BGS
#It always can change.
We took, when we did Green Giant, we were, before the deal, we were around 4.5 times levered, 4.6.
We took leverage up to 5.6, 5.7 on a deal the size of Green Giant.
I don't think today we would look to go above that, and certainly not above six.
And the preference and the longer term goal here is to stay below five and stay in the mid fours, if not below.
Thank you.
I think it's a combination.
But when we looked at the Green Giant acquisition, we looked at that acquisition where we paid less than eight times EBITDA, and buying an asset.
So we get the benefits for cash taxes relating to the asset purchase that it fit into the B&G model that kind of what we thought their EBITDA was, 60-ish percent of that EBITDA was going to turn into free cash flow.
And then as a board, we would be sharing 50%, 60% of that free cash flow back to shareholders in the form of dividends.
So it fit into our model.
We did see, certainly more risk on a business that was somewhat mismanaged by the prior owner and was really shrinking fast.
But we just saw a lot of opportunities on being able to fix that, and it's really come together and it's working.
So when we look at acquisitions, we certainly want a brand, a retail-branded business that we believe in, but it has to be that cash flow model because that's the model that has worked for us and investors.
And that EBITDA needs to turn into 50% to 60% free cash flow day one when we own it.
And hopefully we can do the right things and grow the top line along the way, too.
So the model drives the decision.
Certainly the brand that we're buying drives the second part of the decision.
But the cash metrics have to work, otherwise, we're not going to take a risk on that acquisition.
Fair question.
So it's customer-specific and we don't always know the details.
But average customer take on this is about 12 SKUs.
Some have taken all 15.
But all the big guys seem to be in this range of right around 12 SKUs.
It's a little bit here and there.
Again, because in freezer it's a little different because they want to make sure the block works, so the Green Giant block versus competitors work.
So they'll squeeze on the outskirts of just not pure vegetables, too.
So on a couple of accounts, some of our very slower moving items we gave up for these new items.
But we do know they're going to be taking a little bit from everybody to get us in the case.
Well, we're hoping so.
Over time, we'll see.
It's not easy to grow because it's about the door space, and they don't really like to mix doors.
So it's almost like if it moves, it's got to move like another whole door.
So it's kind of that door is pretty much all vegetables and not something else on the door, too.
So it's customer by customer.
We think we're creating some things that, hopefully, longer term, can move the space that's allocated to vegetables, too.
And there's certainly little, around this country, you have little players who show up in smaller ways.
They certainly get squeezed in things like this.
And our main competitors are also coming to the party with new items, too.
So that's part of what all these stores have to figure out.
It's not like we're the only people innovating in the category.
I don't know that yet, as (inaudible) play.
So I don't know that today.
Certainly I don't believe that private label commodity products would lose its space.
Basically bags of peas and corn and broccoli, I don't expect.
And it truly is chain by chain on how they figure out how to do that.
Certainly some chains have more ability and more space than others, just by the nature and size of their stores.
But we don't know that yet.
So part of this is we are not typically what you would call the category captains who reorganize the shelf space when these chains accept a new item.
So I don't have enough detail.
So we'll know that as these items get placed and see what's actually happened in the individual customers.
Well, we want more incremental shelf space.
And we're also going to be launching new innovation here in 2017, that's different than even what we're talking about today.
So that's certainly the goal, to make sure we have our fair share of the shelf, and also hopefully have more innovation than our competitors.
But we have very strong competitors in this category.
We've done a tremendous job in this category.
We want to get our fair share and grow our business.
I think we're going to kind of pass on that, because we really want to do a very formal announcement of this here, because we think it's a real big deal, in mid- to late August.
We actually haven't picked the official date yet.
I can tell you we're not doing the Olympics.
I can tell you that.
But, yes, we are kind of turning up the advertising slowly in August, larger in September, and then a bigger push once ---+ because at the end of the day, as this rolls out into the customers that's taking, we want to make sure it's in the freezer sets, it's on shelf, before we really turn up the advertiser, because we don't want a consumer to see an advertisement the third week of September, and then they go to a store and they can't find it.
So the majority of the spend will happen October, November, December.
But we are turning it on here a little bit here in mid- to late August, and then more in September, with the big push in the fourth quarter.
Well, there are formulas, yes.
Yes.
We're going to do a little bit of that beforehand.
So there'll be a little bit of that, and then the fourth quarter will be a little bit more of the push toward the products as opposed to just the Giant.
It's not going to continue.
So part of the mix of the Green Giant business has been more beneficial to us than we understood when we first bought the business.
So we bought a business initially that we thought on the base that we bought, we could hold to a level of $550 million in sales.
Now, the business shrunk further than that.
And that's why we've said that the base business, without the innovation, is somewhere between $510 million and $520 million.
What we gave up, and not willingly all the time, sometimes it was just business that was being lost by the former owner, was lower margin product.
A lot more of the commodity stuff, what they call the majors in these categories.
It's kind of bags of peas, bags of corn.
Very high trade spend, little to no gross profit margin.
It gives you face presence on shelf.
It gives you a bigger block.
You need to sell it because consumers buy that too, in addition to all the intriguing new stuff.
And that's where we kind of lost from that $550 million to the $510 million.
So part of this is it's not a pullback on trade spending on the products we're selling today.
It's more of a mix-down to where we're taking out, it's not because we wanted to, per se, it's kind of just what we lost in this transition, much higher trade spending businesses that on a percentage of gross sales could be 40%, 50% of the gross sales number, and really just low profits, which is helping our just pure EBITDA margin too.
Now, we do want that business back.
So it's important to ---+ and we're pushing to get that business back, in addition to just the innovation.
Well, we're going to see it as we head through this year.
Our biggest base brand that's just relatively flat year to date is Ortega, just because of the rollover timing from a recall.
We expect a strong second half of the year and we expect that to continue through 2017, for example.
And when we talk about growth trajectory on the base in total, we're really talking about a business model, that 1.5%, 2% growth.
We're not talking about a business that's going to move the needle 3% to 5% in total.
Yes.
I would say that the peso, at this point in time, is clearly the more, I guess important to us, just given the size of that plant in Mexico and the amount of cost flowing through there.
We're more sensitive to the movement in the peso.
Obviously, it's gone the right way for us in 2016.
So we are hyper-focused on making sure that we watch where that's going, that we are putting in the right programs to make sure that we sort of lock in currency at the right time to protect ourselves as we close out 2016, and we start to enter 2017 planning in the next month or so.
So definitely Mexico is really the clear sort of, I guess risk item, that we focus on more so than Canada.
Canada, too, of course, is a factor, and we're very conscious of that and we watch it very closely as well.
But in terms of the actual swings and the volatility, that's where I spend a lot of my time, just making sure that I focus on the peso.
And this year, we've been very lucky in terms of where it's gone.
But we're also trying to make sure that with where it is today, that we're starting to lock in that benefit sooner rather than later.
Yes.
I mean, we'll look at that volume in the planning phase as we're going through it, like I said, now and the next couple months or so, and we will lock in the majority of it, I mean, 80% or so, for sure, and leaving some room for us to kind of wiggle.
But we will try to lock in that 80% in the coming months.
Okay.
As we looked at that, we're taking a little bit of that money off the table and using it against a couple of our key brands and certainly Green Giant, too.
So we're seeing that as an opportunity to help drive Green Giant even further here over the next six months.
Anything else.
That one I think <UNK> will get back to you on.
This quarter is a much more ---+ it's a better reflection, as long as you just take into account the marketing spend that will come in the second half of the year on Green Giant of kind of a true look at where our SG&A will roll out.
But we can certainly talk later about what that big change was from the first quarter to the second quarter.
I just don't have that handy.
Around $35 million, yes.
Total, yes.
Yes, right around $35 million.
$33 million to $35 million, yes.
Right.
So we would look at Q3 being about $5 million to $6 million.
Probably closer to $5 million, but it could go, depending on just the spend pattern, it could be upwards of $6 million, the rest coming in the fourth quarter.
I think the answer to that is we're certainly always ---+ we're ready organizationally and balance sheet-wise, to look at things.
We're a branded retail buyer.
The cash flow model has to work.
So and it has to be brands that we'd want to own.
And that could come from frozen.
That could come from dry.
That can come from snacks.
Or it can come from another platform altogether.
So I think the most important answer there is, the organization is ready and our balance sheet's ready.
When something comes along that works for us, we'd be ready to buy it.
Thank you, everyone.
I look forward to updating you on the progress of Green Giant innovation rollout during our third-quarter conference call.
And again, thank you for your interest and your support in B&G, and have a good evening.
Thank you.
