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Edited Transcript of BGS earnings conference call or presentation 30-Oct-18 8:30pm GMT

Q3 2018 B&G Foods Inc Earnings Call

PARSIPPANY Nov 7, 2018 (Thomson StreetEvents) -- Edited Transcript of B&G Foods Inc earnings conference call or presentation Tuesday, October 30, 2018 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bruce C. Wacha

B&G Foods, Inc. - CFO & Executive VP of Finance

* Kenneth G. Romanzi

B&G Foods, Inc. - Executive VP & COO

* Robert C. Cantwell

B&G Foods, Inc. - President, CEO & Director

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Conference Call Participants

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* Brian Patrick Holland

Consumer Edge Research, LLC - Analyst of Small and Mid caps Staples & Protein and VP

* Cornell R. Burnette

Citigroup Inc, Research Division - VP and Analyst

* David Sterling Palmer

RBC Capital Markets, LLC, Research Division - MD of Food and Restaurants and Consumer Analysts

* Eric Jon Larson

The Buckingham Research Group Incorporated - Analyst

* Jon Robert Andersen

William Blair & Company L.L.C., Research Division - Partner

* Kenneth Bryan Zaslow

BMO Capital Markets Equity Research - MD of Food & Agribusiness Research and Food & Beverage Analyst

* William Michael Reuter

BofA Merrill Lynch, Research Division - MD

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Presentation

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Operator [1]

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Good day, and welcome to the B&G Foods Third Quarter 2018 Earnings Call. Today's call is being recorded. You can access detailed financial information on the quarter and the full year in the company's earnings release issued today, which is available at the Investor Relations section of bgfoods.com.

Before the company begins its 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 the company's most recent annual report on Form 10-K and subsequent SEC filings for a more-detailed discussion of the risks that could impact the company's future operating results and financial condition. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The company 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.

Bruce Wacha, the company's CFO, will start the call by discussing the company's financial results for the quarter. After that, Bob Cantwell, the company's Chief Executive Officer, will discuss various factors that affected the company's results, selected business highlights and his thoughts concerning the outlook for 2018 and beyond; as well as Ken Romanzi, the company's Chief Operating Officer, will make some remarks.

I would now like to turn the conference over to Bruce.

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [2]

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Good afternoon. Thank you for joining us for our third quarter 2018 earnings call. Our third quarter results benefited from continued top line growth, strong margins, strong cash flow generation and increased earnings per share despite a challenging operating environment for food companies.

During the quarter, we generated $422.6 million of net sales, $91.9 million of adjusted EBITDA and $0.57 of adjusted diluted earnings per share compared to $406.1 million of net sales, $94.1 million of adjusted EBITDA and $0.55 of adjusted diluted earnings per share for the third quarter of last year. Adjusted EBITDA as a percentage of net sales was 21.7% for the third quarter of 2018.

Our net sales increased by $16.5 million or 4.1% in the third quarter. The increase in net sales was driven by both net pricing and volume. Net pricing, which benefited from both our list price increases as well as improvements in our trade spending contributed $5.2 million to net sales growth.

Increased volumes, which included the benefit of acquisitions, contributed $11.3 million to net sales growth. Our base business net sales, which has now been adjusted to exclude Pirate Brands, was essentially flat or down less than $1 million for the quarter.

Gross profit was $115 million for the third quarter of 2018 compared to $120.9 million for the third quarter of 2017. Gross profit expressed as a percentage of net sales decreased to 27.2% from 29.8% in the third quarter of 2017. Gross profit as a percentage of net sales was 28% for the quarter, excluding the negative impact of $3.2 million of nonrecurring expenses. Gross profit percentage was also negatively impacted by industry-wide and anticipated increases in freight expenses, partially offset by procurement savings, a decrease in warehousing expenses and an increase in net pricing.

For the first 9 months of the year, we generated net sales of $1.24 billion, adjusted EBITDA of $255.7 million and adjusted diluted earnings per share of $1.49. Adjusted EBITDA as a percentage of net sales was 20.6% for the first 9 months of the year, a sequential improvement compared to our first 6 months of the year. Our financial results through 9 months are supportive of our full-year targets after adjusting for the sale of Pirate Brands and a repayment of long-term debt.

We continue to generate very strong conversion of our adjusted EBITDA into cash. We generated nearly $140 million in net cash provided by operating activities during the first 9 months of the year compared to just $7.5 million during the first 9 months of 2017.

As you know, back in September, we announced the sale of Pirate Brands to Hershey, and we closed this transaction just 2 weeks ago on October 17. While Pirate's Booty is an exciting brand and one that we took immense pride in, we received a very compelling offer from Hershey that was hard to turn down.

We acquired Pirate Brands during the summer of 2013 for $195 million, and our sale to Hershey for $420 million this month represents a return on invested capital of approximately 2.2x in just 5 years for our shareholders. The transaction also represented 4.6x multiple of trailing 12 month net sales of $92.1 million.

As we noted in our press release at the time of close, we'll use the proceeds of the sale together with additional borrowings under our revolving credit facility, to repay the entire $500.1 million of principal amount tranche B term loans outstanding under our credit facility, retiring our floating rate debt during this period of rising interest rates.

In addition to providing us with the opportunity to generate a substantial return on our invested capital and to better optimize our balance sheet, the sale of Pirate Brands also represents the strategic decision to simplify our portfolio, enabling us to better focus on what we do best: drive center-of-store grocery brands and frozen vegetables.

Our previous full year guidance has assumed that Pirate Brands would generate approximately $20 million to $25 million in net sales and $6 million to $7 million in adjusted EBITDA in this year's fourth quarter for full year adjusted EBITDA of approximately $26 million. We expect the repayment of our term loan, with sale, it's approximately $3.5 million of interest expense during the fourth quarter.

We are updating our guidance for 2018 for the expected impact of the sale of Pirate Brands and our recent repayment of long-term debt. We expect full year 2018 net sales of $1.705 billion to $1.72 billion, adjusted EBITDA of $338 million to $343 million and adjusted diluted earnings per share of $1.98 to $2.05.

We have generated $255.7 million of adjusted EBITDA through the first 9 months of the year, implying an additional $82 million to $87 million of adjusted EBITDA needed in the fourth quarter of this year to achieve our guidance updated for the expected impact of the sale of Pirate Brands and our net repayment of long-term debt.

This compares to adjusted EBITDA of $68.9 million during last year's fourth quarter. We expect $8 million to $10 million benefit in this year's fourth quarter as a result of our pricing initiatives.

We also expect to generate incrementally adjusted EBITDA from our continued growth in net sales from our Green Giant frozen innovation products as well as improved margins on the innovation products that we had launched last year. Additionally, we expect to recognize savings in the fourth quarter following the opening of our new West Coast distribution facility in California. We also expect to see a small benefit across our basket of input costs, which includes freight, warehouse and procurement in the fourth quarter of this year.

We now expect net interest expense of $106 million to $110 million, including cash interest expense of $100 million to $105 million and interest amortization expense of $5 million to $6 million; depreciation expense of approximately $35.5 million; amortization expense of approximately $18.5 million.

We expect an effective tax rate consistent with our previous guidance. And we expect our cash taxes, excluding cash taxes on the gain of the sale of Pirate Brands, to be less than $5 million for the year. And finally, we anticipate CapEx to be approximately $45 million for the year, a decrease of $5 million compared to our earlier guidance.

Based on our adjusted EBITDA guidance, we expected our adjusted EBITDA, less CapEx, cash taxes and cash interest, will be approximately $183 million to $193 million for the year. In addition, we expect our inventory reduction plan to positively impact cash by an additional $75 million to $100 million for the full year before dividends.

We have continued to improve our balance sheet this year. We began the year with $650.1 million of tranche B term loans, and we paid down $150 million of term loans during the first 6 months of the year. And as I mentioned earlier, we have now fully repaid our tranche B term loans with the proceeds of the Pirate Brands sale and additional borrowings under our revolving credit facility.

Based on our full year adjusted EBITDA guidance, coupled with our expected cash flow generation in the fourth quarter, we expect net debt to pro forma adjusted EBITDA of approximately 5.1x. We also have $31.5 million remaining on our $50 million stock repurchase program that was authorized by our Board of Directors earlier this year.

And now I'd like to turn the call over to Bob. Bob?

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [3]

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Thank you, Bruce, and thank you to the audience for joining us this afternoon.

There are a number of topics that I would like to cover during the call before turning it over to Ken and then taking questions. First, I know that Bruce briefly discussed our sale of Pirate Brands to Hershey earlier on the call. Well, I would like to take a step back to discuss the backdrop and rationale for the divestiture.

As our long-term investors know, we have always been an acquisition-driven business, and that has generally meant that we are growing through acquisitions. That is still our intention. However, our primary strategic rationale has been generating returns for our shareholders. Typically, this is done by buying smart and staying disciplined on price when it comes to acquisitions. However, with Pirate Brands, we had an opportunity to monetize what we believe is one of the best warehouse snack brands in North America at a time when valuations for these brands are very attractive for sellers. We acquired Pirate Brands for $195 million in 2013, and just 5 years later, we're able to sell it for $420 million.

An additional benefit of the sale is cash that it provided for the repayment of long-term debt. One of my priorities over the past 35 years that I've spent at B&G Foods has been to ensure that our balance sheet is always primed to pursue accretive acquisitions. As Bruce mentioned earlier on the call, pro forma for the sale of Pirate Brands, and based on the midpoint of our adjusted EBITDA guidance and our inventory reduction plan, we expect to be around 5.1x net debt to pro forma adjusted EBITDA by the end of the year.

This factors an important note. Should any of the rumored divestitures of cash flow brands by our large cap peers occur, we expect to be very well positioned to participate in these consolidation opportunities.

I would also like to discuss our portfolio following the sale of Pirate Brands. Pirate's Booty was an exciting brand for us, growing approximately $12 million in net sales since our acquisition in 2013. However, Pirate's Booty was not the only growing brand in our portfolio. Year-to-date in what we continue to hear described as a challenging operating environment, our base business, excluding Pirate Brands, is up almost $7 million or 0.6%. As a cash flow business, this is very consistent with our long-term top line target of flat to up 2%.

In fact, as we look at our recently completed third quarter, we have a strong performance from several of our other leading brands, beginning with our largest brand, Green Giant frozen. Green Giant frozen continues to outperform and has now produced its sixth consecutive quarter of double-digit growth. Net sales of Green Giant frozen products were up 14% or $11.1 million to $90.3 million for the third quarter.

We are seeing a strong adoption of our Green Giant Veggie Spirals launched earlier this year as well as continued demand for our Green Giant Riced Veggies, Green Giant Veggie Tots and Green Giant Mashed Cauliflower. In September, we began shipping our Green Giant Cauliflower Pizza Crust and our Little Green Sprout's Organics offerings. In addition, our Green Giant Harvest Protein bowl meals and Green Giant Riced Cauliflower Stuffing are expected to launch here late in the fourth quarter.

We are very proud of the progress that we have made with Green Giant since we have owned the brand. The progress is led by our Green Giant frozen innovation products, and we are happy to report that these products have some $165 million in retail sales in the last 12 months and that this number's closer to $200 million on a run-rate basis. We are benefiting from the halo effect. And in fact, net sales of all Green Giant products, including both the fresh-growing frozen and more challenged Green Giant and Le Sueur can businesses, in the aggregate, are up by 6.1% for the quarter and 6.6% for the year-to-date period.

But we are much more than just a Green Giant company, and we have other exciting brands in our portfolio with nice growth opportunities. Leading the pack among our other large brands in the quarter was Victoria, one of the top brands in the premium pasta sauce category. Net sales of Victoria increased $2.2 million in the third quarter or 23.3%. New York Style continued its strong performance this year and was up $0.3 million for the quarter or 3.5%. Maple Grove Farms was up $0.5 million for the quarter or 3.2%.

Ortega, our second-largest brand, has continued its turnaround following the challenging back half to 2017 and was up $0.7 million for the third quarter or 2.1%. Net sales of Ortega are now up $1.6 million for the year or 1.5%. Net sales of Cream of Wheat slowed during the quarter with a decrease of $0.5 million or 3.3%, although year-to-date performance remains very strong, up nearly $1 million or 2.1%.

We also have the second-largest portfolio of spices & seasonings brands in North America. While net sales of our spices & seasonings business, including the brands we acquired in the fall of 2016 and our legacy spices & seasonings brands such as Mrs. Dash and Ac'cent, were off $5.8 million or 6.5%. The category is healthy, and these brands are coming off a banner year in 2017 after outperforming our expectations by a significant margin.

This year, we've been negatively impacted by the closure of more than 60 Sam's Club stores and a modest price reduction for some products to reflect lower input cost for certain ingredients, such as pepper, that have retreated from recent historic ties.

We are now 3/4 of the way through the year, and our business model of modest top line growth, strong margins and strong cash flow remains intact. We believe that we are unmatched in our ability to manage our portfolio of brands for cash, supporting our dividend, which is, once again, yielding nearly 7% to shareholders.

And with a clean balance sheet, we are very well positioned to continue to pursue our finance-driven acquisition strategy. And as Bruce mentioned earlier on the call, we still have authorization to purchase an additional 31.5 million of common stock under our stock repurchase plan.

Now I'd like to turn the call over to Ken. Ken?

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Kenneth G. Romanzi, B&G Foods, Inc. - Executive VP & COO [4]

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Thank you, Bob. I have a couple of topics that I will cover this afternoon, both generating a fair amount of discussion this past year: pricing and cost inputs.

Earlier in the year, we announced to the market that we intend to raise prices across the majority of our portfolio to help offset inflationary freight costs. As a result, we had a modest benefit earlier in the year, driven by a reduction in trade spending in the first quarter and the beginning benefits from our list price increase at the tail end of the second quarter.

We are now seeing these benefits materialize in a bigger way during the back half of the year. As Bruce mentioned earlier on the call, we benefited from approximately $5.2 million in net pricing in the third quarter. And we believe that we will continue to benefit in the fourth quarter, expecting another $8 million to $10 million net pricing benefit, which is in line with our previous guidance.

We're also working closely with some of our key customers to find cost-savings opportunities relative to how we ship products to these customers. Freight, as you know, has been a challenging area this year. Over the past 12 months, our P&L has had to absorb more than $35 million in incremental freight costs. We're seeing the pace of these freight cost increases continue to moderate in the latter part of this year, plus we're getting more efficient in managing them.

But freight is just one portion of our basket of input costs, which when coupled with our warehouse, other logistic and procurement costs, are estimated to benefit us by approximately 1% in the fourth quarter. Longer term, however, we expect these inflationary pressures to persist in 2019 and beyond, making it essential that we continue to run lean as an organization and be as diligent as possible in our cost-savings measures.

On the cost savings front, our new West Coast distribution center in California is now open and fully operational. We're already seeing modest benefit in shipping to our West Coast customers and expect to see a full year benefit of approximately $5 million in 2019. Additionally, we're now in the process of consolidating our frozen distribution network, where we believe we have an opportunity to save another $3 million to $4 million on a run-rate basis beginning as early as the second half of next year.

While we're making early progress in our cost-savings efforts, we believe we're only scratching the surface so far this year. On our year-end conference call, I'm looking forward to providing more color on our cost-savings program, which we expect will save us upwards of $50 million or 4% of cost of goods sold on an annual basis over the next several years.

Now I'd like to turn the call back over to Bob.

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [5]

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Thanks, Ken, and thanks to the audience for joining us. Now I'd like to begin the Q&A portion of the call. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And there are no questions in the queue. (Operator Instructions) We'll take Jon Andersen with William Blair.

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Jon Robert Andersen, William Blair & Company L.L.C., Research Division - Partner [2]

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I guess I wanted to start -- I'll ask a little bit about pricing. The pricing benefit is kind of -- it seems like played out the way you expected throughout the year with modest first half and building second half. Can you talk a little bit about your confidence and visibility into the $8 million to $10 million benefit you expect in the fourth quarter? How much of this is list price increases? How much of it is fine-tuning some of your kind of promotional practices? And at this point, are retailers kind of fully onboard such that you have a high degree of confidence in that number?

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Kenneth G. Romanzi, B&G Foods, Inc. - Executive VP & COO [3]

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Yes. This is Ken. We're confident in the pricing in the fourth quarter. Of course, a lot of it rests on -- the exact amount rests on how much product elasticity there may be. But it really is a balance between the list price increase that we took earlier in the year and trade promotion adjustments that we made and probably more trade promotion adjustments in the fourth quarter than we made in any other quarter this year. So it really is a balance between the 2. We're not seeing any large variance of elasticity that's unexpected at shelf. The biggest volume variances would be on the trade promotion changes, but that's all reflected in our forecast.

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Jon Robert Andersen, William Blair & Company L.L.C., Research Division - Partner [4]

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Okay. And is it fair to assume that the $4 million to $10 million run-rate benefit in the fourth quarter would be something that would have a carryover benefit to your 2019 results as well, given that I don't think you really started seeing material price benefit until the second half of this year?

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Kenneth G. Romanzi, B&G Foods, Inc. - Executive VP & COO [5]

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We'll see a continued benefit. It may not be exact same number because the mix between list and promotional changes, change, but we'll continue to see benefit in the first quarter.

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Jon Robert Andersen, William Blair & Company L.L.C., Research Division - Partner [6]

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Okay. Helpful. Shifting gears. Maybe another one for you, Ken. I just -- I wasn't sure I heard this clearly. You were talking about the amount of freight that you had to absorb this year. I think you mentioned $35 million on a trailing 12-month basis. Is that getting better at this point in terms of the kind of incremental increases that you're seeing? And then secondly, you started talking about some offsets. And I think you mentioned warehousing and procurement benefiting you by 1% in the fourth quarter. I -- I'm just not sure what that means. If you could clarify a little bit, that would be helpful.

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Kenneth G. Romanzi, B&G Foods, Inc. - Executive VP & COO [7]

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Okay. Well, I have 2 questions. So the first is about our transportation. So yes, we do expect that the variance versus prior year to subside a bit in the fourth quarter of this year because transportation costs started to spike aggressively in the fourth quarter of last year. So while the rates are still high and have continued to increase, we won't -- we were overlapping the start of the larger increases in freight. Plus we're doing a better job of the mix of our freight between the spot and contractor rates. However, we do see in 2019, rates are going to go up again. So we do expect there'll be continued increase in freight. It won't be quite as bad as what we experienced over the last 12 months, but the whole industry is expecting another round of freight rate increases. The offset that will continue to work again in our cost-savings program is, again, number one, the mix between contract and spot. We as a company, I think versus our peer group, probably a little bit higher spot usage than in the past, so we had more room to get better at the mix between contract and spot usage. But the other places where we're saving money in transportation is where we've redone our distribution map of where our warehouses are located in the dry network. And the first move was to close a Houston facility and move to California to take along of the miles out of shipping to our West Coast customers. And that's straight map, less miles. Even though the rate is up, we're shipping it less miles. We've recently also concluded a study of our frozen distribution network, which had 5 warehouses. We still believe we need the 5, but we think relocation of 1 of them will also drive transportation savings, and we'll be building that into our operating plan for 2019.

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Jon Robert Andersen, William Blair & Company L.L.C., Research Division - Partner [8]

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Excellent. Great color. I guess I'll go to Pirate's for a minute. Bob, thanks for all the commentary around the decision to divest that business. I guess I always thought of Pirate's though as like really one of your core franchises and core building blocks that's kind of around the snack category. Is there some sense that maybe snacking -- that, that business was a little bit less predictable, more dependent on regular promotion and end-cap kind of activity that you felt like it was maybe not as core or as similar to maybe some of your other center-of-store businesses? Or is -- I'm just trying to get a little bit more color around this decision to divest what I'd viewed was kind of a strategic business for you. And then maybe it just came down to kind of Hershey made you an offer you couldn't refuse and some of the balance sheet considerations. But any more color there would be helpful. And would we expect more sales at this point? Are you evaluating additional divestitures? Or should we still be thinking about B&G as a -- more of an opportunistic acquirer than really a divest -- a company that's looking to kind of divest and get more focused?

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [9]

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Sure. So I'll answer the last part first. I mean, we are, first and foremost, an opportunistic acquirer that truly plays in center of the store today in frozen. And we -- internally, we certainly love Pirate's Booty. We think it's a great brand. And certainly, it was not a brand we had put up on the market. So we weren't actively trying to sell it. Two parties came together. And at the end of the day, it made sense for us for 2 reasons: price but strategic considerations. And it certainly made sense for the buyer because I think it's going to fit well with what they own. And they'll -- they should do extremely well with it. But certainly price was right out there, and this was a great price on a really great brand that we had in our portfolio. But when we bought Pirate's 5 years ago and thought of ourselves as a better-for-you salty snack player who can pick up other brands like that along the way. There's not a lot that truly exists that -- we've looked at things, but there are things that just don't make sense. And I think there was just a little distraction internally being a snack player and kind of being, really, a small snack player except to having a nice brand like Pirate's -- the Pirate's Booty business but not seeing a way that we were going to grow that through a lot of acquisitions. And it just gives us -- there's some reverse synergies in how we warehouse and how we shift that a brand like Pirate's being light and not like everything else we do, made it more difficult and more cumbersome through our network. And it was just time to move on from snacks. And I don't want to ever say that, for some reason, something comes to market that makes sense again. But I think we really going to focus outside of snacks from an acquisition alternative and really focus today on certainly center of the store and expanding our footprint in frozen based on what comes to market. So it was 2 parties coming together with a price that made sense, forced us to really take a hard look at our longer-term strategy. And it just -- it honestly alleviates a lot of pain and just cumbersome distribution network, et cetera, because it was really the only real salty snack brand we have in our portfolio. I don't consider -- Back to Nature is a cookie and cracker business. New York Style is a bagel chip business. It's sold in the deli. It's much more center-of-the-store oriented. But we really didn't have another snack business, and we really weren't able to acquire one in the last 5 years. So it was time to move on. I think we can focus now.

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Jon Robert Andersen, William Blair & Company L.L.C., Research Division - Partner [10]

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Yes, that makes sense. One last one from me. On Green Giant, you mentioned a couple of products that were launched in September that are shipping well. I think was one Cauliflower Pizza Crust?

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [11]

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Correct.

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Jon Robert Andersen, William Blair & Company L.L.C., Research Division - Partner [12]

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I didn't catch the other one. I was hoping to get that. And then second part of the question. What are you -- what are your innovation plans going forward? I think you said there are a couple of new products you're planning for the fourth quarter or early next year as well. If you can talk just a little bit more about, again I apologize, you mentioned it in the prepared comments but the innovation road map for Green Giant frozen.

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [13]

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Well, kind of what we've done here and launched in September was really 2 separate products: one, Cauliflower Pizza Crust. That's rolling out into distribution, and it's been in distribution in major retailers since September; and the other one is -- when we bought Green Giant, we not only got the Green Giant but we also got the other character, Little Green Sprout. We have launched a line of organic little -- under the Little Green spout -- Sprout name. And it's really organic riced veggies, et cetera. So some of our best items in frozen vegetables we've launched organically to go after kind of a different retailer, and certainly, somebody who's looking for organic vegetables. And it's been received extremely well. There's -- we really believe we could be the organic vegetable guy, the guys who play in the category. We think we can make real inroads and really become the dominant guy in that category. So the other things that actually have been launched and are shipping and are getting into distribution as we speak are Protein Bowls and then Riced Cauliflower Stuffing to a select few customers right now. But both of those have been shipping in the last few weeks and are getting into distribution as we speak. And then there's a pipeline that I can't go into, but there's a pipeline of Green Giant innovation to come in 2019 and beyond. But there's also some strong innovation in some of our other brands. So it's not just 100% Green Giant. Certainly, there's been some real wins on innovation on Green Giant and being in a run rate of $200 million at retail on the innovation is very meaningful for us. But we are looking at a number of our brands and have some innovation pipeline on those 2. So you'll certainly get more about those as we get into the first -- our year-end call and beyond. But we'll have a good chunk of Green Giant new items being launched in 2019 also.

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Operator [14]

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Up next is Brian Holland from Consumer Edge Research.

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Brian Patrick Holland, Consumer Edge Research, LLC - Analyst of Small and Mid caps Staples & Protein and VP [15]

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If I could just start with a question on the guidance. I just want to make sure, you did lower the guidance. I guess as I sort of did the math prior to today, I thought that maybe it was sort of a net-neutral taking Pirate Brands out of Q4 and net of -- sort of interest expense considerations. So can you just walk me through sort of why the guidance goes lower in Q4, the mechanics behind that?

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [16]

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Are you talking sales, EBITDA or EPS?

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Brian Patrick Holland, Consumer Edge Research, LLC - Analyst of Small and Mid caps Staples & Protein and VP [17]

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Well, I guess sales. Sort -- why don't we do EBITDA and EPS.

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [18]

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Yes. Okay. So obviously, somewhat of the same issues in sales and EBITDA. So sales, it's about $20 million to $25 million in the fourth quarter. So fairly straightforward there. And that just comes straight from the top line. Adjusted EBITDA, it's $6 million to $7 million in adjusted EBITDA of product contribution. So keep in mind, this is a revenue stream, nicely profitable. We still, obviously, have some of the overhead costs associated with the company that this was covering in. So those costs don't go away. Pirate's a great brand. It's about $6 million to $7 million. And that falls through the bottom line. From a savings standpoint, we do have some benefit of interest savings from paying off our term loan. Keep in mind that not all of that occurred in the beginning of October. So that took a little bit longer, and there were some breakage costs on that debt. And so that's basically the math in terms of the accretion dilution.

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Brian Patrick Holland, Consumer Edge Research, LLC - Analyst of Small and Mid caps Staples & Protein and VP [19]

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Okay. So just to confirm then that there's no -- the lower revised guidance is wholly attributable to Back to Nature and no other expectations changed?

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [20]

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The Pirate's Booty.

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [21]

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Pirate's Booty. And then...

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Brian Patrick Holland, Consumer Edge Research, LLC - Analyst of Small and Mid caps Staples & Protein and VP [22]

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Oh, what -- I'm sorry. I said -- yes. I'm sorry.

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [23]

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And tightens the range a little bit as well.

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [24]

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Tightened the top end of the range. So the top end came down. And then, as Bruce said, yes, the EBITDA range was $345 million to $355 million. And we took it down for the loss of Pirate's Booty EBITDA of about $7 million in the fourth quarter on both sides of the range. Plus tightened the top of the range. But the bottom of the range just came down purely by the loss of Pirate's.

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Brian Patrick Holland, Consumer Edge Research, LLC - Analyst of Small and Mid caps Staples & Protein and VP [25]

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Okay. And then moving on, I think you did a good job of sort of explaining the rationale behind Pirate Brands, so appreciate that. But maybe if I could just sort of ask about -- maybe it's, in particular, the grocery segment. I think the frozen segment's been a really nice story both for you guys in the category. Other players have done well in separate parts of that temperature class. But -- so it's a nice turnaround story there, and then you guys have done well. But on the grocery side, to the extent that you're thinking about your M&A pipeline, I just wonder, historically, those cash-generative assets, I mean, to some extent that's probably dependent upon the stability of the category, the stability of the brand in that category, private label, et cetera. Those dynamics have obviously changed, I think, significantly in the past 5 years, let alone 10 or further. How do you think about, as you look for assets going forward -- specifically, I appreciate the cash generative component of it. But obviously, that's somewhat dependent on you being able to maybe preserve those brands where they stand and the value proposition needs to change. Can you just talk about how you maybe think about that? And then just on top of that multiples in the group, what are you seeing there? That would be great.

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [26]

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So when you look at center of the store -- kind of really talk back. First and foremost, we're a branded retail buyer, so that's what we're looking for first, a brand that we feel that's kind of hopefully stood the test of time and we can do some things to make it better the way we've done on Green Giant. Second, and you're absolutely correct. One of the things we looked at -- we've always looked at but certainly, probably now more than ever, is the category and the category dynamics. So we're not going to invest in a brand, in a category that's in steep decline that we don't see a way out. So generally, it was the flat category, so we'd rather have it growing. But something that's declining is just cash flow today that will dwindle over time, and we need to watch that. And you know -- so our -- we look at the brand. We look at the category. We're looking for #1, #2. That can be national or it could be a strong regional brand that's #1 or #2, and it needs to be the price. I mean, so the price we've paid all along as a multiple is where we believe we need to be. And we really don't step out of that price range of kind of 7.5x EBITDA to 9-ish times. We really have only -- we only stepped above 9x, I guess, twice. But very -- just very barely. So there's always things that we look at, things that come available. When it makes sense for us, we'll pull the trigger. And you never know when that will be. I mean, it could be -- it could take a long time before the right one comes, and the right one can come tomorrow. So we're always looking. But what's really important to us -- has always been important, but it is something that is a big focus on, today, is making sure we buy into categories we feel that they're adjusting to today's consumer in a way that will keep that category hopefully flat to up and not in a permanent decline.

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Brian Patrick Holland, Consumer Edge Research, LLC - Analyst of Small and Mid caps Staples & Protein and VP [27]

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Last one from me. The change of control for Green Giant's biggest competitor that's just been closed. Any commentary there around near-term opportunities or potential disruptions that you're seeing, hearing about in the channel that maybe investors should be thinking about? Or no real change other than what you guys are doing sort of in near term?

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [28]

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Yes. I think when you look at Pinnacle and Birds Eye, they were a well-run organization. They ran a great brand. And they were very creative with innovation, et cetera. I think that rolling into a very strong company with strong leadership in Conagra, they're going to be, certainly, a very strong competitor. I don't think their competitive -- their ways will change. I think they'll run fine. I don't see, really, any slippage in that switch. It's just our job to -- as we've shown in the last basically 2 years here is grow our share, grow the category and keep doing that. And as long as we keep doing that, we'll -- we should continue to grow share. But we don't expect that we got this opportunity here in the short term because of that transition. We assume -- it's a very important brand that Conagra bought as part of the whole acquisition, and I'm sure they're -- they'll be all over it.

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Operator [29]

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And now on to William Reuter with Bank of America Merrill Lynch.

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William Michael Reuter, BofA Merrill Lynch, Research Division - MD [30]

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I don't think I've seen anything that discussed what the taxes that might be due upon the sale of Pirate Brands. Have you guys talked about what those would be and when you might be paying them?

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Kenneth G. Romanzi, B&G Foods, Inc. - Executive VP & COO [31]

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Yes. Actually, you look in the 8-K that we filed last week, it details time and amount.

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William Michael Reuter, BofA Merrill Lynch, Research Division - MD [32]

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Okay. I apologize for that. And then, when you were talking about M&A, it sounds like you're interested in, I guess, either frozen or the historical center-of-store candidates that you've looked at. I guess, number one, is that correct? And I know you've been -- a couple of people have kind of tried to ask you a little bit about where multiples are. It sounds like multiples in frozen are at the higher end of the spectrum. Is there anything you can provide at all in terms of ranges for what you're seeing or what you're hearing about in the market for those 2 different categories?

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [33]

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Well, I think, first thing is yes, we would -- we're certainly looking in both areas of the grocery store. So we're willing to buy something in frozen as well as certainly buy our traditional center of the store. From a frozen side, there hasn't been a lot of assets that have really traded. I don't -- I mean, Pinnacle's kind of traded as a whole company. But just kind of one-off or two-off assets, you really haven't seen them traded any way, so it's hard to say which multiple that would be. I think Green Giant has created a lot more value to the frozen category, so people's expectations might be getting higher. But we haven't really seen anything that would make sense for B&G and even got into multiple discussions on those assets. And we're not seeing anything different in other areas, in the center of the store that we haven't seen historically. I think as Bruce mentioned or -- and even I mentioned here, we're excited about, hopefully, with -- when you hear about all the bigger strategics and them maybe relooking at their portfolio to get rid of some of their assets, we're ready and able now. And we got leverage in really good shape to be a real buyer if and when those come to market. There's been a lot of talk but less that has come to market. But I think even with a lot of big guys not selling a lot of stuff over the last years, I think we've proven we've been able to do acquisitions through that period. So I think you can expect us -- never know when it's going to happen, to continue to do acquisitions just like we've done basically since 1997.

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William Michael Reuter, BofA Merrill Lynch, Research Division - MD [34]

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Helpful. And then just lastly, I think most people pegged the grocery industry about $800 million, maybe 3% or 4% of it's online at this point. Do you have a sense for what percentage of your sales are to e-commerce or through e-commerce platforms at this point?

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [35]

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Well, ours is very small. Yes. I mean, it's kind of 1% or less. And I even think that 3%, 4% you're quoting would probably be less in brands like we own. That's probably being driven by certain things. Snacks sell well, I mean, depending on what's included in that food. If it's dog food being sold out of stores, et cetera, that's -- there's certain online things that really work. But the large shopping list outside of buying it online through retailers like a Walmart, Kroger, et cetera, it's still pretty small in this industry. And we're expanding as Walmart and Kroger expands and all of those. And we're expanding with Amazon, but it's still relatively small. We know it's going to get bigger. And we're there working with all those customers, but it's still relatively small to us.

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Operator [36]

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Up next is Eric Larson with Buckingham Research Group.

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Eric Jon Larson, The Buckingham Research Group Incorporated - Analyst [37]

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Just a couple questions. I want to focus on cash. Your inventories in the third quarter were pretty flat. And this is normally a seasonal quarter where your inventory is billed, and it uses some cash. So your goal of $100 million to reduce inventories for the year, which I believe you outlined right at the very beginning of the year, are you online to accomplish that number for the full year when you now look at your fourth quarter?

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [38]

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Yes. And I think you do rightly point out that the third quarter is at seasonal high period. And what I would remind folks is that we're down from 12/31/17 to-date through 3 quarters, about $13 million inventory. A lot of that was the first half. And then we've got the build with the pack plan for Green Giant. That same time period last year, we were up about $130 million so a pretty stark comparison between the 2.

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Eric Jon Larson, The Buckingham Research Group Incorporated - Analyst [39]

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Good. Yes, I just -- thank you for that compare because I -- it looked it was really a fairly significant improvement in inventory. Then, you're -- I like to call it kind of your net -- your net EBITDA, your net cash. You put a range, I think now out of about $183 million to $193 million so kind of at the midpoint of that range, that's about $13 million or so better than you have been kind of talking $175 million. Is that -- that obviously includes some of the continued benefit that you'll get from inventory reduction in Q4 is what I would assume?

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [40]

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Yes. So what's really driving that is 2 things, both from a cash tax standpoint. When we began the year, I believe we gave guidance for less than $10 million or $15 million. And now we're tracking less than $5 million. And also, when we began the year, we were talking about $50 million to $55 million in full year CapEx spend. And we now expect that to be a little bit less than $45 million. And so we've got the big inventory benefit but also just the daily operations of the business are humming along. If you look to a cash flow statement, for example, in our financials, you'll see we're nearly $140 million of cash from operations for the first 3 quarters of this year. Last year, at the same time period, we were $7.5 million. So big turnaround this year compared to last year.

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Eric Jon Larson, The Buckingham Research Group Incorporated - Analyst [41]

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Yes. I wasn't aware of the CapEx benefits here as well. So then, just a final question. And I -- this one probably goes to Ken. Ken, we're hearing -- obviously, freight costs are abating -- they're coming down as a percentage of increase, I think, is probably maybe the best way to describe it. But most companies are saying that there will be a little bit of headwind again in '19, and that's probably true. It takes up -- it's going to take a little time to get that whole thing sort of, I guess, recapitalized or get enough capacity to keep rates from going up. But some companies are also talking about even some more pricing. So do you think that you're going to generate enough cost savings in your 2- to 3-year cost-savings program to basically keep your -- I don't know -- I don't want to tell you what's pricing, per se, but do you feel good about pricing? And could you take it if you need it?

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Kenneth G. Romanzi, B&G Foods, Inc. - Executive VP & COO [42]

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Well, we're currently building that plan as we speak. So there will be gestation increases. They're -- we're also seeing another round of raw material increases. With a good economy, we're seeing input costs. While we benefited from input costs this year, we're seeing that via a headwind next year. So when we looked at pricing and trade promotion this year, we look at it more than just for a year at a time. So we're always looking at ways for us to be more efficient. And we'll be prepared to do something on the net price realization front if we need to add that to offset cost inflation as well as the positive overlap we're getting from this year.

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Operator [43]

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And we'll take Cornell Burnette from Citi Research.

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Cornell R. Burnette, Citigroup Inc, Research Division - VP and Analyst [44]

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I just wanted to start off with kind of pricing and volume. It looked like, for the most part, pricing and volumes will offset each other in the quarter. How do you think about it, I guess, in the fourth quarter as your price really starts to accelerate as you make some adjustments on the trade promos? Would you see that maybe there's a higher risk point for volumes in the fourth quarter? So just wanted to get your thoughts on that.

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Kenneth G. Romanzi, B&G Foods, Inc. - Executive VP & COO [45]

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Well, where we made changes to trade promotion, we absolutely made the tradeoff between volume at low price points versus the reduced trade spend. So -- but that's all reflected in our forecast. So there's a few brands that were heavily trade promotion where we either reduce frequency, in some cases, we increased the promoter price to a degree. On those, we'll do less volume but turn into better price realization.

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Cornell R. Burnette, Citigroup Inc, Research Division - VP and Analyst [46]

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Okay. And then the last one I just had really was just a little bit of clarification when you're talking about kind of the way the cost basket works in the fourth quarter. When you put all of -- everything together, your different raw materials and, of course, freight, were you kind of saying that, in the fourth quarter, we're expected to see a little bit of deficient for everything in total for you?

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Kenneth G. Romanzi, B&G Foods, Inc. - Executive VP & COO [47]

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Versus last year, yes. Yes, actually. Given cost-savings efforts as well as the overlap of the spike of costs last year in transportation.

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Cornell R. Burnette, Citigroup Inc, Research Division - VP and Analyst [48]

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And so I think you said it's about 1% of COGS. Was that kind of what you were referring to...?

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Kenneth G. Romanzi, B&G Foods, Inc. - Executive VP & COO [49]

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Correct. Yes.

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Operator [50]

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Moving on to Ken Zaslow with Bank of Montreal.

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Kenneth Bryan Zaslow, BMO Capital Markets Equity Research - MD of Food & Agribusiness Research and Food & Beverage Analyst [51]

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Let me just start off with a couple questions. One is, as you work into 2019, can you talk about the freight inflation versus the pricing differential?

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Kenneth G. Romanzi, B&G Foods, Inc. - Executive VP & COO [52]

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Freight versus pricing in 2019, I mean, we're still developing the plan. But like I said, we don't have any planned pricing yet. But we will fully expect to get some better price realization in 2019 versus 2018 through trade promotion. But we're evaluating not only freight cost but also the other input cost increases as well as we're seeing those continue to mount as a headwind for next year.

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [53]

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And Ken, I think we're pretty consistent with most of the other food players of, call it, high-single-digit increase in freight costs for '19.

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Kenneth Bryan Zaslow, BMO Capital Markets Equity Research - MD of Food & Agribusiness Research and Food & Beverage Analyst [54]

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Maybe I -- I think I misstated my question. So when you took your pricing in 2018, there's going to be a net benefit into 2019 as well, right. And...

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [55]

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Correct.

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Kenneth Bryan Zaslow, BMO Capital Markets Equity Research - MD of Food & Agribusiness Research and Food & Beverage Analyst [56]

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And of your freight costs are lapping that, so the increase in 2019 will slow. So I'm assuming, at least in the first half of 2019, it'll look like a fourth quarter of 2018? And how long will that spread work in your favor, right. Is that not the way to think about it, right? Because you took freight cost increase earlier in the year, and your pricing, you took kind of midyear, right. Is that not the way that...

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [57]

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For sure, we will give a full year 2019 guidance when we give out our fourth quarter results early next year. But I think directionally, what you're asking, over the last 4 quarters, we have seen increases in freight. The largest were fourth quarter '18. And first quarter -- sorry, fourth quarter '17, first quarter of '18. We've seen those costs moderate, but they're still elevated. And we haven't seen anything that's going to suggest that freight costs suddenly rebound back to 2016 levels next year. So we're prepared for increased freight costs hitting us again in 2019. We just haven't seen anything that suggests it's going to be to the same level increases that we saw 4Q '17 and 1Q '18.

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Kenneth Bryan Zaslow, BMO Capital Markets Equity Research - MD of Food & Agribusiness Research and Food & Beverage Analyst [58]

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Okay. But at the same time, you are -- the pricing and your biggest increase in pricing is the fourth quarter. Why would that not be positive in first and second quarter of '19?

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Kenneth G. Romanzi, B&G Foods, Inc. - Executive VP & COO [59]

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There's a differing level of trade promotions that drives up pricing. So I think what you're asking, will pricing positive overlap in '19 help offset all of the freight overlap? We don't think that math will work, so -- but we still have to put finishing touches on the plan.

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Kenneth Bryan Zaslow, BMO Capital Markets Equity Research - MD of Food & Agribusiness Research and Food & Beverage Analyst [60]

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Will you be able to grow them -- grow EBITDA in 2019?

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [61]

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So we'll give our 2019 guidance when we give you our fourth quarter results.

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [62]

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But as Ken has -- and you've heard Ken on the last few calls, there's-- and some of the cost-savings project that were put in effect this year, in the latter part of the year, there's a lot of cost savings also that are implemented in more -- and a lot more to come. So we feel really good about where -- I mean, we're not happy if rate's going up further, but we feel really good about being able to cover those freight increases.

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [63]

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And yes, so our intention is to grow.

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [64]

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Yes.

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Kenneth Bryan Zaslow, BMO Capital Markets Equity Research - MD of Food & Agribusiness Research and Food & Beverage Analyst [65]

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Okay. And then the -- I don't know, the fourth question. I don't know. I lost count. But the spices business, you said was -- underperformed the category. When do you expect that to kind of go back in line? And what catalysts get you back there?

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [66]

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So it has not underperformed the category. Volumes are good. And a little slowing of volume at a large customer, Sam's, as they close 60-plus outlets, but volumes are very strong. I mean, there is some -- there's some ingredient and certain spices have come down in cost. And part of being in this business is you end up reducing retail a little bit when cost comes down, and you have the ability to increase retail if costs go up. So our biggest hit to our -- we look at our spice negativity is really those 2 things. It's Sam's closing a few stores here that we're dealing through, and we'll lap that here in early part of 2019. And then, we've given -- we've had really strong procurement savings on spices, specifically pepper as an example, and we've given some of that pricing back, just like others. So it's just what the market does. So that's affecting our top line. But volumes are very strong.

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Kenneth G. Romanzi, B&G Foods, Inc. - Executive VP & COO [67]

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And consumption across all of our brand are very strong.

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [68]

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Yes.

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Kenneth Bryan Zaslow, BMO Capital Markets Equity Research - MD of Food & Agribusiness Research and Food & Beverage Analyst [69]

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Okay. And then just to understand, if there was a bidder, and maybe there isn't -- for one of your assets that would give you 2x sales, would you not take it across any sort of business? I mean, is there anything that you would not

(technical difficulty)

at that price?

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [70]

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I don't -- well, multiples of sales don't help me -- you've -- if somebody wants to pay me a ridiculous multiple on EBITDA, we would certainly as a man or a team and then as a board need to discuss that. We can create value to shareholders. Again, we're not out looking to sell anything. This was really a one-off sale that just 2 parties is it -- that it made sense because they own -- they really own the brand that Pirates typically sits next to in pretty much every outlet we sell Pirates, so it made sense. I think this was just unusual, but somebody want to come with a multiple of EBITDA that's just outrageous, we're going to sit down and talk right now.

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Operator [71]

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And we'll take David Palmer from RBC Capital Markets.

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David Sterling Palmer, RBC Capital Markets, LLC, Research Division - MD of Food and Restaurants and Consumer Analysts [72]

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Just a question on your organic revenue growth. I think there's a feeling after the sale of Pirate's Booty that your long-term revenue growth is lower. You're having a bit of a transition here. You're going to get past some of these can declines. You're talking about innovation, but I think there's also a feeling that there's some ongoing risks to some of your legacy center-of-store categories. So just generally speaking, if you want to bucket it or talk about rough strokes on this, but how should we think about you -- what is a reasonable, organic top line growth rate? And I have a follow-up.

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [73]

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Well, I look at price in, too, but we're very comfortable with that top line that we talk to of 0% to 2%. Hopefully, that continues and would do better. That's great. I think putting Pirates in perspective, we bought a business that was a little over $80 million in sales 5 years ago. The run rate basically through September on Pirate's under our ownership is around $92 million. So it was a great brand, a nice brand, steady increase, and with a good $12 million over 5 years. So this is not a rocket ship. So under -- we weren't moving the needle that great. So we didn't -- we certainly gave up a great brand. And I think a seller who -- I mean, a buyer who would do wonders with it. But it's not like we're giving up something that was growing at a much higher rate. So this was small, steady growth versus something bigger. So there's nothing that we think that we can continually hope -- achieve that 0% to 2% growth. And it's really the brands and part of the portfolio that, I think, you've seen grow this year. And others that's -- the key to our growth of growing 0% to 2% is making sure some of the smaller brands that are extremely profitable don't decline faster than the growth of our better brands. And that's -- and we can manage to that all the cash flow and everything else works. And we're up. We look at our brands this year without Pirate's, we're up 0.6%. So we're in that 0% to 2%. And hopefully, we have a good finish, and that number's 1% or above. But we've grown our base business here for the first 9 months.

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David Sterling Palmer, RBC Capital Markets, LLC, Research Division - MD of Food and Restaurants and Consumer Analysts [74]

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And if we were to sort of project to the M&A world, it feels like valuations there may be diverging as much as we think they would be where there's a few categories out there -- snacks, frozen, maybe enhancers like spices that are in the -- maybe at the right side of history at this point. And there's some other legacy center-of-store categories that may be more challenged. You're seeing some big companies -- and you, no doubt, have seen them talking about shedding the bottom 5-plus percent of their assets. Some of them have the tax cover to do that. But if they were to try to do those sales to growth up The Street would see that, that would be growth-ing you down. So I guess the question is, do you think within your valuation rigor and your target valuation range, can you keep that 0% to 2% going? Is -- are there categories and brands out there that are going to be at the right price but also not growth you down?

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [75]

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Well, I think all of that's an assumption. We believe, yes. And I think it's kind of how we've looked at things all through the years here. So I think the point here is we're not going to jump into a category that's on a steep decline. We wouldn't buy Green Giant canned vegetables by itself today. Categories that are just that tough to deal with, we're not jumping in. So the category dynamics have to be flat to -- it's kind of -- it needs to look like B&G in total, where it's flat to down, flat to up. So in a very small window, that's kind of 0% to 2%. And if it's down, hopefully, it's not down more than a 1% kind of thing, and then it make sense for us. If it's something that's very different, probably doesn't makes sense. But we truly believe there's certainly a lot of those categories that fit. There are a lot of those brands and those companies that are saying they might sell something and shed assets that we believe could fit. It remains to be seen when and if they actually come to market with any of those assets.

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David Sterling Palmer, RBC Capital Markets, LLC, Research Division - MD of Food and Restaurants and Consumer Analysts [76]

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And then one last one I'll squeeze in on your debt leverage. Target amounts of debt, clearly, it's come down after the sale Pirate's Booty. It seems like the markets right now are more averse to higher debt levels, higher ratios. Are you feeling that? Are you resculpting where you think the appropriate ranges are in light of the fact that interest rates are coming up? And how big of an acquisition would you contemplate at this point?

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [77]

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Well, I'll let Bruce jump in, but -- I mean, when we look at our interest rates, now that we've taken out the Term B, basically, except for a small revolver borrowing, it's all fixed today. So we're fixed at very low interest rates. So even as interest on variable rates have moved up with LIBOR here, they're still relatively low. So that doesn't concern us today since the -- our capital structure is basically fixed. From a debt level point of view, that 4.5 to 5.5x I think still completely works. From a cash flow, it works. Upwards of 6 works. But I think just playing in that range works. And we look at the sale of Pirate's in many ways strategically, but it also allowed us to -- as opposed to going to the equity markets where we feel our stock is undervalued today to use an asset to delever to. We weren't out there trying to do that. It just all came together. But the delevering has really opened our balance sheet again. So the acquisition, when you're 300-plus million of EBITDA at 5x leverage basically at the end this year, you could do pretty sizable acquisitions and not get really far past north of 5.5x. So again, all of that's assumptions on what comes to market and when it -- and when and right and many different things can happen once things come to market, including issuing equity, too. So until we know what those assets are -- and hopefully, these companies -- we're always looking at things that float around. But some of the assets that we hope come out of those larger strategics, they know where -- they know -- to make a call to us, too. So...

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [78]

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And we're certainly happy to see somewhere between 0.5 turns and 1 turn of leverage off our balance sheet when you think about what we did with cash flows this year throughout the remainder of the year in this transaction, which is a significant deleveraging event.

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Operator [79]

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And I'd like to turn the call back over to Bob Cantwell for closing remarks.

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Robert C. Cantwell, B&G Foods, Inc. - President, CEO & Director [80]

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Okay. Again, thank you for joining the call. I certainly look forward to delivering our expectations for the rest of the year and reviewing those results on our year-end conference call. Thank you very much for today. Thanks.