B+G Foods Reports Results for Second Quarter 2016

Parsippany / NJ. (bgs) B+G Foods Inc. announced financial results for the second quarter and first two quarters of 2016. Highlights versus year-ago quarter where applicable:

• Net sales increased 58.2 percent to 306.4 million USD
• Net income increased 61.4 percent to 30.3 million USD
• Adjusted net income* increased 89.7 percent to 36.1 million USD
• Diluted earnings per share increased 45.5 percent to 0.48 USD
• Adjusted diluted earnings per share* increased 67.6 percent to 0.57 USD
• Adjusted Ebitda increased 79.3 percent to 85.0 million USD
• Guidance for full year fiscal 2016:
  • Net sales guidance reaffirmed at a range of 1.39 billion USD to 1.42 USD
  • Adjusted Ebitda guidance increased to a range of 317.0 million USD to 327.0 million USD
  • Adjusted diluted earnings per share guidance increased to a range of 2.11 USD to 2.21 USD

«The Green Giant business continues to exceed our profitability expectations, and as a result we have increased our full year guidance for adjusted Ebitda and adjusted diluted earnings per share. We expect to successfully complete the transition of the Green Giant business into our sales and distribution infrastructure by the end of the third quarter. During the transition services period we have reinforced our already very strong and dedicated workforce with a large collection of very talented and motivated individuals who we believe will not only help us «awaken the Green Giant» and bring the brand back to prominence through innovation, operational excellence and consumer awareness, but will also restore our base business to a growth trajectory in 2017», said Robert C. Cantwell, President and Chief Executive Officer of B+G Foods.

Financial Results for the Second Quarter of 2016

Net sales increased 112.8 million USD, or 58.2 percent, to 306.4 million USD for the second quarter of 2016 from 193.6 million USD for the second quarter of 2015. Net sales of Green Giant, acquired on November 2, 2015, and net sales of Mama Mary’s, acquired on July 10, 2015, contributed 107.2 million USD and 8.9 million USD, respectively, to the Company’s net sales for the quarter.

Base business net sales for the second quarter of 2016 decreased 2.5 million USD, or 1.3 percent, to 190.1 million USD from 192.6 million USD for the second quarter of 2015. The 2.5 million USD decrease was attributable to a decrease in unit volume of 1.6 million USD, or 0.8 percent, a decrease in net pricing of 0.7 million USD, or 0.3 percent, and the negative impact of currency fluctuations on foreign sales of approximately 0.2 million USD, or 0.1 percent.

Gross profit increased 47.7 million USD, or 76.9 percent, to 109.7 million USD for the second quarter of 2016 from 62.0 million USD for the second quarter of 2015. Gross profit expressed as a percentage of net sales increased to 35.8 percent in the second quarter of 2016 from 32.0 percent in the second quarter of 2015, an increase of 3.8 percentage points. The increase in gross profit percentage was primarily driven by the acquisition of Green Giant, which benefited from lower than anticipated trade expense and input costs, particularly from the Green Giant manufacturing facility in Irapuato, Mexico, as well as greater than anticipated synergies with the Company’s base business. Gross profit percentage was positively impacted by decreased costs for commodities, packaging and distribution for the base business and improved product mix, which was partially offset by the unfavorable impact the decrease in base business sales volume had on cost absorption, a net reduction in base business pricing, and the impact of the write-off of Rickland Orchards inventory in connection with the Company’s decision to discontinue the brand. Gross profit percentage, excluding the results of Green Giant, decreased 0.7 percentage points.

Selling, general and administrative expenses increased 14.7 million USD, or 76.5 percent, to 33.9 million USD for the second quarter of 2016 from 19.2 million USD for the second quarter of 2015. The increase was primarily due to the Green Giant acquisition, which resulted in 13.9 million USD of incremental expenses for the second quarter. The overall 14.7 million USD increase was attributable to increases in consumer marketing of 5.5 million USD, selling expenses of 3.2 million USD (which includes a 2.4 million USD increase in brokerage expenses and a 0.8 million USD increase in salesperson compensation), general and administrative expenses of 2.6 million USD (primarily related to compensation), acquisition-related expenses of 1.7 million USD, and warehousing expenses of 1.7 million USD (which includes 0.5 million USD of distribution restructuring expenses). Expressed as a percentage of net sales, selling, general and administrative expenses increased 1.1 percentage points to 11.0 percent for the second quarter of 2016 from 9.9 percent for the second quarter of 2015.

Net interest expense increased 7.3 million USD, or 66.6 percent, to 18.4 million USD for the second quarter of 2016 from 11.1 million USD in the second quarter of 2015. The increase was primarily attributable to additional borrowings used to fund the Green Giant acquisition.

The Company’s reported net income under U.S. generally accepted accounting principles (GAAP) was 30.3 million USD, or 0.48 USD per diluted share, for the second quarter of 2016, as compared to reported net income of 18.7 million USD, or 0.33 USD per diluted share, for the second quarter of 2015. The Company’s adjusted net income for the second quarter of 2016, which excludes an intangible asset impairment-related adjustment to deferred taxes resulting from the Company’s decision to discontinue the Rickland Orchards brand, the after-tax impact of the non-cash impairment charge and related loss on disposal of inventory, acquisition-related expenses and distribution restructuring expenses, was 36.1 million USD, or 0.57 USD per adjusted diluted share. The Company’s adjusted net income for the second quarter of 2015, which excludes the after tax impact of the loss on product recall and acquisition-related expenses, was 19.0 million USD, or 0.34 USD per adjusted diluted share.

For the second quarter of 2016, adjusted Ebitda (which excludes the impact of acquisition-related expenses, the non-cash intangible asset impairment charge and related loss on disposal of inventory, loss on product recall and distribution restructuring expenses), increased 79.3 percent to 85.0 million USD from 47.4 million USD for the second quarter of 2015.

Financial Results for the First Two Quarters of 2016

Net sales increased 248.6 million USD, or 60.5 percent, to 659.4 million USD for the first two quarters of 2016 from 410.8 million USD for the first two quarters of 2015. Net sales of Green Giant, acquired on November 2, 2015, and net sales of Mama Mary’s, acquired on July 10, 2015, contributed 237.4 million USD and 19.4 million USD, respectively, to the overall increase.

Base business net sales for the first two quarters of 2016 decreased 6.6 million USD, or 1.6 percent, to 402.1 million USD from 408.7 million USD for the first two quarters of 2015. The 6.6 million USD decrease was attributable to a decrease in unit volume of 5.4 million USD, or 1.3 percent, the negative impact of currency fluctuations on foreign sales of approximately 0.7 million USD, or 0.2 percent, and a decrease in net pricing of 0.5 million USD, or 0.1 percent.

Gross profit increased 96.2 million USD, or 74.4 percent, to 225.6 million USD for the first two quarters of 2016 from 129.4 million USD for the first two quarters of 2015. Gross profit expressed as a percentage of net sales increased to 34.2 percent in the first two quarters of 2016 from 31.5 percent in the first two quarters of 2015, an increase of 2.7 percentage points. The increase in gross profit percentage was primarily driven by the acquisition of Green Giant, which benefited from lower than anticipated trade expense and input costs, particularly from the Green Giant manufacturing facility in Irapuato, Mexico, as well as greater than anticipated synergies with the Company’s base business. Gross profit percentage was positively impacted by decreased costs for commodities, packaging and distribution for the base business and improved product mix, which was partially offset by the unfavorable impact the decrease in base business sales volume had on cost absorption, a net reduction in base business pricing, and the impact of the write-off of Rickland Orchards inventory in connection with the Company’s decision to discontinue the brand. Gross profit percentage, excluding the results of Green Giant, decreased 0.1 percentage points.

Selling, general and administrative expenses increased 31.5 million USD, or 74.9 percent, to 73.5 million USD for the first two quarters of 2016 from 42.0 million USD for the first two quarters of 2015. The increase was primarily due to the Green Giant acquisition, which resulted in 29.6 million USD of incremental expenses for the first two quarters of 2016. The overall 31.5 million USD increase was attributable to increases in consumer marketing of 14.7 million USD, selling expenses of 5.7 million USD (which includes a 5.0 million USD increase in brokerage expenses and a 0.7 million USD increase in salesperson compensation), general and administrative expenses of 4.0 million USD (primarily related to compensation), acquisition-related expenses of 3.9 million USD, and warehousing expenses of 3.2 million USD (which includes 0.9 million USD of distribution restructuring expenses). Expressed as a percentage of net sales, selling, general and administrative expenses increased 1.0 percentage point to 11.2 percent for the first two quarters of 2016 from 10.2 percent for the first two quarters of 2015.

Net interest expense increased 15.0 million USD, or 66.2 percent, to 37.6 million USD for the first two quarters of 2016 from 22.6 million USD in the first two quarters of 2015. The increase was primarily attributable to additional borrowings used to fund the Green Giant acquisition.

The Company’s reported net income under GAAP was 63.4 million USD, or 1.04 USD per diluted share, for the first two quarters of 2016, as compared to reported net income of 38.3 million USD, or 0.69 USD per diluted share, for the first two quarters of 2015. The Company’s adjusted net income for the first two quarters of 2016, which excludes an intangible asset impairment-related adjustment to deferred taxes resulting from the Company’s decision to discontinue the Rickland Orchards brand, the after-tax impact of the non-cash impairment charge and the related loss on disposal of inventory, loss on extinguishment of debt, the amortization of acquisition-related inventory step-up, other acquisition-related expenses and distribution restructuring expenses, was 74.7 million USD, or 1.22 USD per adjusted diluted share. The Company’s adjusted net income for the first two quarters of 2015, which excludes the after tax impact of the loss on product recall and acquisition-related expenses, was 39.6 million USD, or 0.72 USD per adjusted diluted share.

For the first two quarters of 2016, adjusted Ebitda (which excludes the impact of acquisition-related expenses, the amortization of acquisition-related inventory step-up, the non-cash intangible asset impairment charge and related loss on disposal of inventory, loss on product recall and distribution restructuring expenses), increased 79.3 percent to 174.5 million USD from 97.3 million USD for the first two quarters of 2015.

Guidance

B+G Foods reaffirmed full year 2016 guidance for net sales to a range of 1.39 billion USD to 1.42 billion USD and increased full year 2016 guidance for adjusted Ebitda to a range of 317.0 million USD to 327.0 million USD and adjusted diluted earnings per share to a range of 2.11 USD to 2.21 USD.

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 expenses, gains and losses; intangible asset impairment charges and related asset write-offs; loss on product recalls; restructuring expenses; and other charges reflected in our reconciliation of historic non-GAAP financial measures, the amounts of which, based on past experience, could be material.