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Edited Transcript of BGS earnings conference call or presentation 5-May-20 8:30pm GMT

Q1 2020 B&G Foods Inc Earnings Call

PARSIPPANY May 23, 2020 (Thomson StreetEvents) -- Edited Transcript of B&G Foods Inc earnings conference call or presentation Tuesday, May 5, 2020 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. - President, CEO & Director

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Conference Call Participants

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* Andrew Lazar

Barclays Bank PLC, Research Division - MD & Senior Research Analyst

* Bryan Cecil Hunt

Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst

* Carla Casella

JP Morgan Chase & Co, Research Division - MD & Senior Analyst

* David Sterling Palmer

Evercore ISI Institutional Equities, Research Division - Senior MD & Fundamental Research Analyst

* Hale Holden

Barclays Bank PLC, Research Division - MD

* Karru Martinson

Jefferies LLC, Research Division - Analyst

* Kenneth Bryan Zaslow

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

* Matthew Jacob Fishbein

Jefferies LLC, Research Division - Equity Associate

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Presentation

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Operator [1]

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Good day, and welcome to the B&G Foods First Quarter 2020 Earnings Call. Today's call is being recorded. You can access detailed financial information on the quarter in the company's earnings release issued today, which is available at 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.

Ken Romanzi, the company's President and Chief Executive Officer, will begin the call with the opening remarks and discussion of various factors that affected the company's results, selected business highlights and his thoughts concerning the outlook for the remainder of fiscal 2020. Bruce Wacha, the company's Chief Financial Officer, will then discuss the company's financial results for the first quarter as well as expectations for 2020.

I would now like to turn our conference over to Ken.

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Kenneth G. Romanzi, B&G Foods, Inc. - President, CEO & Director [2]

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Thank you. Good afternoon. Thank you all for joining us today for our first quarter earnings call. I pray this find you and your loved ones safe, healthy and weathering these most difficult times. We find ourselves in unprecedented and extremely volatile and uncertain times driven by the COVID-19 pandemic. But through it all, we at B&G Foods have maintained a steadfast commitment to our core values and strategic imperatives to ensure the long-term success of our company and to make B&G Foods a more valuable company.

During this crisis, every single decision we make is guided by our following priorities. First and foremost, protecting the health and safety of our employees, assuring our usual high level of quality and integrity of our products, meeting unprecedented customer and consumer demand, helping our communities, and lastly, making the right decisions and investments to ensure the long-term financial health and success of B&G Foods when we emerge from this pandemic.

On today's call, I will cover 3 topics. First, I'll discuss the actions we're taking during this unprecedented time to service all of our stakeholders; second, I will provide a year-to-date update on our business; and later after Bruce's comments, I will provide perspective on our outlook for the remainder of the year.

Consistent with our core values, the health and safety of our employees and the quality and safety of our products are our highest priorities. At B&G Foods, we have implemented a wide range of precautionary measures at our manufacturing facilities and all other work locations in response to the COVID-19 pandemic. Precautionary measures that B&G Foods has taken to protect our employees, customers, suppliers and other business partners and to maintain our abilities to supply some products include the following, among many others.

First, the establishment of a COVID-19 task force consisting of top company executives and senior management in mid-May; screening of all employees, including temperature checks before entering our manufacturing facilities; enhanced sanitation procedures at all of our manufacturing and other work locations; social distancing at all manufacturing locations, including the required wearing of masks, the installation of plexiglass safety shield barriers at spots where line workers must work in close proximity; the staggering of shift times and breaks; the restructuring of break rooms, including separating lunch tables, marketing chairs for socially distant seating and the installation of plexiglass safety shield barriers at each table to maintain proper employee separations; quarantine for at least 14 days with pay of all employees who have either been exposed to COVID-19 or who are exhibiting any symptoms of COVID-19; the notification of manufacturing employees of any COVID-19 positive tests at their location and the quarantine for at least 14 days with pay any employee who may have had contact with the employee who tested positive; manufacturing plant shutdowns for thorough sanitation upon any COVID-19 positive test with continued pay for employees; and instituting a work-from-home policy for office workers beginning March 16 and as of this date until at least June 1, 2020.

We believe the early and aggressive actions we've taken in our facilities has helped keep our employees safe and productive with very few positive test results and no widespread infection. While employee safety is our highest priority, we are also aggressively managing our production to ensure that we can meet the unprecedented increase in demand from our customers. Our teams have been working tirelessly, producing and delivering products to help maintain the nation's food supply with minimal disruption. Our manufacturing employees have been brave and agile in responding to rapidly changing market dynamics driven by rapidly changing consumer behaviors.

Our frontline employees are true heroes during this pandemic. And thanks to the tremendous effort of our employees, our ability to serve our customers has not to date been materially impacted. In fact, our customer service rate for March was strong, fulfilling more than 95% of all orders for both the month and for the last 2 weeks when the demand surge peaked. While that has declined with continued increased demand, our service rates have declined to just below 90% in April, we're pleased we're doing our part to keep the nation's food supply chain strong. This would not be possible without the hard work and perseverance of our amazing team here at B&G and our valued customers who continue to serve local communities during this difficult time. We are incredibly proud of how our team has responded to this unfortunate crisis, and we've rewarded our dedicated manufacturing employees by increasing wages for hourly employees by $2 per hour from March 30 through at least May 22, and provided supervisors and managers with bonuses of up to $500 during that time as well.

We are also very grateful for the recognition our employees are receiving from our customers who greatly appreciate the efforts our employees are going to [to] keep their shelves stocked. I would like to share an example of the type of feedback we've been receiving from many of our retail partners. The following are just some highlights of a recent note we received from a top customer. "I just wanted to send you a note touching upon the true value your team has provided us over the past month as we work through the availability of products for the customers that shop at our stores. Your employees' over and above commitment to give me the most up-to-date visibility from the trenches has been awesome. The work your team has done has been best-in-class."

At B&G Foods, we have always prided ourselves on the can-do attitude of our employees and their willingness to outwork the competition. It has been such an amazing experience to see the tremendous results our team has delivered and see these efforts recognized real-time by our customers. All of these efforts generated very positive results for the first quarter. While the onset of the COVID-19 pandemic has been traumatic in its human and economic cost, the measures that we have taken as a society to combat it, particularly with regards to social distancing and staying at home, has led to a significant increase in Americans and Canadians preparing and eating their meals at home. And we expect this trend will continue at some level for an extended period of time.

Our B&G Foods portfolio has been constructed to include a stable of over 50 brands with solid positions in the categories in which they compete. And while some have questioned the health of center store and even frozen vegetable brands, these are our foundation at B&G Foods and just the trusted products that consumers have turned to in a time of crisis.

As you likely saw from our earnings release earlier today, we reported net sales of $449.4 million for the quarter, an increase of more than $36 million or 8.9% compared to last year. We delivered adjusted EBITDA of $80.7 million for the quarter, an increase of nearly $5 million or 6.5% compared to last year, despite being negatively impacted by foreign exchange to the tune of $1.9 million. We reported net cash provided by operating activities of $57.6 million, an increase of nearly 15% compared to last year.

As we highlighted on our last earnings call, we initially had modest expectations for the first quarter. In January and February, we continued to work with our retail partners to execute our trade optimization strategy during the non-holiday season promotional calendar, which resulted in softer top line performance to start the year, although it was the right thing for the business. By early March, sales were back on track, and we began to build momentum as we headed toward the Easter holiday. During the first half of March, we quickly realized that we were in a very different environment following the outbreak of the coronavirus. At that point, we immediately shifted gears and began to task our supply chain to ensure we keep our employees safe while at the same time, ramping up production to ensure that we were doing the best that we could to satisfy what would become unprecedented demand for our products.

In fact, the last week of March was the strongest sales week in B&G company history with more than $65 million of net sales. We experienced strength in almost all of our brands, but especially Green Giant, Ortega, Cream of Wheat, Clabber Girl, B&M, Bear Creek, Victoria and Underwood. Contrary to some belief that consumers were only pantry loading for the long term, consumers have been consuming a large percentage of the increased volume, driving continued strong performance throughout the month of April, with our net sales increasing more than $70 million or more than 60% ahead of last year for the 4 weeks ending April 25.

Now while we don't expect to see the same level of outperformance in the second quarter and long term, our open orders through the middle of May show similar growth as April. This outsized sales performance was driven by strong retail consumption in the quarter. Consumption, as reported by Nielsen services for all of B&G Foods increased 12% for the 13 weeks ending March 28, driven by a strong 5-week March of plus 44% and specifically driven by the last 2 weeks of March by plus 87%. In fact, for the week ending March 21, consumption of all B&G food products more than doubled at 122% versus last year. Several of our brands doubled or nearly doubled their year ago consumption for the entire month of March, including Green Giant and Le Sueur canned vegetables, Clabber Girl baking powder, B&M baked beans, Underwood, Victoria and McCann's. Total B&G Foods consumption trends have continued very strong in April, with the 4 weeks ending April 25 up nearly 41% versus last year.

B&G Foods is largely a North American retail-oriented business with a portfolio with distinct advantages in this current environment. These strong consumption trends are a testament to the popularity and consumer trust in our brands and their utility as consumers prepare more meals at home. However, we have experienced softness in our food service business, which represents approximately 13% of our net sales in 2019. We expect that our food service sales will remain challenged as people continue to shelter in place, and their away-from-home eating options remain limited. Some of the businesses mostly impacted by the decrease in foodservice sales include our spices and seasoning business, B&G brand, Don Pepino and Maple Grove Farms.

While our overall business is trending very strong, we do recognize brand building and innovation remain critical pieces to our long-term success. And while the innovation we plan to introduce this year will be delayed somewhat due to the retailer movement of reset timing and the manufacturing focus on getting existing products to the shelf first, we plan to step-up investment against our new products to ensure their success. Any loss in sales from delayed resets and other innovation delays will be more than made up in the current consumption trends of our stable of core brands like Green Giant canned and frozen vegetables, B&M, Bear Creek soup mixes, Polaner All Fruit, Victoria pasta sauce and Underwood. Our largest innovation is in Green Giant frozen vegetables, where we will continue to launch (inaudible) we began in the fall of 2019 with Green Giant Pizza with Cauliflower Crust, Green Giant Veggie Hash Browns, Green Giant Cauliflower Gnocchi, and Giant Green Cauliflower Breadsticks, which are already in distribution in an average of 40% of the ACV and performing very well there.

In addition, we are very excited about our recent Farmwise acquisition as we expect it will add fuel to our Green Giant innovation pipeline as well as provide us a brand name more appropriate for the natural channel. This fall, we plan to leverage this acquisition of Farmwise by introducing Green Giant Veggie Fries, an innovative new varieties, including zucchini garlic parmesan, cauliflower ranch and bacon and broccoli and cheese, along with a totally new product called Green Giant Veggie Rings, our cauliflower-based take on onion rings. These will come in varieties such as cauliflower, French onion and cauliflower three cheese and bacon. Regarding the Farmwise brand, we plan to relaunch the brand in the natural channel, plus a few current mainstream retail customers later this year as well.

On the grocery side of the business, we will continue to launch a shelf-stable version of Green Giant rice veggies, a nutritious alternative to traditional dry rice made from 100% plant-based lagoons like lentils, sweet peas and chickpeas. Retailer acceptance of this innovation has been very good, and we expect to be in 30% of the ACV by year-end, less than anticipated due to category resets being canceled or delayed due to COVID-19, but building throughout 2021 with a targeted goal of 65% ACV.

Not to be outdone by Green Giant, the Ortega brand is moving ahead with its introduction of cauliflower taco shells and cauliflower tortillas as well as a line of street taco sauces. These new products have been very well received by our customers, with many of them saying it's the first real innovation they've seen in the category in quite some time. We expect to achieve an average 30% ACV distribution by year-end, also less than anticipated due to delayed category resets, but we expect this will continue to build in 2021 with a goal of 75% ACV.

Another area in which we will make additional investment this year is in e-commerce. We estimate our e-commerce sales at less than 1% of our business. And although it's really has taken off this past quarter, growing more than 100% on Amazon alone, we know we need to catch up to many of our competitors in this space. By the end of 2020, we plan to make significant progress in building our e-commerce capability by completing the foundational work needed on our digital imaging, content and product data, improving our product offerings with innovation and e-commerce friendly packaging and improved data compliance. We will combine this with a greater investment in internal resources including marketing, sales and supply chain personnel, along with increased investments to build out our e-commerce shopper marketing program, including branded stores, banner ads, social media links, and search engine optimization amongst other activities.

Lastly, B&G Foods has long been a supporter of the communities in which we live and work and that has only accelerated during this time of crisis. In addition to our partnership with St. Jude's Hospital, we've established relationships with Feeding America and No Kid Hungry, and they're using our electronic billboards in Times Square, New York, along with our social media channels to help raise awareness for these very important charitable causes.

In summary, B&G Foods has so far successfully managed through these very trying times by keeping focused on our highest priorities, executing the plan with which we entered the year, and then quickly exercise the adaptability and determination for which our company is known to respond to an unprecedented time in our country and in our world. I am extremely proud of our employees, and I'm confident they can continue their terrific performance going forward. I will return later to provide perspective on our path forward (inaudible) our first quarter in more detail and thoughts about the remainder of the year.

Bruce?

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [3]

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Thank you, Ken. Good afternoon, everyone. I hope that you and your families are staying safe and healthy.

Before I begin, I would also like to add my own thanks to our incredible team of dedicated employees across all of B&G Foods for their hard work during this time. As Ken mentioned earlier in the call, while the onset of the coronavirus has been traumatic in its human and economic costs, the measures that we have taken as a society to combat it, particularly with regards to social distancing and staying home, have led to a significant increase in Americans preparing and eating their meals at home. And this is something that we expect to continue at some level for an extended period of time.

We constructed our portfolio of brands over time to include a broad range of shelf-stable products and frozen vegetables. These are exactly the types of brands and products that consumers are gravitating to in the current environment, and we are happy to be doing our part to help feed America. Not surprisingly, given this backdrop and our portfolio of brands, we had a very strong finish to the first quarter of 2020, with outsized growth in March in terms of net sales and adjusted EBITDA. This was driven by the final 2 weeks of the month, which had frenzy demand for our products and coincided with the establishment of the country's social distant policies, stay-at-home mandates and the shutdown of large portions of the economy. We have seen this heightened demand for our products continue throughout April and into the beginning of May.

In the first quarter of 2020, we reported net sales of $449.4 million, adjusted EBITDA of $80.7 million and adjusted diluted earnings per share of $0.46, results that are far greater than we had expected in the beginning of the year. Adjusted EBITDA as a percentage of net sales was 18% for the quarter, which is in line with our expectations for the quarter and for the year. We were negatively impacted by about $1.9 million in FX for the quarter as well as some discrete incremental spending associated with coronavirus preparedness that I will walk through a little later on the call. Absent these costs, we would have generated a little bit more than $83 million of adjusted EBITDA and approximately 18.5% in adjusted EBITDA as a percentage of net sales. Net sales for the quarter represented an increase of $36.7 million or 8.9% versus the year ago period. The acquisition of Clabber Girl in May of 2019 benefited the company and contributed approximately $18.7 million to the first quarter of 2020 net sales.

Base business net sales, which excludes the impact of M&A, increased by $17.8 million or 4.3%. First quarter 2020 net sales benefited by approximately $9.2 million from net pricing, inclusive of the wraparound benefit of our spring 2019 list price increase in our trade spend optimization program. These pricing benefits were complemented by approximately $8.2 million from increased volumes in our base business. As a reminder, while we are seeing a tremendous benefit from increased consumption following the onset of the coronavirus, we really only began to see these benefits in the final 2 weeks of the quarter.

Green Giant led our performance with net sales increasing by $22.2 million or 16.3% in the quarter. We saw outsized growth in net sales of both our frozen and shelf-stable Green Giant products. Frozen growth was driven by our core legacy frozen bag and frozen bag-in-box lines as well as our innovation products. Frozen innovation net sales growth was primarily driven by our power innovation SKUs as well as Green Giant Rice Veggies and Green Giant Veggie Spirals. While many of our 2020 innovation launches have been delayed as a result of the turmoil that is occurring in the grocery aisles as our retail partners are focused on keeping their largest and fastest turning items on the shelf.

Among our other large brands, Victoria was the leader and increased net sales by $1.9 million or 17.4%. New York Style had another strong quarter, and net sales increased by $1 million or 11.1%. Cream of Wheat increased by $1.5 million or 8.7%, Ortega increased by $1.5 million or 4.1%. Maple Grove Farms increased by $0.5 million or 3%. Net sales for our spices and seasonings business, inclusive of the business that we acquired in 2016 and our legacy brands, such as Dash and Ac’cent, were down significantly. Unlike the majority of our business, spices and seasonings has a significant foodservice weighting, and these sales were negatively impacted by the coronavirus and the resulting shutdown of large portions of the American economy. This is the 1 significant area of our portfolio where we have seen a negative drag on performance. And not surprisingly, net sales were down $12.9 million or 15%.

Clabber Girl, which we acquired in mid-May 2019, also performed exceptionally well. As I mentioned earlier in the call, Clabber Girl generated $18.7 million in net sales during the first quarter. And while we didn't own the business at this point last year, and that's all of the sales are purely incremental, the business generated approximately $15 million in net sales under the prior ownership's watch during the same time period last year.

I would also like to highlight our quarterly net sales performance for some of the other brands in our portfolio. B&M which increased net sales by $1.7 million or 49% had outstanding performance in the first quarter. Net sales of McCann's Irish Oatmeal increased by $0.7 million or 20.9% as that brand continued to build momentum since our acquisition. Others, such as Las Palmas, increased net sales by $1.1 million or 12.3%; Mama Mary's increased net sales by $0.9 million or 12.8%; and Underwood increased net sales by $0.7 million or 13.2%.

Gross profit was $104.9 million for the first quarter of 2020 or 23.3% of net sales. Excluding the negative impact of approximately $2.3 million of acquisition, divestiture-related and nonrecurring expenses during the first quarter of 2020, gross profit would have been $107.2 million or 23.9% of net sales. Gross profit was $88.1 million for the first quarter of 2019 or 21.3% of net sales. Excluding the negative impact of $13.1 million of acquisition divestiture-related and nonrecurring expenses during the first quarter of 2019, gross profit would have been $101.2 million or 24.5% of net sales.

Selling, general and administrative expenses were $40 million in the first quarter of 2020 or 8.9% of the quarter's net sales, up slightly in dollar terms but a decrease as a percentage of net sales. Selling, general and administrative expenses were $38.3 million in the prior year quarter, which was 9.3% of net sales or an improvement of almost 50 basis points. The dollar increase was composed of increases in selling expenses of $2 million and general and administrative expenses of $1.7 million, partially offset by a decrease in M&A and nonrecurring expenses of $1.2 million, consumer marketing of $0.5 million and warehousing expense of $0.3 million.

We generated $80.7 million in adjusted EBITDA in the first quarter of 2020 compared to $75.8 million in the prior year period. The increase of $4.9 million in adjusted EBITDA represents our second consecutive quarterly increase in adjusted EBITDA, which follows our finally lapping the 1-year anniversary of the divestiture of Pirate Brands in the fourth quarter of last year. Adjusted EBITDA as a percentage of net sales was 18% for the first quarter of 2020, which is consistent with our performance last year and our expectations for full year 2020.

While we are seeing unprecedented growth in net sales and representative increases in adjusted EBITDA, we haven't necessarily seen an outsized increase in margins from the incremental sales, driven by some of the incremental costs associated with the coronavirus. For example, we have engaged in precautionary screenings for factory workers, enhanced cleaning of our facilities, and we are paying additional compensation for our factory workers. Additionally, we had an increase of nearly $2 million related to transactional losses related to FX during the quarter, which helped to depress our profits. Absent these charges, we would have delivered a little bit more than $83 million in adjusted EBITDA and approximately 18.5% in adjusted EBITDA as a percentage of net sales. While we expect elevated costs associated with operating in the age of the coronavirus throughout the rest of the year, we also expect operating leverage of our increased net sales on our corporate structure and enhanced utilization in our factories to largely offset these costs.

Net interest expense was $26 million in the first quarter of 2020, an increase of almost $3 million that was largely expected over the prior year period. Net interest was negatively impacted during the quarter, primarily due to incremental borrowing used to fund our acquisition of Clabber Girl as well as our share repurchases last year and the higher cost of debt associated with last year's refinancing of our 4 5/8% notes. Additionally, we have also drawn on our revolver, and we were sitting on more than $125 million in cash at the end of the quarter as a precautionary measure, which, while the right decision to take for the company, has involved an increase in our interest expense.

Separately, we do expect to see some benefits in the back half of the year as a result of lower interest rates, which should help create favorable result for us with regards to our term loan that carries a rate of LIBOR plus 250 basis points. As a reminder, LIBOR was at approximately 2.2% when we placed our term loan last year compared to approximately 1% today or 120 basis points cheaper.

We generated $0.46 in adjusted diluted earnings per share in the first quarter of 2020 compared to $0.44 in adjusted diluted earnings per share in the prior year period, benefiting from improved operating performance, a lower effective tax rate and a reduction in our share count.

Cash generation was strong for the first quarter of 2020, as expected, with $57.6 million in net cash provided by operating activities versus $50.3 million in the first quarter of 2019. The unprecedented demand for our products in the final 2 weeks of the quarter led to a greater-than-expected decrease in inventories, with inventories decreasing from $472.2 million at the end of fiscal 2019 to $399.2 million at the end of the first quarter. This benefit was offset in part with an increase in accounts receivable, particularly for those sales at the very end of the quarter, to $200.6 million from $143.9 million at the end of fiscal 2019 and compared to $162.8 million at the end of the first quarter 2019.

Finally, it should come as no surprise to long time followers of B&G Foods that our management team and our Board of Directors remain committed to our long-standing dividend policy. And during the first quarter, on February 24, 2020, our Board of Directors declared B&G Foods 62nd consecutive quarterly dividend in the amount of $0.475 per share.

Now I would like to touch on our expectations for fiscal 2020. As you know, the guidance that we issued a little more than 2 months ago on February 25, called for net sales to be in the range of $1.66 billion to $1.68 billion, adjusted EBITDA to be in the range of $302.5 million to $312.5 million and adjusted diluted earnings per share to be in the range of $1.60 to $1.80. Based on our results through today, we expect to materially exceed that guidance for 2020. We also believe that improving P&L results will drive increased cash flows and help us to accelerate the deleveraging of our balance sheet. However, the ultimate impact of the coronavirus on our business will depend on many factors, including, among others, the duration of social distancing and stay-at-home mandates and whether a second or third wave of coronavirus will affect the United States and the rest of North America.

Our company's ability to continue to operate our manufacturing facilities and maintain our supply chain without material disruption and the extent to which macroeconomic conditions resulting from the pandemic and the pace of the subsequent recovery may impact consumer eating habits. At this time, we are unable to fully estimate the impact that the coronavirus will have on our company's second quarter, third quarter and full year fiscal 2020 results. And therefore, we are unable at this time to provide guidance for the remainder of 2020. We do, however, expect our performance to be strong for the remainder of the year. We had our strongest finish to the quarter ever, and that momentum has continued into the second quarter with April net sales through the week ending April 25, increasing by more than $70 million or more than 60% of as compared to last year, and we expect continued outperformance.

Early indications suggest that net sales in May will also be quite robust and materially larger than net sales in May of 2019. We have continued to generate substantial cash from these incremental net sales as we work our way through the second quarter, and our cash position has increased from approximately $127 million at the end of the first quarter to approximately $200 million today, even after taking into account the $30 million quarterly dividend payment we made last week.

That being said, and based on everything that we know right now, we assume that our outperformance may have peaked as stay-at-home restrictions are starting to lessen, and markets are starting to reopen in certain parts of the country. We don't know the pace as to which consumers will begin to return to eating some of their meals away from home, but we expect the hyper-growth in net sales we are seeing today to moderate over time as stay-at-home restrictions and work-from-home policies evolve. However, based on our experience with previous economic crisis and downturns, we expect to see modest growth continue with a meaningful and lasting shift from away-from-home consumption to at-home consumption that will persist for some time after the economy reopens due to the likely economic downturn that is broadly anticipated at this point. We also expect to see this shift benefit B&G Foods given our heavy portfolio weighting towards U.S. and Canadian traditional retail grocery.

Also, we have a portfolio of great tasting, high-quality branded foods. One of the key focuses has been to support our brands and our retail partners, leveraging our supply chain and logistics expertise to keep our products on the shelves and maintain historical fill rates as best we can, demonstrating to our customers our importance as long-term partners. While this is of utmost importance, we have also been focused on our end users and improving their consumer experience. We have seen tremendous demand from long-term consumers of our products. We are also seeing new consumers and increased trial during this period of heavy consumption, and we believe this will translate into increased demand over time.

We certainly believe that we will come out of the coronavirus period better positioned to grow our business, reduce leverage and generate value for our shareholders. On the other side of the coin, we do have some factors that could limit our performance. We are currently selling everything we can produce for most of our brands. Our factories are running full steam ahead as are those of our co-packing partners. We are also working with our suppliers, particularly with regards to our seasonal pack that supports Green Giant, so that we can really lean in from a production standpoint and satisfy all of this demand. And as Ken mentioned earlier, thanks in part to the precautionary measures we have taken and the cooperation of our manufacturing and other employees in adhering to those policies, together, we have been able to help flatten the curve and keep each other safe, and we have been blessed with limited disruptions to date to our supply chain, both in terms of manufacturing and distribution and more importantly, very few coronavirus tests.

We do expect to continue to invest in our manufacturing facilities and our dedicated manufacturing employees at this very difficult time. And we also expect to reinvest some of our incremental proceeds in additional consumer marketing and an acceleration of our e-commerce readiness efforts. So while we do not know how long this unprecedented increased demand for our products will last and while there are risks associated with operating in this unprecedented environment that could cap our upside performance and while we also plan to make incremental investments in brand building and e-commerce preparedness, that we will look to fund with our anticipated incremental cash flows, we do believe that we will materially exceed the guidance that we provided to you just 2 months ago. We look forward to providing in the coming months additional insight as to our plans and expectations for the remainder of the year as we get a better understanding of the extent to which the coronavirus resulting societal changes will impact our full year results.

I would now like to turn the call back over to Ken.

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Kenneth G. Romanzi, B&G Foods, Inc. - President, CEO & Director [4]

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Thank you, Bruce. While the coronavirus pandemic is still evolving, we believe that the foundation we have built at B&G Foods has positioned us to come out of the crisis stronger than we entered it. As Bruce mentioned, we believe we will have elevated financial performance throughout the crisis and beyond as consumers gravitate toward our products while cooking and eating more at home. We also plan to take this opportunity to make incremental investments behind brand innovation and e-commerce preparedness.

We are optimistic because we believe that the increase in consumers eating at home is resulting in trial among a new set of consumers we were not reaching previously. Our consumer research has uncovered encouraging news regarding bringing new consumers into our franchise. We believe new households are like a fountain of youth to food brands, and our research shows that the percent increase in total brand buyers due to new buyers since the COVID-19 outbreak ranged from 15% to 45% amongst B&G food brands. As a result, we're seeing a significant increase in volume from new buyers, increasing by an estimate of between 14% to 53% across our brands.

Encouragingly, new brand buyers during this time indicate they have a strong appetite to continue buying our brands as the repurchase intent or the percent of new buyers who plan to buy again, range from 40% to 82% among our brands. So going forward, our job is very clear. We must work hard to retain as many of these new households as possible.

So we're optimistic about our outlook for 2020, powered by changes in consumer behavior, our stable of time-tested and trusted brands, ideal for preparing meals at home and the strength, flexibility and commitment of our employees to excel even during these most difficult times. We look forward to updating you on our progress over the course of the year. In the meantime, I pray that all of you and your families and friends remain safe and healthy.

This concludes our remarks today. And now we'd like to begin the Q&A portion of our call. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Andrew Lazar of Barclays.

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Andrew Lazar, Barclays Bank PLC, Research Division - MD & Senior Research Analyst [2]

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Got 2 questions, if I could. The first one is more of a quick one. I know that you had mentioned that overall consumption in 1Q, I think, was up 12% or so. And that was a little ahead of overall sales growth and obviously well ahead of the organic increase of a little over 4%. I was hoping you could just kind of bridge those 2 for us a little bit. I don't know if there was any inventory drawdown. I guess in any couple of week period, you can have differentials, obviously, between consumption and shipments due to retailer inventory levels. And then I've just got a follow-up.

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Kenneth G. Romanzi, B&G Foods, Inc. - President, CEO & Director [3]

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Well, we see any inventory...

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [4]

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I think part of the -- sorry, go ahead, Ken.

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Kenneth G. Romanzi, B&G Foods, Inc. - President, CEO & Director [5]

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No. Go ahead.

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [6]

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Yes. Part of it also, Andrew, is we saw massive sales in April. And so there may be a little bit of a timing, as you referenced. So we had, as Ken mentioned on the call, our busiest week ever to close out March, and then just continued strong demand through April. So I think it just is a matter of shipments catching up.

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Kenneth G. Romanzi, B&G Foods, Inc. - President, CEO & Director [7]

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Also shipments would have lagged a little bit on consumption because although not a big part of our business, our foodservice business, as we mentioned, was very soft and started out the year very strong, and then in March really was soft and continues to be soft. So that would be a driver of the shipment number of our total business, net sales numbers growth being less than our consumption growth.

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Andrew Lazar, Barclays Bank PLC, Research Division - MD & Senior Research Analyst [8]

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Got it. And it's interesting from what we're hearing, I assume the same is true for you guys is that obviously, retailer inventories are also incredibly low by any historical measure, just given, obviously, they're shelving everything they basically have. So anyway, it will be interesting as time goes on. If people are worried about some big sort of pantry unwind or something, even though there's clearly consumption happening with people at home, one would think retailers are going to have to restock inventory at some point as well. And I don't know, maybe even have to reappraise what an ongoing level of inventory might look like going forward. But I assume that's your levels of retail inventory at this stage are also very low.

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Kenneth G. Romanzi, B&G Foods, Inc. - President, CEO & Director [9]

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Well, you're right. We don't expect there's going to be a pantry de-loading to a great degree because of how frequently we're seeing consumers come back, and research that shows that most people are -- very, very high percentage of people, based on research we've heard, are coming back within 2 weeks. So not staying out of the grocery store for long periods of time. And just our continued strong consumption in order rates through April and May. We don't think people are -- the data doesn't suggest that all they're doing is stocking their pantry. There was probably a little bit of that in that spike in March, in mid-March, but since then, it's been pretty consistent.

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Andrew Lazar, Barclays Bank PLC, Research Division - MD & Senior Research Analyst [10]

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Yes. I mean more interesting, I think, is -- and I appreciate your commentary towards the end of your prepared remarks around sort of trial and repeat. Because I think that's really going to be interesting to track for a lot of the packaged food brands that are getting all this trial as many of yours are and how successful you and others can be in converting even some portion of those new trialers, if you will, into more permanent consumers. Can you -- and you went through a couple of numbers pretty quickly, but I was hoping you could just cover that a little bit more. Just where -- I guess where does that data sort of come from? I assume it's just sort of panel survey type data of consumers. And how do you parse out how much of that is consumers that are still in a current mindset, if you will, of sort of all things pandemic versus maybe when we're in a more normalized sort of environment, what the repeat could look like? So any comments there would be really helpful.

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Kenneth G. Romanzi, B&G Foods, Inc. - President, CEO & Director [11]

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Well, some of the data came from third-party resources, but some of it also came from our own consumer research that we didn't do new this time. It's something that we do ongoing. So it was -- the interesting and very encouraging news was that during the Easter period, for instance, we usually see a jump in households given the brands that tend to drive higher seasonality during that time frame. But we saw even bigger increases this year than we've ever seen in the past. So it's encouraging. In fact, any time you can get new household, that's a very hard thing to do. Any time you can get new households, just retaining some of them should have a positive impact.

So while -- well, we certainly won't project out the sales growth rates that we're seeing now, we want to closely monitor this so that we can get -- when things return to "normal," we're going to have to include this in our brand forecasting going forward. It's just like a new product. You take a new product and you measure, trial, and you measure, repeat and you project out what the volume can be. So a new household on an old brand, that's like a new product. So we really have to kind of apply those consumer marketing disciplines to determine the long-term effect on the brands.

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Operator [12]

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Our next question comes from David Palmer of Evercore ISI.

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David Sterling Palmer, Evercore ISI Institutional Equities, Research Division - Senior MD & Fundamental Research Analyst [13]

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Your comments about April growth of 60% and similar growth based on the orders for May, that's obviously pretty remarkable stuff. It looks like you've swung from under shipping consumption by 8 points or so based on your numbers to out shipping consumption just based upon some of the consumption numbers that we saw for April might be a 20, 30 points light of the type of growth that you're seeing in terms of your shipments, although if we were to spread that over the quarter, that might be more like 10 points, whatever. But as you said, May continues to be very strong on the demand for shipments. So do you see shipments outpacing consumption at this point? And how do you think -- why do you think that is? And where do you see this quarter playing out in terms of how you're going to end with retailer inventory? And I have a follow-up.

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Kenneth G. Romanzi, B&G Foods, Inc. - President, CEO & Director [14]

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Yes. I think you have to be careful. The numbers don't always match exactly because not all of the business is measured by the consumption numbers. You have to look at them over time. So you can't pinpoint exact numbers. Keep in mind, if you listen to my -- carefully to the numbers, we shipped over 60% growth in April, and our order fill rate dropped below 90%. We could have shipped a lot more, if we had our historical 98.5%, 98.4% order fill. So the demand is really there. And you can't look at 1 month and have the same exact numbers between shipping and consumption. There are shipments that go through unmeasured channels and -- or unmeasured customers. And of course, the foodservice element I talked before has the opposite effect on that.

So, so far, with the -- that's why we're so -- I mean, we're -- we don't believe this will last forever, but we are so attentive to what's happening with our order patterns and our open orders and how we can see them now into the third week of May as of today, and they remain strong. So our own inventories have been dramatically depleted. So we're -- as Bruce said, we're producing everything we can sell. And when things slow down, we'll actually have a chance to rebuild some of our inventory to rebuild our customer fill rates to the traditional high 90s like we normally want to do. But right now, we're producing everything we can to meet this spike in demand that continues.

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David Sterling Palmer, Evercore ISI Institutional Equities, Research Division - Senior MD & Fundamental Research Analyst [15]

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And then just 2 quick ones in terms of how we should think about our modeling going forward. You talked about the $70 million of revenue growth in the month of April. If we were just to say round numbers, just -- even though it's not going to be this number, but you had $100 million of new sales or of incremental sales in this quarter, should we think of that being EBITDA of $19 million to $20 million or something like that, which would be similar to your EBITDA margin in the past? Bruce, you made a comment about incremental cost being offset by the leverage, still hard to believe that at that type of sales, you wouldn't get -- even with a co-packer model in a large part of your business, you wouldn't get some leverage that would outpace your cost. So any comment on that?

And then thinking about free cash flow conversion of EBITDA for this year, how would we think about that for 2020? Anything unusual that you would think would impact that? And I'll pass it on.

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Kenneth G. Romanzi, B&G Foods, Inc. - President, CEO & Director [16]

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I'll let Bruce answer in more detail, but to be clear, we do about half of our business through co-packers. We do not see volume leverage with our co-packers. So our rates -- to a great extent. So about half of our business that is doing well in our own manufacturing, we do expect to see -- to get leverage off of that volume and the incremental margin off of that volume. But there -- as Bruce mentioned, there are higher costs. So it's a really unprecedented time right now to pinpoint that, but we will have materially increase in sales, and we will have margin that will cover a lot of those increased costs.

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [17]

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And so to Ken's point, I think if we were in that 18%, 18.5% margin area, we would be happy because it means things are going well. And from a cash standpoint, the cash should follow the sales. We're always pretty efficient from a cash flow standpoint. As I said on the call earlier, we finished the first quarter with a little bit more than $125 million in cash. We were sitting on a little -- somewhere around $200 million today in cash, and that's after paying our dividend payment.

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Operator [18]

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(Operator Instructions) Our next question comes from William Reuter of Bank of America.

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Unidentified Analyst, [19]

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This is Mary on for Bill. First, just on private label environment. Have you seen any shift towards or away from private label? And do you expect that their share may increase as consumers become more focused on value?

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Kenneth G. Romanzi, B&G Foods, Inc. - President, CEO & Director [20]

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I think we've been in that mid- to high teens private label as a percent of U.S. grocery for some time, and there's increased demand for private label, and there's increased demand for branded food and people are eating at home. And I think we should expect that to continue.

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Unidentified Analyst, [21]

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Got it. And then lastly, how are you thinking about timing as far as repaying your revolver balance?

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Kenneth G. Romanzi, B&G Foods, Inc. - President, CEO & Director [22]

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I think we're watching how the world evolves. We drew down a little bit on the revolver as a precautionary matter as the whole coronavirus started to sweep through, and we're going to continue to monitor things just to be on the safe side. Our revolver is fairly cheap, we're L plus 175 from a cost standpoint.

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Operator [23]

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Our next question comes from Bryan Hunt of Wells Fargo Securities.

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Bryan Cecil Hunt, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [24]

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My first question is you have generated a significant amount of excess cash. If I think about discretionary cash, in the month of April, it's over $100 million. Is there any way you could put some bands around the incremental spending you plan on doing to develop your e-comm as well as the heightened marketing you planned on you plan on putting some incremental cash to work in kind of given the windfall you're seeing today?

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [25]

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I think from a timing standpoint, we're going to let the year build and continue to generate that cash. I don't think it's going to be material where it's going to hurt margins necessarily, but we do see an opportunity as we work through the year to continue to invest in our brands, continue to develop our e-commerce capabilities. And we think it's a good opportunity to do so while we're benefiting from this increased demand.

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Bryan Cecil Hunt, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [26]

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Okay. And my second question is, do you see any opportunities to put money to work on CapEx to improve your throughput in the very short-term and/or take advantage of high-return opportunities that you may have, given that, again, you have a cash windfall? And can you remind us what your CapEx guidance is for the year?

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [27]

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Yes. CapEx was $45 million was our guidance. That's probably still a fair number. And that probably has some of those investment opportunities in there. If you think about the last couple years, we were implementing our ERP system. And so that's largely done. And so we are already planning on putting some money to work from a growth standpoint anyway. We feel pretty good about that number.

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Kenneth G. Romanzi, B&G Foods, Inc. - President, CEO & Director [28]

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Yes. Our plan also included investments to drive efficiency and throughputs in our facilities. But specific answer to your question, there are no short-term things that we can turn on a dime to do. Normally, those things are pretty long lead time projects. So we're staying with our capital plan as indicated with some minor variations where we can, but nothing major.

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Operator [29]

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Our next question comes from Karru Martinson of Jefferies.

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Karru Martinson, Jefferies LLC, Research Division - Analyst [30]

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Just on the foodservice part, the 13% of sales, where are you on that today? I mean has that grounded down to 0? And -- or are we still seeing some throughput on that?

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Kenneth G. Romanzi, B&G Foods, Inc. - President, CEO & Director [31]

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Not 0. We still are seeing foodservice sales, but certainly, you saw it with our spice business, it was down. And I think that will come back as people start to go back to work, go back to restaurants and get out of the stay at home. And so for us, it's a small part of the business. So we're getting the large benefit from a retail branded grocery standpoint. And a little bit of a drag from a foodservice standpoint.

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Karru Martinson, Jefferies LLC, Research Division - Analyst [32]

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Okay. And just wondering, in terms of the investments that you're making, today it's Cinco de Mayo. Ortega would have had a great opportunity to sell-through. Where are you reallocating marketing dollars here in the front end that may not be invested given that the demand is so strong?

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Kenneth G. Romanzi, B&G Foods, Inc. - President, CEO & Director [33]

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Well, we certainly took part in the Cinco de Mayo promotions with -- in all -- many retailers with Ortega. Ortega participated in that like it normally does. We did hold back some dollars when it was -- where we could because there was driving demand even higher, when we were seeing order fill rates decline was not something. So we'll take those dollars and reapply them mostly in the second half of the year as well as some incremental investments. Mostly, just getting ready on e-commerce and accelerating that time frame we were already planning for this year as well as supporting the innovation. Since we're launching it later, we'll be putting a little bit more of the awareness and trial efforts against the Green Giant and Ortega innovation in particular.

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Operator [34]

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Our next question comes from Carla Casella of JPMorgan.

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Carla Casella, JP Morgan Chase & Co, Research Division - MD & Senior Analyst [35]

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Just a couple little follow-ups on the prior questions. Can you tell us how much of your foodservice customers are -- have their locations closed versus they're just operating on a limited basis?

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [36]

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Most of our foodservice customers are the large institutional guys.

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Carla Casella, JP Morgan Chase & Co, Research Division - MD & Senior Analyst [37]

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Okay. And then it sounds like the cost increases from the bonuses you pay and the extra spacing, et cetera, it sounds like you do expect the sales windfall to more than offset those increased costs. Is that the right way to read it?

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

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From an incremental EBITDA dollar standpoint, yes. From a margin standpoint, not necessarily, maybe a little.

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Carla Casella, JP Morgan Chase & Co, Research Division - MD & Senior Analyst [39]

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Right. Okay. And then are there any of your -- the nonfoodservice customers or the foodservice customers where you have a concern or bad debt expense concerns? Receivable balances.

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

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Nothing material. I mean obviously, at the end of March, we were watching things pretty carefully in early April, but people seem to have been able to maintain their businesses.

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Operator [41]

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Our next question comes from Rob Dickerson of Jefferies.

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Matthew Jacob Fishbein, Jefferies LLC, Research Division - Equity Associate [42]

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It's Matt Fishbein on for Rob. Just a quick 1 to follow-up. Sorry if I missed it, but did you give a dollar amount of the incremental costs related to the COVID-19 situation in the quarter? And how much of these would you consider nonrecurring? Some of these costs like the incentives, they sound like they're onetime in nature, but which of these new costs are maybe a little bit stickier as we think about employee screenings and protective equipment. How should we think about those costs in Q2, assuming they would be higher than they were in Q1 and maybe beyond in the rest of the year?

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [43]

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Yes. Less than $1 million in Q1, and the cost will probably continue so long as we're in the current environment that we are in. And as that environment begins to recede, I think those costs will start to normalize.

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Operator [44]

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Our next question comes from Hale Holden of Barclays.

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Hale Holden, Barclays Bank PLC, Research Division - MD [45]

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I just had 2 quick ones for you guys. I was wondering with the excess cash that you're generating, sort of given any thought to restarting or becoming more aggressive with share repurchases?

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Bruce C. Wacha, B&G Foods, Inc. - CFO & Executive VP of Finance [46]

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I think we're looking at the entire capital structure. And so we do have a share repurchase program in place. We ended up not buying any shares last quarter, but we're also looking at our debt levels as well. We'd like to come out of this with [better profile] than we went into it.

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Hale Holden, Barclays Bank PLC, Research Division - MD [47]

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My second one is, you guys said that I think in the script one of the brands you had was up with 45% trial and repeat. I think it was the range of 15% to 45%. And I was wondering what brand was at the high end of the 45% range?

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Kenneth G. Romanzi, B&G Foods, Inc. - President, CEO & Director [48]

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Let me -- I'll have to look at that.

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Hale Holden, Barclays Bank PLC, Research Division - MD [49]

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It's new consumers in their category, new households, use in the brands, increasing brand buyers due to new buyers, between 15% and 45% among brands that you are seeing new consumers come into. I can come back to you guys on that.

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Kenneth G. Romanzi, B&G Foods, Inc. - President, CEO & Director [50]

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I'm just trying to open up the -- Green Giant was the large one. You're saying the percentage of new buyers?

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Hale Holden, Barclays Bank PLC, Research Division - MD [51]

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Yes. New buyers in the category.

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Kenneth G. Romanzi, B&G Foods, Inc. - President, CEO & Director [52]

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New buyers...

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

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You're going to see brands like Green Giant, even McCann's.

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Kenneth G. Romanzi, B&G Foods, Inc. - President, CEO & Director [54]

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Yes. Green Giant, Victoria was very high at 40%, Polaner All Fruit was 40%.

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Operator [55]

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Our next question comes from Ken Zaslow of BMO.

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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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Just 2 for me. One is you said that your new product innovation is still going on as scheduled. Is that -- how are you getting the placements of that? Is that -- that seems a little unusual given more and more companies are saying, they're just kind of sticking with their core products. Can you discuss that? And my next -- my second question would be, I know it's early, but the optimism that you have seems almost a point to the idea that you potentially may actually eventually change your long-term growth algorithm. Is that on the table? It just seems the emphatic nature of what you're doing. Those are my 2 questions, and I'll leave it there.

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Kenneth G. Romanzi, B&G Foods, Inc. - President, CEO & Director [57]

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Well, I'll start with the second one first. It is way too early to try to think about a long-term growth algorithm, while we're still in the middle, as you can see. We're still -- it's not over for us. I mean in -- our growth rate in April and May is going to be higher than our growth rate in March. So we're trying to figure out just the short-term and making sure that we're filling our customer demand in a high-quality way and keeping our employees safe. I think it's going to take a while for us to figure out whether or not there's any long-term algorithm change.

We hope that we can emerge stronger than we came in, and that will be something that we'll have to look at going forward. We -- in terms of innovation, we didn't say it was business as usual. We are planning to launch the new products that we had planned to launch in 2020 yet just many of them, just about all of them are delayed because of the retailers changing their timing on when they're going to reset shelves. So we're working with our retail partners based on when they want to reset, and many of them are delaying, not canceling resets for 2020.

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Operator [58]

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This concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.