Exhibit 99.2
B&G Foods, Inc.
Q4 and Fiscal 2004 Earnings Conference Call Script
March 2, 2005
Viavid Operator
Instructions/Introduction
David Wenner
Thank you. Welcome everyone to the B&G Foods fourth quarter and fiscal 2004
conference call.
Everyone on the call today can access detailed financial information on the
quarter in our press release, which is available on our website at
www.bgfoods.com.
Before we begin our formal remarks I need to remind everyone that part of our
discussion today may include forward looking statements. The statements are not
guarantees of future performance and therefore undue reliance should not be put
upon them. We refer all of you to our recent filings with the SEC for a more
detailed discussion of the risks that could impact our future operating results
and financial condition. We also will be making reference on today's call to
certain non GAAP terms like EBITDA and adjusted EBITDA. A reconciliation to GAAP
terms is provided in today's press release and our Annual Report on Form 10-K.
I'd like to start the call by asking Bob Cantwell, our CFO, to discuss financial
results for the year. After Bob's remarks I'll discuss factors that influenced
the fourth quarter, certain business highlights as well as some of the dynamics
we see going forward.
Bob Cantwell
Thank you, Dave.
First I will review the full year, then talk about the fourth quarter.
Net Sales
Net sales increased $44.4 million or 13.5% to $372.8 million for the year ended
January 1, 2005, compared to $328.4 million for the previous year. Fiscal 2004
had one less week than fiscal 2003. Our acquisition of Ortega in August of 2003
accounted for $44.2 million of the sales increase during fiscal 2004. Sales
increases were driven by higher unit volume in our brands as follows: Sales of
Trappey's increased $1.7 million, or 11.9%; Maple Grove Farms of Vermont sales
increased $1.4 million, or 2.9%; Las Palmas grew by $0.7 million, or 3.3%;
Polaner increased $0.6 million, or 1.6%; Underwood grew by $0.4 million, or
1.9%; and Emeril's brands increased $0.3 million, or 1.4%. Lower unit volume was
seen in our B&M Baked Bean brand, which decreased $2.2 million, or 9.0%; in B&G
pickle and pepper brand, which decreased $1.7 million or 3.8%, and in and our
Joan of Arc brand, which decreased by $0.9 million, or 7.8%. All other brands
decreased, in the aggregate, $0.1 million or 0.2%.
Gross Profit
Gross profit increased $9.7 million or 9.6% to $111.9 million in fiscal 2004
from $102.2 million in fiscal 2003. As a percentage of net sales, the gross
profit margin decreased to 30.0% in fiscal 2004 from 31.1% in fiscal 2003. This
decrease was primarily due to higher costs of packaging and certain commodities,
including maple syrup, meat, chicken and beans.
Operating Expenses
Turning to the year's operating expenses,
Sales, marketing and distribution expenses increased $3.7 million or 9.5% to
$43.2 million for fiscal 2004, compared to $39.5 million for fiscal 2003. These
expenses expressed as a percentage of net sales decreased to 11.6% in fiscal
2004 from 12.0% in fiscal 2003. The Ortega acquisition accounted for $5.6
million of the increase in sales and marketing expenses for fiscal 2004. For
brands other than Ortega, marketing costs decreased $0.9 million relating to
reduced spending on consumer marketing programs during fiscal 2004 as compared
with 2003. All other sales, marketing and distribution expenses, which primarily
include incentive compensation, decreased $1.0 million during fiscal 2004.
General & administrative expenses, including management fees, decreased $1.5
million or 22.6% to $5.3 million in fiscal 2004 compared to $6.8 million in
fiscal 2003. Fiscal 2003 included a bad debt write-off of $0.6 million relating
to Fleming Companies, Inc., which filed Chapter 11 on April 1, 2003. Other
decreases in general and administrative expenses in 2004 compared to 2003
included incentive compensation of $0.8 million and other expenses of $0.1
million.
Operating Income
In the fourth quarter of 2004, the Company incurred transaction related
compensation expenses of $9.9 million. As a result of these transaction related
compensation expenses, operating income decreased 4.2% to $53.6 million during
fiscal 2004 from $55.9 million in fiscal 2003. Excluding these transaction
related expenses, operating income increased 13.5% to $63.4 million.
Interest Expense
Interest expense, net increased $17.0 million to $48.2 million in fiscal 2004
from $31.2 million in fiscal 2003. Interest expense for fiscal 2004 included a
an expense of $13.9 million relating to the: write-off of deferred financing
costs, bond tender costs and payment of bond discount in connection with our
initial public offering. Interest expense in fiscal 2003 includes the write-off
of $1.8 million of deferred financing costs in connection with the repayment of
our then existing term loan B. Excluding these charges, the remaining interest
expense increase in fiscal 2004 of $4.8 million related primarily to an increase
in average debt outstanding as a result of the August 2003 acquisition of Ortega
and an increase in interest rates under our term loan versus fiscal 2003.
EBITDA and Adjusted EBITDA
I'd like to take a moment to discuss EBITDA and adjusted EBITDA, non-GAAP
financial measures that we have reconciled to net cash provided by operating
activities in our press release. Our EBITDA decreased to $60.3 million in fiscal
2004 compared to $61.9 million in fiscal 2003. On an adjusted basis, which
excludes transaction expenses, our EBITDA was $70.2 million. Again, I want to
emphasize that we had one less week in fiscal 2004 compared to last year and
while we experienced a number of cost increases in fiscal 2004, we did not see
the benefit of our price increases in the fourth quarter of fiscal 2004 and Dave
will speak to this shortly.
Fourth Quarter 2004
For the fourth quarter, net sales decreased 4.8% to $96.4 million in the
thirteen weeks ended January 1, 2005 from $101.2 million in the fourteen weeks
ended January 3, 2004. Gross profit decreased 18.6% to $26.5 million from $32.5
million in the comparable period last year. Operating income decreased to $3.9
million from $17.4 million in the comparable period. Excluding transaction
related compensation expenses, operating income was $13.8 million for the fourth
quarter of fiscal 2004. Adjusted EBITDA, which takes into account $9.9 million
of transaction related compensation expense, decreased to $15.5 million in the
fourth quarter of fiscal 2004 from $19.2 million in fourth quarter of fiscal
2003. The decrease in adjusted EBITDA is primarily attributable to one less
sales week, material costs that increased without the benefit of the announced
price increases, fuel surcharges and under-absorption of overhead due to
inventory reduction initiatives.
Capital Expenditures
Capital Expenditures in the fourth quarter of fiscal 2004 were $1.3 million and
$6.6 million for the full year. Most of our capital expenditures were for
purchases of manufacturing and computer equipment. We continue to foresee modest
capital expenditure requirements in the future.
Balance Sheet
Moving onto the balance sheet, we finished the year with $28.5 million of cash,
up from $8.0 million at the end of fiscal 2003. At year end had a little over
$408 million in long-term debt and over $92 million in shareholders equity.
Future Cash Needs Include:
Expected cash taxes in fiscal 2005 are $0.
Planned capital spending is between $6.5 and $7.0 million.
Annual cash interest expense for fiscal 2005 is approximately $39.1 million.
With our new capital structure in place, we made our first dividend payment on
the class A common stock and interest payment on the senior subordinated notes
on January 31st to holders of record as of December 31st, 2004.
As our SEC filings indicate per the Company's dividend policy, we intend to pay
quarterly dividends of 21.2 cents per class A share of common stock through the
first four full quarterly dividend payment periods following our initial public
offering, which was completed in October 2004. Please remember that dividends
are not mandatory or guaranteed and our dividend policy can be modified or
revoked at any time. In addition, the actual amount of dividends distributed
under the policy and the decision to make distributions is entirely at the
discretion of our Board of Directors. Further, any dividends must be permitted
by applicable law and the terms of our indebtedness. The interest payments on
the senior subordinated notes will be approximately 21.45 cents per quarter.
I will now turn the call back over to Dave for his remarks. Dave?
David Wenner
Thank you, Bob.
There are a lot of things to discuss on today's call, but before I get into the
issues facing the business, I would like to point out some of our
accomplishments is 2004.
First, the company completed its first full year of ownership of the Ortega
brand. This helped a set a sales record for the year - reaching $372.8 million
in net sales, a $44.4 million increase, or plus 13.5%. This was a major step
forward for B&G as a company, and allowed us to increase our adjusted EBITDA to
$70.2 million. It's important to point out that the EBITDA we are reporting for
the year is $60.3 million, but adjusted for transaction-related expenses, it
reached the $70.2 million number I just cited. The difference between those two
numbers was comprehended in the cash position of the business coming out of the
IPO transaction.
The successful completion of our EIS IPO is really the second major
accomplishment for the company. This provided our sponsors with a return on
their investment after nearly eight years of ownership but more importantly,
provided our employees with a sense of the future of the company. After nearly
20 years of ownership by financial sponsors, that is a welcome event.
When we look at the fourth quarter and full year 2004, it's important to
remember that 2004 had one less week of sales than 2003, and this negatively
impacted our year over year revenue comparison, although not as much as the
potential impact, which could have been just under 2%. We also did not realize
price increases in the fourth quarter as quickly as we anticipated. When
enacting price increases, even though they are announced broadly, they are
implemented on a customer-by-customer basis, and there is generally a lag from
the announcement to actual implementation. Because of this, most of the price
increases we initiated to customers for the fourth quarter weren't fully
implemented until the start of 2005, which is later than we expected.
With one less week in the fourth quarter, or nearly 8% less sales time, combined
with the lack of a benefit from pricing that I just mentioned, net sales for the
quarter were $96.4 million, down $4.8 million or 4.7%.
In spite of that, 9 of the 16 brands we track were up in sales for the year and
the overall business, excluding Ortega because of the incomplete comparison, was
up slightly versus prior year. Depending on your outlook on the business, that
could be a positive or a negative. We think of it as a positive, since sales
grew 3% on a same-week basis. Adjusted EBITDA for the quarter declined more than
sales, however, for the reasons Bob cited in his overview. Adjusted EBITDA was
down 19% or $3.6 million, to $15.5 million. The first factor, of course, was the
margin on the sales change, which we calculate to be roughly $1.5 million. As
I've said, we saw little or no benefit from the price increases that had been
announced previously, and which we hoped would lift Q4 sales and EBITDA. Cost,
meanwhile, hit us with full effect in a number of ways. Oil spiked in the fourth
quarter, causing fuel surcharges much higher than we had seen earlier in the
year. These surcharges added nearly $500,000 to our distribution and utility
costs in the quarter. Additionally we had referenced approximately $3.0 million
in annualized material and commodity costs on earlier calls - that increased
further in the quarter and in total impacted cost-of-goods approximately $1.0
million. Finally, implicit in our plan to reduce inventory was a reduction in
volume in the plants - aggravated by lower than expected sales - which resulted
in under-absorption of overhead of approximately $600,000.
Other expenses within the company were well under control for the year and the
quarter. Our G&A spending declined due to lower management bonus accruals,
offset by higher public company costs. Sales and marketing expenses also
declined, primarily due to the cost of a 2003 marketing program behind the
Emeril brand that we did not repeat in 2004. Much of that spending was in Q4 in
2003 and, although the program achieved the distribution objectives we had for
it, it was judged to be an investment we would not repeat in 2004.
As we look forward we have both pluses and minuses to deal with as a company.
Cost remains an issue - oil is spiking again, for instance, and fuel surcharges
are going up after backing down early in the first quarter of 2005. While we
have made progress in some areas - signing a contract for glass that should
yield significant savings this year, for instance - steel and other packaging
costs may see further increases. Commodity costs have leveled in meat and beans,
and we anticipate that beans at least will return to more normal levels by this
fall. Meat - primarily ham in our case - is less certain because the export
market is still being affected by the specter of mad cow disease. We anticipate
cost increases on our co-packed Joan of Arc line and perhaps others to a lesser
degree, and have already announced price increases effective April 1st to offset
those potential increases. And, of course, we face the steady increase in
benefit costs and new costs of operating as a public company.
None of that is to say we aren't being proactive to offset these issues. The
price increases we announced last year are fully effective now, and have been
for much of the current quarter. We have announced further price increases on a
number of our lines, including MGF maple syrup, MGF salad dressings, Joan of Arc
beans and Las Palmas products - all effective April 1st.
In addition, we continue to look for opportunities to improve the cost picture.
We have announced the closing of the New Iberia, Louisiana plant, planned to
take effect by July 1st. Trappey peppers and hot sauce, and Wright's liquid
smoke production will move to our Hurlock, Maryland facility and Brer Rabbit
molasses to the Roseland, New Jersey facility. This shutdown will involve an
approximately $600,000 cash charge for severance and other expenses, and modest
capex expense that will be funded out of our normal annual capex budget of $6.5
million to relocate equipment. We expect the plant closing to yield annualized
costs savings of at least $1.0 million. We are actively working with the State
of Louisiana and local businesses to place our employees in new jobs once we
shut down. There will also be a non-cash write-down on the property of up to
$3.1 million in Q2 2005. There is already interest in the New Iberia property by
prospective purchasers, however, and any sale would reduce that number.
On the brand side, we have strengthened a number of brands that had been
problematic in prior years. Polaner sales were up in 2004 after several years of
decline.
We expect the sugar-free line to accelerate that growth in 2005. B&M has
stabilized; the brand was down over $2.0 million in sales in 2004, but was up
20% in Q4 due to our new pricing strategy. We anticipate that B&G will have a
better year as well - the Foodservice business that suffered for most of 2004
has been doing better and aggressive retail programs are in place for key
holidays.
We are active on the new product front as well, introducing products in a number
of brands. We have launched new two SKU's in the Polaner sugar-free line and are
gaining distribution. B&M has introduced a new flavor - Boston's Best - that is
rolling out in B&M's core markets for the summer season. Ortega has introduced
five new items - a hard and soft taco dinner kit, a chili seasoning, a hot
fire-roasted diced chile product and, completely unique for the brand, a salsa
and cheese dip bowl product and a nacho cheese dip product. All of these
products are being slotted into grocery distribution; the two cheese products
are already in Wal-Mart Supercenters. There are other new items is the smaller
brands, such as new wine vinegars for Regina, but these are the major efforts to
drive top-line growth in the company.
Additionally, we are looking at how we allocate our trade and promotional
dollars in an effort to expand our slotting efforts in support of these
products. One source of those funds will be trade promotion dollars that are not
performing for us at retail. In that vein, we will transition a number of brands
to pay-for-performance trade spending this year. Because of this, please note
that as we pull back on these funds there will be a temporary dislocation of
sales that we will have to manage, especially in Q1, but the net end result is
expected to be a lower trade expense that we can redeploy to new distribution.
Our M&A efforts are gaining momentum, having been restarted after the IPO. We
have already passed on several potential acquisitions because valuations became
too high, but we are actively looking at a number of possible acquisitions.
While there is nothing imminent, it is entirely possible that we will do an
acquisition in 2005 - most likely a smaller property rather than a larger one.
Our company remains strong; we ended 2004 with $28.5 million in cash on our
balance sheet and made our first EIS dividend and interest payments on January
31st of this year. As a result of the many efforts we are making to counter
costs and increase sales in 2005 we believe that fro fiscal 2005 we will at
least maintain EBITDA at the 2004 level at the adjusted EBITDA of $70.2 million.
That statement is, of course, based on all the normal caveats regarding our
assumptions, the risk factors in our S-1 filing and barring extraordinary events
in our business or outside our business. Having said that, I can assure you that
it remains management's absolute priority to reach the $73.4 million EBITDA
referenced in the S-1 for 2005, and we will be working diligently to do so
throughout the year.
With that, I would like to open the call up for questions. Operator?