Parsippany / NJ. (bgs) B+G Foods Inc. announced financial results for the fourth quarter and full year 2017.
Fourth Quarter 2017 Financial Highlights
- Completed the acquisition of and fully integrated Back to Nature
- Net sales increased by 14.5 percent to USD 473.7 million
- Net income increased by 857.5 percent to USD 129.9 million (primarily due to a benefit on the re-measurement of deferred tax liabilities as a result of the U.S. Tax Cuts and Jobs Act)
- Adjusted net income increased by 93.6 percent to USD 37.6 million
- Diluted earnings per share increased 875.0 percent to USD 1.95 (primarily due to a benefit on the re-measurement of deferred tax liabilities as a result of the U.S. Tax Cuts and Jobs Act)
- Adjusted diluted earnings per share increased 96.6 percent to USD 0.57
- Adjusted Ebitda increased 10.5 percent to USD 68.9 million
Full Year 2017 Financial Highlights
- Completed the integrations of the recently acquired spices + seasonings, Victoria and Back to Nature businesses
- Net sales increased by 20.0 percent to USD 1.67 billion
- Net income increased by 98.7 percent to USD 217.5 million (primarily due to a benefit on the re-measurement of deferred tax liabilities as a result of the U.S. Tax Cuts and Jobs Act)
- Adjusted net income increased by 7.2 percent to USD 140.5 million
- Diluted earnings per share increased by 88.4 percent to USD 3.26 for the year (primarily due to a benefit on the re-measurement of deferred tax liabilities as a result of the U.S. Tax Cuts and Jobs Act)
- Adjusted diluted earnings per share increased by 2.4 percent to USD 2.12
- Adjusted Ebitda increased by 3.5 percent to USD 333.2 million
Guidance for Full Year Fiscal 2018
- Net sales of USD 1.720 billion to USD 1.755 billion, including the impact of the new FASB revenue recognition standard, which the Company estimates will reduce net sales in 2018 by USD 20 million.3
- Adjusted Ebitda of USD 347.5 million to USD 365.0 million
- Adjusted diluted earnings per share of USD 2.05 to USD 2.25
- Expect to generate cash flows sufficient to reduce net debt by USD 125 million to USD 150 million by year end, after making expected dividend payments of approximately USD 124 million
Robert C. Cantwell, President and Chief Executive Officer of B+G Foods stated, «2017 was an impressive year of growth for B+G Foods as we added more than USD 275 million in net sales to deliver net sales of USD 1.67 billion. We have more than doubled the size of our business in just three short years, adding the requisite staff and infrastructure while never losing sight of the things that we do right that have made B+G Foods such a special place over the past 20 plus years.»
Cantwell continued, «In addition to generating company record net sales, we also generated company record adjusted Ebitda of USD 333.2 million, an increase of more than USD 10 million versus the prior year, and company record adjusted diluted EPS of USD 2.12, an increase of USD 0.05 per share versus the prior year. While we are disappointed that we did not achieve all of our objectives, we are proud of the work that we did growing our Green Giant frozen business and integrating the recently acquired spices + seasonings, Victoria and Back to Nature businesses.»
«Our net sales of Green Giant frozen products increased by more than 11 percent for the year, making Green Giant one of the fastest growing brands in the frozen foods aisle, while our spices + seasonings acquisition generated more than USD 260 million in net sales for the year compared to our initial forecast at the time of acquisition of USD 220 million, Victoria generated nearly USD 43 million in net sales for the year compared to our initial forecast at the time of acquisition of USD 41 million and Back to Nature generated more than USD 20 million in net sales for the fourth quarter 2017 compared to our initial forecast at the time of acquisition of USD 17.5 million.»
«We believe we are well positioned to continue to grow in 2018 and beyond. Our largest brands contribute more than 75 percent of our net sales and are in categories that we believe have growth prospects in excess of the broader packaged foods industry. We are addressing the modest cost headwinds that we are facing, including increased freight and transportation costs, with price increases that we are implementing across our portfolio, and with cost cutting initiatives. We expect to deliver strong net cash from operations and free cash flow in 2018 and remain committed to our longstanding dividend policy, which resulted in nearly USD 124 million in cash dividends being paid to our stockholders in 2017.»
Financial Results for the Fourth Quarter of 2017
Net sales increased by USD 60.0 million, or 14.5 percent, to USD 473.7 million in the fourth quarter of 2017 from USD 413.7 million in the fourth quarter of 2016. The net sales increase was due to an increase in unit volume of USD 65.6 million, partially offset by a decrease in net pricing of USD 5.6 million. The unit volume increase was primarily driven by an additional six weeks of net sales of the spices + seasonings business, acquired on November 21, 2016, an additional four weeks of net sales of Victoria, acquired on December 2, 2016, and three months of net sales of Back to Nature, acquired on October 2, 2017.
Base business net sales for the fourth quarter of 2017 were essentially flat at USD 380.9 million compared to USD 382.2 million in the fourth quarter of 2016. Net sales of Green Giant frozen products increased USD 18.7 million, or 23.4 percent, benefitting from the strong performance of new innovation products, and net sales of Pirate Brands increased USD 2.1 million, or 11.4 percent, benefitting from new distribution gains, plus momentum from a strong back-to-school season and successful promotional events. The net sales growth of Green Giant frozen products and Pirate Brands was offset by net sales declines for Green Giant shelf-stable products, whose net sales decreased USD 18.9 million, or 30.9 percent, primarily due to weak consumption trends and distribution losses with a key customer, the Company’s maple syrup products, whose net sales decreased USD 1.8 million, or 6.8 percent, primarily due to the Company’s decision during the first quarter of 2017 to discontinue certain private label sales, and Ortega, whose net sales decreased USD 1.8 million, or 5.0 percent, primarily due to heightened competitive activity.
Gross profit was USD 101.2 million for the fourth quarter of 2017 compared to USD 106.9 million for the fourth quarter of 2016. Gross profit expressed as a percentage of net sales was 21.4 percent in the fourth quarter of 2017 compared to 25.8 percent in the fourth quarter of 2016. Excluding the 0.9 percentage point impact of product mix and the 0.6 percentage point impact of acquisition-related and other non-recurring expenses, gross profit as a percentage of net sales decreased 2.9 percentage points. Approximately 1.7 percentage points of the decrease in gross profit percentage was due to an increase in warehousing and distribution costs and 1.2 percentage points of the decrease was due to a decrease in net pricing.
Selling, general and administrative expenses were USD 59.0 million in the fourth quarter of 2017, compared to USD 58.8 million in the fourth quarter of 2016, an increase of USD 0.2 million, or 0.4 percent. The quarter benefitted from reduced consumer marketing of USD 9.8 million offset by increases in acquisition-related and other non-recurring expenses of USD 6.8 million and selling expenses of USD 3.6 million (which includes increases of USD 2.2 million in brokerage expenses and USD 1.3 million in salesperson compensation). All other expenses decreased USD 0.4 million. Expressed as a percentage of net sales, selling, general and administrative expenses improved by 1.7 percentage points to 12.5 percent for the fourth quarter of 2017 compared to 14.2 percent for the fourth quarter of 2016.
Net interest expense was USD 26.8 million in the fourth quarter of 2017, compared to USD 18.9 million in the fourth quarter of 2016. The increase was primarily attributable to additional borrowings made in the fourth quarter of 2016 to fund the spices + seasonings acquisition and the Victoria acquisition and in the fourth quarter of 2017 to fund the Back to Nature acquisition, and the Company’s senior notes offerings in second quarter and fourth quarter of 2017.
The Company’s reported net income under U.S. generally accepted accounting principles (GAAP) was USD 129.9 million, or USD 1.95 per diluted share, for the fourth quarter of 2017, as compared to reported net income of USD 13.6 million, or USD 0.20 per diluted share, for the fourth quarter of 2016. The increase in reported net income was primarily due to a benefit on the re-measurement of deferred tax liabilities, including acquisition-related deferred tax liabilities, as a result of the recently enacted U.S. Tax Cuts and Jobs Act.
The Company’s adjusted net income for the fourth quarter of 2017, which excludes acquisition-related and other non-recurring expenses, as well as a benefit on the re-measurement of deferred tax liabilities, including acquisition-related deferred tax liabilities, was USD 37.6 million, or USD 0.57 per adjusted diluted share. The Company’s adjusted net income for the fourth quarter of 2016, which excludes acquisition-related and other non-recurring expenses, was USD 19.4 million, or USD 0.29 per adjusted diluted share.
The Company’s adjusted Ebitda, which excludes acquisition-related and other non-recurring expenses, was USD 68.9 million in the fourth quarter of 2017, an increase of 10.5 percent, or USD 6.5 million, compared to USD 62.4 million in the fourth quarter of 2016.
Financial Results for the Full Year Fiscal 2017
Net sales increased by USD 276.8 million, or approximately 20.0 percent, to USD 1.67 billion for fiscal 2017 from USD 1.39 billion in 2016. The net sales increase was due to an increase in unit volume of USD 287.5 million, partially offset by a decrease in net pricing of USD 10.7 million. The unit volume increase was primarily driven by an additional eleven plus months of net sales of the spices + seasonings business, acquired on November 21, 2016, an additional eleven months of net sales of Victoria, acquired on December 2, 2016, and three months of net sales of Back to Nature, acquired on October 2, 2017.
Base business net sales for fiscal 2017 decreased by approximately USD 15.0 million, or 1.1 percent. The decrease in base business net sales was driven by a decrease in unit volume of USD 4.3 million, or 0.3 percent, and a decrease in net pricing of USD 10.7 million, or 0.8 percent. Net sales of Green Giant frozen products, benefitting from the strong performance of new innovation products, increased USD 33.6 million, or 11.1 percent, and net sales of Pirate Brands, benefitting from new distribution gains, plus momentum from a strong back-to-school season and successful promotional events, increased USD 5.2 million, or 6.1 percent. Net sales of Green Giant shelf-stable products decreased USD 30.6 million, or 19.6 percent, primarily due to weak consumption trends and distribution losses with a key customer. Net sales of the Company’s maple syrup products decreased USD 7.0 million, or 7.0 percent, primarily due to the Company’s decision during the first quarter of 2017 to discontinue certain private label sales. And net sales of Ortega decreased USD 3.0 million, or 2.1 percent, primarily due to heightened competitive activity. The overall decline in base business net sales in fiscal 2017 was concentrated in the first half of the year. Base business net sales in the third and fourth quarters of fiscal 2017 increased 1.2 percent compared to the third and fourth quarters of 2016.
The spices + seasonings business and Victoria, each acquired in the fourth quarter of 2016, generated fiscal 2017 net sales of USD 260.7 million and USD 42.8 million, respectively, compared to the Company’s initial forecasts at the time of acquisition of USD 220.0 million of net sales for the spices + seasonings business and USD 41.0 million of net sales for Victoria.
Gross profit increased USD 14.3 million, or 3.2 percent, to USD 462.2 million for fiscal 2017 from USD 448.0 million for fiscal 2016. Gross profit expressed as a percentage of net sales was 27.7 percent for fiscal 2017 compared to 32.2 percent for fiscal 2016. Excluding the 2.5 percentage point impact due to product mix, gross profit as a percentage of net sales decreased 2.0 percentage points. Approximately 1.4 percentage points of the decrease in gross profit percentage was due to an increase in warehousing and distribution costs and 0.6 percentage points of the decrease was due to a decrease in net pricing.
Selling, general and administrative expenses were USD 205.2 million in fiscal 2017, compared to USD 174.8 million in fiscal 2016, an increase of USD 30.5 million, or 17.4 percent. The increase was attributable to increased warehousing expenses of USD 12.8 million, acquisition-related and other non-recurring expenses of USD 11.4 million, selling expenses of USD 7.2 million (which includes increases on brokerage expenses of USD 5.9 million and USD 0.6 million of salesperson compensation) and consumer marketing expenses of USD 0.6 million, slightly offset by decreases of USD 1.3 million of distribution restructuring expenses and all other expenses of USD 0.2 million. Expressed as a percentage of net sales, selling, general and administrative expenses improved by 0.3 percentage points to 12.3 percent for fiscal 2017 compared to 12.6 percent for 2016.
Net interest expense was USD 91.8 million in fiscal 2017, compared to USD 74.5 million in fiscal 2016. The increase was primarily attributable to additional borrowings made in the fourth quarter of 2016 to fund the spices + seasonings acquisition and the Victoria acquisition and in the fourth quarter of 2017 to fund the Back to Nature acquisition, and the Company’s senior notes offerings in second quarter and fourth quarter of 2017.
The Company’s reported net income under GAAP was USD 217.5 million, or USD 3.26 per diluted share, for fiscal 2017, as compared to reported net income of USD 109.4 million, or USD 1.73 per diluted share for fiscal 2016. The increase in reported net income was primarily due to a benefit on the re-measurement of deferred tax liabilities, including acquisition-related deferred tax liabilities, as a result of the U.S. Tax Cuts and Jobs Act.
The Company’s adjusted net income for fiscal 2017, which excludes acquisition-related and other non-recurring expenses, as well as a benefit on the re-measurement of deferred tax liabilities, including acquisition-related deferred tax liabilities, was USD 140.5 million, or USD 2.12 per adjusted diluted share. The Company’s adjusted net income for fiscal 2016, which excludes acquisition-related and other non-recurring expenses, was USD 131.1 million, or USD 2.07 per adjusted diluted share.
The Company’s adjusted Ebitda, which excludes acquisition-related and other non-recurring expenses, was USD 333.2 million in fiscal 2017, an increase of 3.5 percent or USD 11.2 million compared to USD 322.0 million in fiscal 2016. Adjusted Ebitda as a percentage of net sales was 20.0 percent for fiscal 2017.
Full Year Fiscal 2018 Guidance
For fiscal 2018, net sales is expected to be approximately USD 1.720 billion to USD 1.755 billion, including the impact of the new FASB revenue recognition standard, which the Company estimates will have the effect of reducing the Company’s annual net sales in 2018 by approximately USD 20 million. Adjusted Ebitda is expected to be approximately USD 347.5 million to USD 365.0 million and adjusted diluted earnings per share is expected to be approximately USD 2.05 to USD 2.25.
Based upon the Company’s expected adjusted Ebitda of approximately USD 347.5 million to USD 365.0 million, expected cash interest payments of approximately USD 105 million to USD 110 million, expected cash taxes of approximately USD 15 million to USD 20 million, expected capital expenditures of USD 50 million to USD 55 million, and expected working capital improvement of approximately USD 75 million to USD 100 million resulting from the Company’s inventory reduction initiative, the Company expects to generate sufficient cash flows to reduce the Company’s net debt by USD 125 million to USD 150 million, after making expected dividend payments of approximately USD 124 million.
B+G Foods provides earnings guidance only on a non-GAAP basis and does not provide a reconciliation of the Company’s forward-looking adjusted Ebitda and adjusted diluted earnings per share guidance to the most directly comparable GAAP financial measures because of the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including adjustments that could be made for deferred taxes; loss on extinguishment of debt; acquisition-related and other non-recurring expenses, gains and losses; intangible asset impairment charges and related asset write-offs; restructuring expenses; gains and losses on the sale of assets and other charges reflected in the Company’s reconciliation of historic non-GAAP financial measures, the amounts of which, based on past experience, could be material.
