the back half of the year to be somewhat more modest. We still do believe that our third quarter can show a modest improvement in 2023 versus 2022, while we also expect the fourth quarter of 2023 to look similar in many regards to the fourth quarter of 2022. For full year fiscal 2023, we also expect interest expense of $145 million to $150 million, including cash interest of $140 million to $145 million; depreciation expense of $47.5 million to $52.5 million; amortization expense of $20 million to $22 million, effective tax rate of 26.5% to 27.5% and CapEx of $35 million to $40 million.

Now I will turn the call back over to Casey for further remarks.

Casey Keller: Thank you, Bruce. In closing, Q2 results demonstrated strong year-over-year improvement with pricing covering inflationary costs, improved margins and a reduction in leverage. We remain on track to achieve fiscal year ’23 guidance of adjusted EBITDA and adjusted diluted earnings per share as well as deliver improved base business sales trends in the back half of the year. This concludes our prepared remarks, and we would now like to begin the Q&A portion of the call. Operator?

Operator: Thank you. [Operator Instructions] Your first question comes from Andrew Lazar from Barclays. Please go ahead.

Andrew Lazar: Thanks a lot. Good afternoon, Casey and Bruce Andrew. I guess, first off, I’d love to maybe explore a little bit further the relationship between sort of volume and price that you expect on the base business in the back half. I think you said base business sales flat to up 1.5% in the second half. It sounded like you still maybe expected volumes to be down year-over-year, but at a more modest pace than what you saw, obviously, in the first half. So correct me if I’m wrong there. But if that’s the case, it means you still expect, I guess, some year-over-year benefit from pricing, even though I know that Crisco pricing on a pass-through basis is going to be coming down. So I’m just trying to get a sense of maybe the magnitude of some of these things.

I guess are you still expecting a positive price benefit even with the Crisco adjustment and volumes to still be negative? So I’m trying to get a sense of how those work out. Because obviously, it looks like some of these things should invert on each of these metrics versus what you saw in the first half just because of the comps and such?

Casey Keller: Yes, right. So I guess if I take – let’s take Crisco side, if I look at the – the balance of the business, excluding Crisco and Green Giant because those are different factors. We’re kind of seeing elasticities with the pricing in that 0.7 to 0.8 range that we’ve talked about before. And we still expect to get some — we’ll get some pricing benefit for the remainder of the year because we’ll be lapping that for some portion, but we’ll probably have some elasticity impact, but we expect that year-over-year kind of differential to be lower. On Crisco, I think what’s going to happen is pricing will come down because commodity costs, oil costs are lower in the back half of the year, particularly, I think starting in August, September going into the vacant season you probably see volume trends improve, but pricing will be down.

So these things are kind of all going to net around each other to deliver some better improvement in the sales trends, but it will be different. We’ll have different trends going on between Crisco and the rest of the business. And on the Green Giant business, we lapped some of the rationalization we did at the end of Q3. So a lot of moving parts, Andrew, I know to say that. But I think overall, we’re seeing elasticities on most of the business where we expected Crisco, a little bit higher with a very higher pricing, but we expect as the price comes down, going to taking season that volume and pricing will kind of volume trends will get better, pricing will obviously be another factor.

Andrew Lazar: Okay. And then a number of peer food companies have reported over the last 2 weeks. And it just seems like in kind of the very recent past, some have seen, I don’t know, some changes in consumer behavior, right, that are a little less positive. Promotional activity starts to ramp up as partly as would be expected as capacity sort of loosens up and constraints ease and whatnot. But elasticity sort of ramp up a bit. Just trying to get a sense if you guys have seen any sort of discernible changes in some of those things for you, consumer behavior. Some have talked about consumers sort of hunkering down a little bit more or protecting their — I think as Kelly said today, zealously protecting against waste, things like that. And also we’ve seen some destocking at retail, which I think you mentioned briefly. So maybe you could just cover off on some — any changes you’ve seen in those behaviors more recently as it relates to your business?

Casey Keller: Yes. I would say on Crisco, we’ve seen a higher elasticity because we hit kind of big thresholds that we’ve never seen in the category before. So $5, $6 for a bottle of oil. I mean we’ve never seen that before. So we saw elasticities higher there. On the rest of the business, I’m not so sure it’s that different, maybe slightly higher in terms of elasticities. But overall, what we are hearing from consumers in some categories is that they are kind of stretching out their purchases. So they might have been kind of maintaining more inventory in the household on spices or on oil bottles, they’re now doing that less and kind of basically stretching the purchase cycle out. We hear that a little bit in terms of how people change behavior — we hear that there — they have made on the margin, particularly when prices are really high relative to history, they are making some trade down to private label.

We see that in the oil category at these high prices. Hopefully, as we bring the price back down, we’ll see some of that recover. But we are hearing those kind of themes from consumers as we talk to them about, and it varies by category, but we are hearing that consumers are kind of stretching out their purchases, running down their home inventories and responding when prices have gone really high and maybe making some marginal trade down kind of behavior.

Andrew Lazar: And I think that’s kind of a continuation of what we were seeing in the first quarter and throughout the year as opposed to some radical shift that just happened over the last couple of weeks?

Casey Keller: And we’ve seen some customers kind of taking inventory levels down which, by the way, is what we’re doing. So we’re not shocked by that. But I would say that’s a smaller extent to the other things that we’re talking about.

Andrew Lazar: Thanks so much.

Operator: Thank you. Your next question comes from Michael Lavery from Piper Sandler. Please go ahead.

Michael Lavery: Thank you. Good evening. Just was wondering if you could touch on unmeasured channels or maybe any — you mentioned a little bit of inventory destocking, but your reported number was a few points ahead of what we’re seeing from the consumption, the scanner data sell-through. How should we think about how that looks in 3Q or the second half? Does that reverse? Or any kind of thoughts on what the drivers were and what’s ahead?

Casey Keller: Yes. I mean I think – I think there wasn’t a massive difference, at least as we see it between the consumption data and shipments, both pretty tight where we see differences is we’ve got 8%, 9% of our sales outside of the U.S., mostly in Canada. For some of our businesses, particularly spices and foodservice, there’s a — it’s going into an untracked channel and then much lesser degree, but certainly within spices with our partnership brand in Cobega, we do have some through private label. We think we’re generally pretty close to the consumption data. And in this quarter, we didn’t think we were radically different.

Michael Lavery: Okay. That’s helpful. And just on the balance sheet, you mentioned some of the debt you paid down in the quarter. Is there any sort of cadence should a similar amount be likely any given quarter? Or how should we think about just the progression there?

Casey Keller: Yes. Typically, our third quarter is an inventory build, which will lead to maybe a little bit of an upturn in leverage. I think our pack is going to be smaller this year, so it won’t be as pronounced as it has been in other years. And outside of that, we typically like to burn inventory and reduce leverage. Our goal is to keep bringing leverage down.

Michael Lavery: Okay, great. Thanks so much.

Operator: Thank you. Your next question comes from Nik Modi from RBC Capital Markets. Please go ahead.

Nik Modi: Thank you. Good evening, everyone. Just a few questions on my end. I mean just going back to the threshold pricing on the Crisco business. Do you think that, that kind of thought process is also relevant in other segments of the packaged food categories and across your portfolio. I mean we’ve seem to have crossed some critical thresholds for a lot of different subsegments and categories. And so I just would love to get your thoughts on that. And then the second question is really out-of-home versus in-home, would love your point of view on what you’re seeing in the market right now in that regard.

Casey Keller: Yes, on the first one, I mean, honestly, I’ve been in this business for a long time. It’s always been true that price retrans drive higher elasticity. So consumers respond to the big dollar points. And it’s true in almost every category. And that — so you might have like under $5 — between $4.50 and $4.80. — you’re not going to get a huge kind of change in the last. But if you cross $5, consumers would say that’s a threshold and they react differently. And we’ve seen that predominantly in the Crisco business as we’ve gone over some big thresholds that consumers have never seen before. But even on some other categories where we’ve taken pricing, one of the things we’ll do is look at that when we cross the threshold and trying to understand how consumers behaving.

In some cases, if we have some commodity relief, we will take it back down below the threshold because we see higher last. We’ve done that on a couple of things, not universally, but we’ve done a couple of things. So that dynamic is definitely true in the Food segment right now. There’s no doubt as you cross our threshold that consumers behave a little bit differently. The elasticities tend to get a little higher on that marginal move. What was your second question, I’m sorry?

Nik Modi: Yes, it was just out of in-home dynamics, I was curious what you’re seeing.

Casey Keller: I mean, honestly, this is sort of — this is a moving dynamic as we’ve come out of COVID or because I think people forget that last year in the beginning of 2022, we had Omicron and we had a lot of stay-at-home behavior in the first quarter. So we saw a big increase in foodservice year-over-year in the first quarter as people were kind of going back to eating out of home on a more regular basis. We still saw a little bit of that trend going on in Q2 on the foodservice out-of-home business. But what we’re starting to see in the last couple of months is maybe a slowdown in traffic in some of the out-of-home channels and food service outlets. I mean it’s going to vary by customer by outlet. But we — but I think it’s kind of stabilizing year-over-year in the back half of this year.

And depending on what happens with the economy. I mean, if the economy turns down a little bit, and we go into sort of stagnation or a mild recession, I think you’ll see consumers shift back to in-home versus out-of-home. But right now, I think it’s more normal with some signs that we need to watch about maybe food service traffic slowing down. Does that help?

Nik Modi: Yes. Thank you so much. I’ll pass it on.

Operator: Thank you. Your next question comes from William Roder [ph] from Bank of America. Please go ahead.

Q – Unidentified Analyst: Good afternoon, Just thinking about a couple of potential tailwinds next year. When you look at your basket of food prices and where they are at this point and let’s kind of avoiding the Crisco issue and the resets and price that happened there. Do you have a sense for whether as a whole, your cost could be lower from an input cost perspective next year and a magnitude for that?

Casey Keller: It’s hard to say that it would be lower at this stage, but certainly, the pace of inflation has significantly decreased. And there are — you’re throwing one out with Crisco where the costs are lower than they were last year at this time, which is great, which is allowing us to adjust price, which should be good for volumes. Logistics costs are lower than they were last year, diesel fuel lower than it was last year. But we are still seeing some modest inflation across kind of the portfolio as a whole.

Q – Unidentified Analyst: Got it. And then…

Casey Keller: We’re kind of expecting — I mean right now, we’re modeling kind of this year, inflation year-over-year is more like 4% to 5% versus the 20%, 21% last year. Next year, we’re looking more in like the 3% to 4% range early on. That’s kind of the early outlook we can see from a few commodities. But obviously, that’s going to change in the next 6 months.

Q – Unidentified Analyst: Yes. Okay. Understood. And then I guess, secondarily, I know some retailers reset their shelves in twice a year and some do it kind of in the August time frame. Were there any resets that either benefited you or where you lost sales space kind of this end of the summer for all?

Casey Keller: I mean the resets happen at different times during the year in different categories. So we have some of the frozen sets getting reset now and kind of in August, and we’ve fared reasonably well. Most of our new innovation has been accepted in shipping in and our total distribution points look pretty stable year-over-year. So that’s the one that I know about is actually moving. We haven’t seen — some of the other category, big categories, we haven’t seen a lot of changes. But some of those happened earlier this year. So we’re already through those. And we just — I think the big one we’re going through right now is the frozen portfolio.

Q – Unidentified Analyst: Got it. Okay. Thank you.

Operator: Thank you Your next question comes from Hale Holden from Barclays. Please go ahead.

Hale Holden: So I had two questions. One is maybe a little bit more color just on the volume weakness in spices in the quarter, if there’s anything specific to read in there or anything we should be thinking about?

Casey Keller: Honestly, I don’t think so. I think it’s really a tale of how the first 2 quarters lapped what they lapped last year. So I don’t really half you remember, in the first quarter of last year, we had really low service levels in our spices business. Our factory was having trouble running. We had Omicron call-outs. We were really not shipping very well. So you saw you producing. We really had production and service profits in the first quarter. So you saw our first quarter numbers were a huge growth year-over-year. In the second quarter, because we went down there got everything back up and running kind of in the April, May time frame. In the second quarter, we were refilling pipeline with customers, inventories with customers.

So we actually shipped kind of ahead of consumption in the second quarter last year. This year, we’re lapping that. So I think, as Bruce said, so you saw a big growth in the first quarter, a decline in the second quarter. The net of that was over 1% growth over the first half of this year. So I think we’re fine. It’s just a matter of how the business is flowing versus the problems last year in production and service. And I expect that you’re going to see growth in the second half of the year. We do have actually some resets happening on spices coming up very shortly, which we’re very positive. We’ve had good acceptance of some of our new items. And so I feel good about the second half and how it’s going to flow.

Hale Holden: Got it. And then on the second half, I fully understand the Crisco discussion, so we just take that off the table. For the base business ex Crisco, you sort of talk through the puts and takes on volume pricing and the improvement or normalization and volume that you’re looking at? And how much risk do you think or tail risk you think there is in that part of the equation?

Casey Keller: I mean on the rest of the business, ex Crisco, I think it’s — we’ve said to you last 7.8%, what’s going to happen is we’re lapping the pricing. So we’re lapping the price increases last year. So the differential in pricing on the rest of the business will be smaller because we had fewer and fewer pricing increases in the back half of last year. We kind of — most of them happened through July, some in August. I guess the last one was in October 1. So as we lap, we’re going to have less pricing benefit, but I expect it will have less volume decline because those 2 are working with each other on elasticity. So basically, on the — forget Crisco for a second, and I guess this is what I was trying to say with Andrew in the start of the call, we expect lower pricing benefit, but lower volume declines in the back half of the year as we’re lapping as we’ve lapped most of the big pricing actions, and we’re no longer kind of have this huge pricing differential versus the year ago period.

Does that help?

Hale Holden: It does help. And I apologize for asking almost the same question Andrew did maybe..

Casey Keller: I don’t think it was clear enough with Andrew…

Hale Holden: All rght. Thank you, guys Appreciate it.

Operator: Your next question comes from Connor Rattigan [ph] from Consumer Research. Please go ahead.

Q – Unidentified Analyst: Good afternoon, guys. Thanks for taking the question. So we talked on other reporters about a more challenging promo environment emerging with select brands, opting to dial it promotions. And I mean you called out Delmont in the prepared remarks. And just I guess, in the data that we’re seeing private label looks to be continuing to gain share across your portfolio. And just, I guess, how should we sort of think about the trade-off of price realization and promo activity in the second half as it relates to frequency and intensity.

Casey Keller: Yes. So a couple of things. Certainly, as we started this year or laid out the plans for this year, we kind of expected a lot to happen as it did, which has massive massive prices increases to protect margin, right? Last year was tough. And we knew that, that was going to cost those volumes, and it did. And I think you’re seeing that across the packaged food universe, but that’s something that we very much expected. And as part of our game plan, we had to restore EBITDA and EBITDA margins. I think specifically with regards to private label and promotionary environment, both increasing both probably lower than they were in 2019, certainly on the promotional side. It’s going up. It’s kind of gone up over the last year or 2, but we’re still at lower levels than we were in 2019, and it’s been somewhat steady and not half hazard.

With regards to private label, private label is recovering share. There’s areas where it’s increased as price points were across. So Casey referenced the Crisco vegetable oil versus private label. Certainly, that’s an area where private label picked up some share as price points come down, we would expect that to moderate or possibly reverse. But we’re also still seeing private label at levels generally lower than where they were at the beginning of the pandemic. Something — both things that we need to continue to watch and monitor, but I don’t think there’s been any sudden changes at least that we’ve seen.

Q – Unidentified Analyst: Okay. Great. And then also just one more for me. Just wanted to check in on the portfolio strategic review. I just want to see, are you guys continuing to evaluate brands or categories just in the context of divestitures? Or is that largely concluded with Back to Nature.

Casey Keller: We’re continuing to evaluate — we’re B&G. So we tend to do a fair amount of M&A. We’re always looking at things. Right now, we’re probably more focused on what makes sense to prune in the portfolio and as it becomes appropriate to talk about it, that’s what we’ll do.

Q – Unidentified Analyst: Okay. All right. Sounds great. Thanks, guys.

Operator: Thank you. Your next question comes from David Palmer from Evercore ISI. Please go ahead.

David Palmer: Thank you. Casey, I remember you wanted to get more to a sort of a real-time pricing pass-through with the Crisco business, maybe limiting profit dollar volatility even if we were to continue to see sales and margins ebb and flow, could you talk about maybe what you expect from that brand in terms of profit dollar contribution per quarter on a normalized basis if there is such a thing?

Casey Keller: I mean, honestly, we have our new pricing model that we implemented kind of at the end of last year is working beautifully. We’re maintaining the gross profit dollars pretty consistent with where we want to see them. And margins have been pretty close to. Obviously, you have an effect when you have much higher sales and higher pricing, but those gross profit dollars have been very strong. So the new pricing model, commodity-based pricing model is working. So we get pricing reflected within 60 days. We agree on the market price with the customers. And that’s what we price to. We buy consistently with the windows so that our purchases and our pricing are kind of matched up. But we expect to deliver at or better than the EBITDA and gross profit that we bought the Crisco business at with this pricing model. And so far, that’s really working well.

David Palmer: Yes. Maybe it’s a suggestion because one of the comments you made in the opening remarks was how your business was doing Green Giant and Crisco because those businesses are different in their price pass-through mechanisms. And if you were to describe those businesses differently in terms of sort of the profit capture and say that, that’s your target but also give more big description of that, that would be helpful and probably align with how you’re looking at your business. But just a suggestion?

Casey Keller: But I think we – we haven’t really disclosed individual profitability by brand. But I could tell you that despite the fact that Crisco sales were down in the second quarter, our gross profit and our EBITDA was way up on that business.

David Palmer: Yes. I mean in the near term, just thinking about your — the ebbs and flows here, you’re talking about taking down prices for Crisco. But if we look at the charts for edible oil, they spiked up lately. So it seems like obviously, 60 days of lag can make all the difference in the world. So it’s wild that you might be contemplating in 60 days another price increase for the spike that happened. Could you just give us a sense of how this works?

Casey Keller: Yes. And by the way, we have to be out buying oil 60 days in advance — at least 60 days in advance when we’re selling it. So let’s say, we agree on a window with the trade that we look at the price of oil — the cost of oil. And we agree that, that’s the cost of oil that we’ll base our pricing off of, and we agree to that level with the customer. We are already — we have already bought a lot of that oil at that price point in that range or buying it at the same time that we’re talking to them because we can’t — we have to have oil kind of being delivered to be able to produce it on a 60- to 90-day window — so the 60-day window, yes, the price can change. But then after we implement that new pricing, then we’ll start after every quarter, we’ll go back and reset that market mechanism with the trade.

So it works pretty well. I mean yes, there’s obviously a little squiggle here and there, but for the most part, it really aligns our cost at our market price to maintain our kind of our gross profit. Does that help you understand

David Palmer: Yes, yes. No, I think I think it makes sense, and it will be good if you can — if you’re stabilizing those dollars like you say, I think it will be a big difference from the past.

Casey Keller: I mean this is our pricing — this is our third pricing kind of window with trade and so far, it’s worked well.

David Palmer: Thank you very much.

Operator: Thank you. Your next question comes from Carla Casella from JPMorgan. Please go ahead.

Carla Casella: Hi. Thanks for taking the question. ‘m wondering if you’ve done any more buybacks bond buyback since quarter end?

Casey Keller: So if we did, we wouldn’t be able to disclose it on the call.

Carla Casella: Okay. And then you mentioned you’re always active in the M&A market. Can you just talk about where you think that market is? I know there had been some talk before that buyers than sellers have different ideas in pricing? Is the market getting more rational today?

Casey Keller: There’s been a lot of chatter and people talking about deals that might come to market. There hasn’t been a lot of stuff that’s been completed. But certainly, the level of dialogue seems to be picking up. So we’ll see.

Carla Casella: Okay. Great. And then how much of your business overall is typically foodservice?

Casey Keller: It’s certainly less than 15%.

Carla Casella: Okay. And then just one last one. You were talking about private label and their share. What is — has the pricing gap between your branded and private label change dramatically today? Or do we say it’s a kind of a healthy balance?

Casey Keller: I mean we kind of target differentials of private label in different categories kind of in a percentage basis on an absolute dollar basis. But I think what’s happened in a couple of categories is where you’ve had really big inflation and the prices have gone up a lot, like $1 $2 that even though that percentage differential to private label may be the same as it was before, as the absolute higher price point, people are saying, well, on the margin, a few people are trading down to private label. That is what we hear and see in the data. So it’s just a matter of when people might make a different decision at $5 a bottle than they would at $3.50 a bottle when the percentage difference to the private label might be the same at $5 versus the 350, but that absolute dollar outlay they might say a trade down. But that’s on the margin. You see a few consumers doing that on the margin.

Carla Casella: Okay, great. Thank you very much.’

Operator: Thank you. Your next question comes from Robert Moskow from Cowen. Please go ahead.

Robert Moskow: Hi. Thanks for the question I wanted to know whether you’re seeing different behavior by different cohorts of consumers. You have a lot of brands that I do think target lower-income consumers. And I want to know if you’re seeing more sensitivity in that group than you are in other brands. Another way of saying like where are you most exposed to that low-income cohort? And is it more sensitive these days? Or are you doing okay in those brands…

Casey Keller: Yes. I think there’s probably pluses and minuses, maybe on the bias of a tailwind as we think about downturns in the portfolio that we’ve had over time. I certainly don’t expect if the economy slows that we get any kind of benefit like we had during COVID, but historically, the portfolio is kind of done just fine during a downturn. I would expect that to continue here with as many pluses and minuses.

Bruce Wacha: I mean, I guess, Rob, I would say that I’m not sure that our product line is really skewed towards lower income consumers. It’s more kind of middle income, broadly distributed broad penetration. So we don’t really see like a big differential in the cohorts. I mean lower income consumers as part of our total portfolio purchases might change slightly, but we don’t have brands and businesses that really are skewed heavily down there. I mean what Bruce just said is, I think, true we do see patterns where when the economy kind of turns down a little bit, we see people move their eating habits from out-of-home or food service to in-home. And that’s been true historically in every downturn. And that’s what — I kind of referenced that a little bit.

We’re hearing a little bit of that from some of our foodservice operators that they’re seeing traffic slowing down a little bit, maybe consumers are kind of belt tightening and making decisions on the margin to maybe move from where they were in the last 6 months on food service or out-of-home consumption to maybe moving a little bit more in home. And I think that trend will get even more pronounced if the economy kind of slows down here. So we get benefit from a slower economy as a portfolio.

Robert Moskow: Okay. Thank you.

Operator: Thank you. There are no further questions at this time. You may proceed.

Michael Bauer: Thank you, everyone. I appreciate you getting on the call and all of the questions, and we look forward to talking with you next quarter.

Operator: Ladies and gentlemen, this concludes your conference call for. We thank you for participating and ask that you please disconnect your lines. Thank you..+