BGS
#So just to make sure I understand your question, on a go forward basis on kind of our target.
Right.
I mean as we look at 2017, we are certainly looking at $100 million plus, but I want to couch that to say we really believe the sales volume on this business will start moving in a big way starting in 2017, maybe get a little bit of it in 2016, but really relaunching this brand in 2017.
And that sales volume is just going to incrementally add on top of that $100-plus million in a big way to the bottom line.
So, we are really excited about where this brand can be by the end of 2017, early 2018 and really what has moved the needle on this brand.
And this brand was a lot bigger three to five years ago than it is today.
We are getting a really good feeling.
It's not going to be easy, but we have an iconic brand and it's not just the brand.
This is an iconic figure that supports this brand that, in addition, we have got to have all the innovation and all that stuff, and all that stuff has to happen, too.
We just can't support the brand as is in a big way and move the needle.
But all that is happening, and this brand has some real upside as we get through 2017 and 2018, and that is going to be upside to the bottom line, too.
I think it's the competition.
I think Pirate's Booty is a sought after product, so even a lot of the competition that comes and goes and shows up, Pirate's Booty has its rightful place.
As we look at Pirate's Booty going forward as a branded retail Company, it is our third-largest brand behind Green Giant and Ortega.
It's a very important brand in our portfolio.
Originally, when we bought this business we thought we had potentially a lot bigger upside.
I don't want to say we can't get there by getting into other categories.
But we are not going after other categories in 2016.
We are going to concentrate harder on moving distribution.
We spent too much time the first two years of ownership really concentrating on a lot of new things and thinking about what category to try to move into.
We are going to sell what sells and really kind of fill out the distribution.
But with all of that, this is a brand that on a go forward basis for us, unless we get into another large category, is going to continue to grow for us, but that growth is going to be 2% to 5% unless we jump into a much larger category, another category, and launch this brand in a different way.
So, within our plans, we see this brand continuing to grow, fill out distribution, make sure it's everywhere it's supposed to be and support what it is, but not try to get too creative.
And that means certainly supporting additional products within the same category, what we are trying to sell today, whether it is flavor or something else, but not go after another another whole category like we went after Mac & Cheese or trying to get into cookies or something like that.
We don't separately disclose that because it rolls through a central organization here.
But, what Green Giant brought to the table was, we are looking at a business that is going to generate EBITDA percentage of about 18% for us.
17%, 18% a year is what Green Giant is going to generate, and we didn't see anything different.
This was a brand purchase that really comes with a plant in Mexico, making product specifically for Green Giant.
And because it is brand purchase, we are not getting other pieces of business.
We are not getting General Mills people, we are not getting General Mills facilities that we are closing down, etc.
So we buy this on kind of what we believe ---+ what we know our EBITDA can be operating this business.
There's not really synergies to come on this business.
It's not like we are getting rid of corporate offices and things like that, which is typical, which is pretty much almost everything we buy.
Anytime we buy a brand from a large food company, we are not really getting those kind of synergies.
We are just ---+ we are taking things on as is.
And effectively on Green Giant, we are actually ---+ which was all in our numbers that we put out to the Street, we are actually adding marketing.
We are doubling the marketing they were spending.
We are adding people to support that brand internally.
So it wasn't really a synergy play.
This was really bringing in a large iconic brand into our portfolio that we think we can do good things for many years to come with.
Okay, so we own it.
We didn't launch it.
It was poorly launched.
Packaging is not done well.
Product doesn't look right.
The packaging honestly looks too squatty.
Even though the ounces are there, there's just not enough ---+ the package just doesn't look right to the consumer.
So part of the relaunch of Green Giant is really fixing that and introducing a whole bunch of new innovation and really launch this right.
And it was just kind of thrown out there by the former owner.
So it's hanging in.
It's just not really doing anything.
It wasn't the right approach to launching the product.
As you look at base B&G, you pull Green Giant out, what investors hopefully understand about B&G is we're going to grow our business, our 40 plus brands, hopefully 1%, 2% a year, which kind of rolls to our bottom line, and plus there are some cost savings from distribution and other things, and hopefully those cost savings more than offset cost increases, and you get a little bit of incremental EBITDA pickup on that.
And then we are really rolling Green Giant in.
Now, Green Giant for the two months in sales in November and December, I think it was $106 million.
So it's a big time of the year that we actually bought Green Giant.
So Green Giant was a benefit, certainly a nice benefit to B&G in the fourth quarter.
But we are a manager of brands.
We think there's a lot of upside potential in Green Giant as we look at it, some real sales and EBITDA growth as we go forward.
But for the rest of our portfolio, it's going to be typically that 1%, 2% growth hopefully on the top line when you put the whole portfolio together, and then on the bottom line, hopefully you can do a little bit better than that just because you have shrunk some costs and you've done some things better than just purely as a percentage of net sales.
2% to 3% ---+ just to make sure, 2% to 3% of our total delivery (multiple speakers)
Of our cost of goods, yes, that we are working towards, yes.
But again, that offsets some other expenses, such as increase in medical and giving people raises in our plants and corp.
So it does ---+ it historically has more than offset and given us some ---+ gained us some efficiencies in total.
But it's not 2% to 3% dropping to the bottom line.
Well, to answer the delevering, as part of what we just recently did is really part of who we are.
What investors should always expect from B&G is we do accretive acquisitions.
We are buying brands that fit our portfolio.
We are buying them for multiples way below what we trade at.
We increased the dividend.
We share upwards of 60% of that free cash flow from the acquisition back in the form of dividends to shareholders, and that is just what we announced three nights ago, raised our dividend 20%.
And then consistent with past practice following acquisitions, we consider and we are looking depending on market conditions issuing common stock and using some of the proceeds to reduce leverage.
Because we are not going to reduce leverage because we give out, give or take, 60% of our free cash flow in a big way.
Even though we are a tremendous cash generator, we are sharing 60%-ish of that cash back in the form of dividends to shareholders.
So we have historically looked to the market to raise equity to kind of reduce leverage and reload the balance sheet to be able to do the next acquisition tomorrow.
So it's part of a Board conversation and part of where market conditions are, and we seem to have always picked the right spots before, and hopefully we will make the right decision again.
And that's what hopefully investors expect us to do.
So right now 58 million.
A little over 58 million, right.
Slightly above 58 million.
58 million, yes.
Well, we certainly have some upside from everything you just said there.
We are looking at this and putting something out to the Street consistent with how B&G has looked at its business over the years.
And certainly, you are absolutely right.
We are seeing commodity ---+ the only place we get hurt, and it's not going up, is nut costs really haven't come down from where it has ratcheted up through 2015.
But we don't see it actually going up on us in 2016, and maybe there's a little tiny relief on nut prices.
But across the board, most commodities are down.
We are really not commodity intensive in anything, so it's not a huge dollar amount.
But certainly it is a benefit to our P&L.
Get a huge benefit on purchasing maple syrup.
We give up a decent amount on our target Canadian business because the exchange rate affects it the other way on everything we do in Canada.
And with Green Giant, our Canadian business in Canadian dollar sales, about 135 million dollars now.
So, it's meaning ---+ so $0.01 on the exchange rate is more and more meaningful to us.
But you are absolutely right.
The net effect is we expect our costs to be down.
We are seeing that a lot of places.
We certainly see it in fuel surcharges and in our freight costs, and that certainly trickles down and helps our plants in energy and all of that, and some of that also helps us in packaging.
So, hopefully we can have a bigger and better year than what we are expecting as of today.
We are not increasing promotional spending at all, so on any of the businesses.
We don't see a need to do that.
Nobody else is doing that, and we don't see a need to do that.
We are not seeing (multiple speakers)
Well, base business is certainly not going down, and that plan and that guidance has base business going up a little over 2%.
And there is ---+ as you were saying, there's some upside from cost ---+ further cost reductions on that base business, and also those cost reductions certainly help Green Giant, too.
But certainly there's marketplace cost reductions that should help us as we go through the year.
Sure.
Well, certainly there's a lot of distribution to be gained.
So ---+ and there's two pieces of the distribution.
One is, in key customers, certain items have been lost over the years.
We need to get those back.
You don't easily get those back unless you're coming into that buyer with new innovation for distribution.
And really the goal is you are walking into that buyer and selling them some innovation and getting five new innovative SKUs in, and then saying to the buyer, you need these three bags of corn and peas that for some reason you don't have today in a certain size.
But you need the innovation to really try to get some of the basic core vegetables back in, not that they're out.
There are certain customers that lost distribution through the former seller, and there are certain customers that are ---+ large customers in the US that have not lost distribution, and Green Giant is actually performing very well.
So again, we have built into our model paying to get back into that distribution.
We may use some trade money to support that distribution early on as we are building a bigger spend plan for consumer marketing.
So 2016 is really fixing the foundation and fixing the core, and we are really looking to work very hard to get that done, and really kind of build the shelf back or build the freezer set back.
So that's really the bigger plan for 2016, in addition to getting everything ready and putting the major effort into really having an innovation pipeline and being able to be in the market with new items later this year in a big way, along with a real big marketing campaign that we are either going to launch in the fourth quarter or at the beginning of 2017.
We just got to figure ---+ and really, we want to launch that marketing campaign to support distribution gains in a big way and really just relaunch the brand in a big way and really push that.
So there's a lot of blocking and tackling in 2016 that we are really going through.
That was in our plan all along, and that is what we need to do.
But the real upside on Green Giant and the potential of Green Giant is some real big upside I truly believe on this brand as we head through 2017 and 2018 and then further out.
But certainly a real change in the dynamic of Green Giant as we really get into 2017.
I think the simple answer is it is a true model that we ---+ we went public in 2004 with a model to share our free cash flow with shareholders in the form of dividends.
That has been the B&G model, and shareholders who have been investors for a long time or been investors in the past understand it is a three-pronged model: that we are going to buy things accretively, truly not overpay for things and buy the kind of things we buy and manage well; give shareholders back cash in the form of dividends, because that is part of this model that has worked for shareholders and created a tremendous equity value and return for shareholders, and really being one of the top returning stocks absolutely in the food industry since 2004 by far; and then going back to the equity market.
And they know there is accretion to the shareholders on the acquisition, hopefully accretion on the dividend, maybe a slight dilution on the equity offering.
But it reloads the balance sheet and ready to do the next acquisition.
And shareholders who have supported that have made ---+ we have a tremendous support from our shareholders in that thought process.
It has made them a lot of money along the way, and it has worked for B&G.
It has just been the model we followed.
I am a true believer in that model and returning the cash to shareholders in the form of dividends and then effectively going to ask for some of it back at the appropriate time to reload the balance sheet to do the next acquisitions.
Well, it is a combination of all of those, and I don't want to disclose.
But we truly have kind of built an initial real pipeline.
And it's all of what you said, but it's entering into certain ---+ in addition to things like that, it's also entering in different ways to sell vegetables.
And whether it's a different kind of package format or potentially a different way to eat veg, and being very ---+ there is basic innovation, which is kind of what I call a little bit more of the noise innovation, which is just creating more flavors, whether it's robust, whether it's a Mexican-flavored corn or something like that.
That is relatively easy, and we have to do some of that, too, because we need our rightful share of that.
And then it becomes more what I would call more innovative innovation, which is something that is unique.
And it can be packaging and it can be product, and we are looking at both and we have some really good ideas on both.
Packaging is probably a little later.
Packaging is ---+ something that is new and very different and nobody else has is a little bit longer runway to get done than some of the other things.
But we've got some really good ideas on the other things, and we've been presenting some of those ideas already and some of the product already that we are going to be out in the market later this year with and showing to buyers as we speak and kind of just fine-tuning what we are looking to do.
Well, one thing is ---+ and maybe I am ---+ we are a little conservative on where the Canadian dollar is versus the US, but where it is today, that has hit our sales guidance in 2016 by almost $10 million.
And that's a real number.
Now if the Canadian dollar gets a little stronger over the course of the year, that $10 million shrinks.
It could go the other way, too, but I don't think it goes the other way in a much bigger way.
So that's part of it, and that's really the biggest piece of it.
Green Giant, as I said earlier, a little short of our expectations, not profit wise but sales wise at least initially as we fight our way through 2016.
But our base business, the rest of our base business, we feel really good at ---+ about.
Ortega had a very strong year, our Bear Creek and Cream of Wheat business is doing very well.
Mrs.
Dash is doing very well.
Pirate's Booty, we have a lot of good expectations on that.
So we are not seeing our overall base portfolio kind of having any real issues besides whatever we sell in Canada with the exchange rate at all.
Well, it's about ---+ our guidance out there we put out there is about a ---+ it's right around the $0.60 we're talking about.
So we are still very comfortable with that.
Certainly if we do an equity offering, that comes down.
So certainly, putting more shares out there will reduce that.
Okay.
Thank you, again, everyone, for joining our call today.
Again, I want to thank you for all your years of interest and support of B&G, and I truly look forward to a successful and exciting 2016 and some real success as we go forward in a big way and move Green Giant forward in 2017 and 2018.
Thank you very much.
