B&G Foods Inc (BGS) 2005 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the B&G Foods, Incorporated fourth quarter 2005 earnings conference call. Today's call is being recorded.

[OPERATOR INSTRUCTIONS]

At this time I'd like to turn the call over to Dave Wenner, CEO of B&G Foods. Please go ahead, sir.

Thank you. Welcome, everyone, to the B&G Foods fourth quarter and fiscal year 2005 conference call.

Everyone on the call today can access detailed financial information on the quarter and on the full year 2005 in our earnings press release issued today and available on our website at www.bgfoods.com and in our annual report on Form 10-K that we expect to file with the SEC next week.

Before we begin our formal remarks I need to remind everyone that part of the discussion today includes forward-looking statements. The statements are not guarantees of future performance and, therefore, undue reliance should not be placed upon them. We refer all of you to our recent filings with the SEC for a more detailed discussion of the risks that could impact our future operating results and financial condition. The company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

We'll also be making reference on today's call to certain non-GAAP terms like EBITDA and adjusted EBITDA. A reconciliation to GAAP terms is provided in today's press release and will be included in our annual report on Form 10-K.

I'd like to start the call by asking Bob Cantwell, our CFO, to discuss the financial results for the quarter. After Bob's remarks I'll discuss factors influence the quarter and the year, some of the business highlights and some of the factors we see affecting the business as we go forward into 2006. Bob?

Thank you, Dave.

Before I begin I'd like to note that we have provided a detailed discussion of the tax treatment for 2005 EIS distributions on our website. To download this information please visit the investor relations section of www.bgfoods.com and click on Frequently Asked Questions or FAQ. As Dave mentioned earlier, we expect to file our annual report on Form 10-K next week.

First I will review the full year, then talk about the fourth quarter. Net sales increased 6.5 million, or 1.8%, to 379.3 million for the year ended December 31st, 2005 compared to 372.8 million for the previous year. Net sales increased 7.9 million relating to price increases, which were offset by a decrease in unit volume of 1.4 million. Our 10-K will have additional disclosure on brand performance for the full year.

Gross profit, which was negatively impacted by the restructuring charge associated with the July 2005 closing of our New Iberia, Louisiana manufacturing facility, decreased 8.4 million in fiscal 2005, or 7.6%, to 103.5 million from 111.9 million in the previous year. The restructuring charge was recorded in cost of goods sold and included a cash charge for employee compensation and other costs of 0.8 million and a non-cash charge for the impairment of property plant equipment and inventory of 3 million.

Pro forma gross profit, which excludes our restructuring charge, decreased 4.6 million, or 4.1%, to 107.3 million compared to 111.9 million in the previous year. The decrease in pro forma gross profit was primarily due to higher costs of transportation, maple syrup, packaging materials, pickles and peppers, beans, and a shift in the product mix sold. These higher costs were partially offset by price increases.

Turning to our fiscal 2005 operating expenses, sales, marketing and distribution expenses decreased 1.7 million, or 4%, to 41.5 million for the fiscal 2005 compared to 43.2 million for fiscal 2004. These expenses, expressed as a percentage of net sales, decreased to 10.9% in fiscal 2005 from 11.6% in fiscal 2004. This reduction was primarily related to a decrease in planned consumer marketing spending and brokerage expense. General and administrative expenses increased 1.7 million, or 32.1%, to 7 million in fiscal 2005 compared to 5.3 million in fiscal 2004. The increase was primarily due to Sarbanes-Oxley compliance costs and additional public company costs.

Operating income increased 2.7% to 55 million during fiscal 2005 from 53.6 million in fiscal 2004. Excluding transaction related compensation expenses of 9.9 million in fiscal 2004 in connection with our IPO and concurrent offerings, operating income was 63.4 million for fiscal 2004.

Interest expense decreased 6.4 million to 41.8 million in fiscal 2005 from 48.2 million in fiscal 2004. Interest expense for fiscal 2004 included an expense of 13.9 million relating to the write-off of deferred financing costs, bond tender costs, and payment of bond discount in connection with our initial public offering.

I'd like to take a moment to discuss EBITDA and adjusted EBITDA non-GAAP financial measures that we have reconciled to net cash provided by operating activities in today's press release. Our EBITDA increased to 62 million in fiscal 2005 compared to 60.3 million in fiscal 2004. Adjusted EBITDA, which excludes transaction expenses and restructuring costs, was 65.8 million in fiscal 2005 and 70.2 million in fiscal 2004. Capital expenditures in fiscal 2005 were 6.7 million. We continue to foresee modest capital expenditure requirements in the future.

Turning now to the fourth quarter of fiscal 2005, net sales increased 6.6% to 102.7 million compared to 96.4 million in the last year's fourth quarter. Net sales increased 2.7 million relating to price increases and an increase in unit volume of 3.6 million. Net sales for certain of our brands increased as follows -- Maple Grove 1.9 million; Ortega 1.8 million; Underwood 1.4 million; B&G 1.1 million; and Joan of Arc 0.7 million. These increases were offset by a reduction in net sales for Sasson of 0.5 million and B&M of 0.4 million. All other increases in the aggregate were approximately 0.3 million.

Gross profit in the quarter decreased 3.7% to 25.5 million from 26.5 million last year. Pro forma gross profit, which excludes our restructuring charge of 0.3 million, decreased 0.7 million, or 2.6%, to 25.8 million compared to 26.5 million in the previous year. The decrease in pro forma gross profit was primarily due to the higher costs we experienced throughout 2005.

Sales, marketing and distribution expenses decreased 1.1 million, or 9.5%, to 10.3 million for the fourth quarter of fiscal 2005 compared to 11.4 million for the fourth quarter of fiscal 2004. These expenses, expressed as a percentage of net sales, decreased to 10% in the fourth quarter from 11.8% in the same quarter a year ago. The reduction was primarily due to reduction in consumer marketing and trade spending.

General and administrative expenses, excluding transaction related compensation expense of 9.9 million in 2004, increased 0.6 million, or 47.7%, to 1.9 million in the fourth quarter compared to 1.3 million a year ago. The increase was primarily due again to Sarbanes-Oxley compliance costs and additional public company costs.

Adjusted EBITDA, which takes into account 0.3 million of restructuring charges in the fourth quarter of fiscal 2005 and 9.9 million of transaction related compensation expenses in the fourth quarter of fiscal 2004, decreased to 15.3 million in the fourth quarter of fiscal 2005 from 15.5 million in fiscal 2004.

Moving on to the balance sheet, we finished the fourth quarter in fiscal 2005 with 25.4 million of cash compared to 28.5 million of cash at the end of fiscal 2004. We used approximately 2.5 million in cash for the Ortega acquisition. We also finished the quarter with 405.8 million in long-term debt and 83.3 million in shareholders equity. The business remains very healthy from a cash point of view.

In terms of our future cash needs, expected cash taxes in fiscal 2006 are zero, planned capital spending is expected to remain consistent with fiscal 2005, annual cash interest expense for fiscal 2006 will be approximately $41 million. On January 30th we made a cash payment of $0.4265 per EIS to holders of record as of December 31st, 2005. As previously announced, this reflects a cash dividend of $0.212 per share of Class A common stock and an interest payment of $0.2145 per $7.15 principal amount senior subordinated note. I also think it's worth highlighting that since our IPO we have paid cash dividends of 20.7 million to EIS holders.

I will now turn the call back over to Dave for his remarks.

Thanks, Bob.

As I noted in the third quarter conference call, we entered the fourth quarter of 2005 with a year-to-year cost challenge of several million dollars, which we hoped to offset with pricing and volume. The results you see today are evidence that we were able to do that to a great degree. Net sales were up over 6% and adjusted EBITDA down only 1% in the quarter.

The cost environment remains challenging but we believe we've met that challenge in the past two quarters and delivered results consistent with prior year. To me, that says our strategies are working and we'll continue to follow them into 2006.

As in recent quarters, we saw higher costs throughout the company in the fourth quarter. Accounting for the volume increase, cost of goods rose 240 basis points, or about $2.4 million in the quarter. About 40% of the increase was higher distribution and slotting costs. The remainder was higher materials and overhead costs. Nearly every one of our brands has seen some impact from packaging costs as our suppliers raise price and add fuel surcharges to their bills and we do not expect to see relief from this until and if the price of oil declines on a year-to-year basis. In fact, we continue to see price increases in some areas of packaging, while others are holding their line -- holding the line at already high prices.

On the commodities side, the picture is a bit more encouraging, but still somewhat mixed. Meat costs have declined, helping our Underwood brand's profits, and bean costs have stabilized and even dropped in the case of a few types of beans. But we continue to experience higher maple syrup costs through the fourth quarter and we'll continue to see that at least into the first quarter of 2006. And frankly, we don't expect relief here in 2006, as the U.S. dollar has lost more ground versus the Canadian dollar. At last look the Canadian dollar was worth nearly $0.88 U.S., which is about 8% higher than what we experienced last year. The cost of sweeteners has also increased significantly in recent months. Corn syrup, for instance, is up over 20% from this time last year.

But even where commodity costs have stabilized recently, it's typically at a higher number than prior year, at least in the fourth quarter and the first part of 2006. That leaves us playing catch-up for the next quarter or two and, as always, all of this really depends on where the price of oil eventually goes.

Distribution costs were much higher in the fourth quarter, peaking in October and then settling down to third quarter levels in the November/December timeframe. But even then fuel surcharges were almost 60% higher than prior year and cost us nearly $750,000 for the quarter. As 2006 goes along, comparisons to prior year numbers should get better if oil is stable, but surcharges right now remain 60 to 70% higher than last year.

It was early third quarter of last year before we reached the surcharge level we're seeing today and I think this is very important to watch because the price of oil is impacting not just distribution, but a lot of the cost increase we're seeing one way or another. The freight impact is obvious, but many of our packaging costs are a reflection of higher energy and oil costs as well.

G&A costs were up over $600,000 in the fourth quarter of 2005 as compared to the fourth quarter of 2004 and were up almost 1.7 million for the full year. As Bob noted, these increases were primarily driven by public company costs and Sarbanes-Oxley compliance costs. We expect 2006 costs to be similar to 2005.

One area of good news on the cost side was lower trade spending. Adjusted for volume, trade spending was down slightly from prior year, a sign the pay-for-performance initiative is gaining ground. This was offset by higher slotting and coupon expense, but our investment in new products is ongoing. And even though this has caused these higher expenses, we remain confident that this is money well spent, investing in the future growth of our company. And I'll comment on that growth and the brands involved when I get to that portion of the call.

Clearly, cost remains an issue for our company, as it is for most food companies these days. And it's not an issue that's going to disappear in 2006, which means we will have to continue to work hard to reduce costs where we can, increase sales volume and raise prices wherever possible. And we've tried to be frank about these cost challenges that we faced in late 2004 and throughout 2005. The challenges were greater than anything we've seen in the past decade, but the picture is getting better as we make progress in compensating for the cost increases.

Our savings efforts have offset some of the increases we've seen. Headcount in the company, for instance, is down 2.5% compared to the year-end of 2004. Additionally, our sales, marketing and warehouse expenses for the year were down 1.7 million, mostly due to reduced brokerage expense as we rationalize brokerage rates across the business.

Price increases are the clearest solution to the cost issue and we're pleased to see our pricing gains hold in the fourth quarter. Price contributed about 2.7 million to net sales in the fourth quarter of fiscal 2005 and 7.9 million to net sales for the full year and that went a long way towards offsetting the cost increases in the business. We benefited from pricing across all the brands where we took increases in 2004 and 2005 and we're cautiously optimistic we will see further gains in the first quarter of 2006. As I said before, we will continue to increase prices whenever and wherever we see opportunities. Additional increases in select brands have already been announced for the first and second quarters of 2006.

The pay-for-performance approach to trade spending has been another attempt to address cost as well as improve the effectiveness of our programs with retailers. This initiative cost us unit volume in the first three quarters of 2005 and continues to affect certain brands in the fourth quarter. It's very encouraging, however, that unit volume was up over 7% in the fourth quarter and that trade spending was down. We will continue to attack inefficient trade spending and we anticipate that it will affect brands from time to time. We remain confident, however, that this initiative is the best way to combat the trend in the industry toward ever increasing trade spending.

Moving on to the brands now, fourth quarter saw 12 of our then 16 brands increase in sales and four decline. The Emeril brands net sales were down on lower sales to mass merchants, offset by higher supermarket sales. The line of cooking stocks we launched in late 2005 did very well in limited distribution and the re-launched salad dressings also performed well. The Emeril line continues to perform well in supermarkets and we're focusing our efforts there.

B&M was also down in the fourth quarter and this brand was affected by the pay-for-performance initiative. We did not spend money with retailers as we did in 2004 and we saw temporarily lower sales as a result; to retailers, though, not to consumers.

Polaner, which is one of our growth brands, was up slightly in the quarter and up nicely for the year. We've lost some low profit industrial business in the Polaner line, which has been more than offset by the dramatic growth of the sugar-free product line.

Ortega was also up in the quarter and the year, 9% and 3% respectively. New products accounted for all of this growth and should drive further growth in the brand in 2006.

Our Las Palmas brand and Maple Grove Farms have been our most consistent other growth brands and they kept up that pace in the fourth quarter. Las Palmas grew 4% in the quarter and was up 9% for the year and that's a great Hispanic brand for us. Maple Grove did even better, up 14% for the quarter and 10% for the year. Price is definitely a factor in Maple Grove's growth as we've finally been able to increase price on some of our maple syrup products, but unit volume was up as well.

The overall performance of our portfolio of brands was very good for the quarter. As I said, sales were up over 6% in dollars and over 7% in units. And there are certainly a few brands with challenges and some are still affected by our trade initiative, but we continue to see the value of the diverse portfolio as we deliver consistent results despite all the challenges.

In other notes, we did take a $259,000 charge on the New Iberia closing in the fourth quarter, bringing the total charges to 3.8 million. The closing of the facility has been completed and we've entered into an agreement to sell the property. We hope to close on the sale in the first half of 2006, subject to the buyer's completion of due diligence and customary closing conditions.

Finally, we were very pleased to complete two acquisitions during the fourth quarter and the early part of 2006, which, between the two, should add approximately $18 million in net sales to the business. First, we acquired the Grandmas Molasses brand from Mott's, which is part of Cadbury Schweppes America's Beverages for $30 million in cash and certain assumed liabilities. Grandma's Molasses is the leading national brand of premium quality molasses with the majority of sales originating from grocery, food service and mass merchant segments of the market.

And Grandma's is a great fit for us in that it not only complements our existing product offerings, but also leverages our manufacturing and distribution infrastructure. It also offers consistent results with outstanding margins and actually opens some doors for us in industrial sales. I would note that the business is seasonally skewed towards the second half of the year; so much of the contribution from this brand will come in the third and fourth quarters of 2006.

We also acquired the Ortega food service dispensable pouch and dipping cup cheese sauce business from Nestle. This business was operated by Nestle under a license from us that was due to expire in another few years. For a modest price we acquired the business before Nestle transitioned into a new brand name and added it to our existing Ortega business. We see growth opportunities in several areas with this business and the ability to sell our other food service brands to some new customers.

I should highlight that since the acquisitions closed in December and January we have successfully integrated both acquired businesses into our sales and distribution infrastructures and that's very typical of how fast we move with acquisitions. I'm also pleased to note that the multiple paid for each of these businesses was well within the range of our previously stated six to seven times EBITDA multiple. Completing these kinds of acquisitions continues to be a key component of our growth strategy and also helps increase the cushion between uses of cash, including our intention to continue paying quarterly dividends, and the businesses' cash flow generation.

We are always on the lookout for acquisitions that present similar attractive characteristics and complement our existing brands the way Grandma's and Ortega businesses do. That said, looking forward to the potential for future M&A activity, we would characterize the packaged food industry as somewhat quieter right now than in the past 12 months. For brands that are out there as potential M&A transactions, prices generally remain high. Obviously we'll be opportunistic if anything truly compelling presents itself, but for now we remain focused on digesting the two acquisitions we've just completed and on running our day-to-day businesses as effectively as possible.

As I said at the beginning of these comments, the third and fourth quarters illustrate our efforts on the price and trade spending side of the equation and are providing us an operating consistency in a very challenging cost environment. I wish I could say we're past the worst of it, but the price of oil has been the ultimate determining factor here and it's impossible to predict where that will go in the future.

Our goal at the minimum is performance consistent with prior year, with the acquisitions taking the business beyond that. If we can get to the point where pricing, volume increases and our trade initiative do more than compensate for cost, that would obviously move the business ahead that much further and we're hopeful we'll see that sometime in 2006.

One final comment for those of you who may not have read our press release, I'm very pleased to announce that our Board of Directors has elected Mr. Dennis Mullen to the Board effective March 7th. Dennis brings significant industry experience to the Board, having been president and CEO of Birds Eye Food for seven years and working within the food industry for some 30 years. He'll fill the vacancy we've had on the Board and several committees since January and his election brings us back into compliance with the Amex requirement that a majority of the directors be independent. I personally and all the management of the company are looking forward to Dennis' valuable contributions to our company as a member of the Board of Directors.

And with that, Linda, open it up for questions.

Thank you.

[OPERATOR INSTRUCTIONS]

And we will take our first question from Lehman Brothers, Reza Vahabzadeh.

Good afternoon.

Good afternoon, Reza.

Good afternoon.

Some of those numbers were pretty solid. Were there any shifts in timing for any reason?

No, not really, there was nothing unusual here. Things started coming together a little better in terms of reduced sales from the pay-for-performance and it was just a -- it was a very good quarter.

Got it. Did you have any new product launches in the fourth quarter?

Well, the Emeril stocks, for instance, were launched in the quarter but that's less than $0.5 million in sales. And we did have new products that we had launched throughout the year that were generating some nice sales for us, particularly in Polaner and Ortega, but nothing significant in the quarter itself. Fourth quarter is a terrible time to launch new products because retailers frankly don't reset sections and put things on the shelves in November and December.

Right. In the fourth quarter your gross margin was down year over year, but it was basically up in the third quarter year over year. Any changes come to mind that would explain third quarter being up and fourth quarter being down? Was it mix or is it fuel?

Well, some of it is mix. I mean the more successful we are -- with Maple Grove, for instance, we're going to mix our costs up higher. We had a very good quarter on B&G, which also will -- Joan of Arc, all of those are higher cost, lower margin businesses relative to the others. So when we do very well with those businesses you're going to mix the margins down a little bit. And some -- timing of promotions shifting on any of those businesses from third to fourth quarter will make that happen.

Okay.

Other than that I can't really think of any other remarkable thing that would have happened.

Okay. On Grandma's, would you mind providing any kind of metrics? Did you purchase this asset in the EBITDA multiples that you historically paid sort of six to seven times range?

Yes, we did. Both acquisitions were in that range.

Okay. But does that include any cost synergies or is that without cost synergies?

Well, as always, you get a contribution number that basically says it costs us a little to have this product made or make it ourselves and there really aren't any other expenses in the business. So we always have to add expenses and take away synergies and the multiple is usually on that result.

Right. Lastly, Dave, what do you expect on Emeril for '06? [inaudible] there's some really outstanding days and it's been -- I guess been less outstanding in the last six months.

Well, it's been less outstanding because we've had some retrenching in place like Wal-Mart, as you know, Reza. The grocery part of the business I think is very healthy and we're putting our nose to the grindstone in terms of getting the products that we have that are very successful in the line into as much distribution as we have -- as we can get and I would hope that would help the line tremendously.

Having said that, you're going to have some year to year comparisons early in the year on mass merchant sales we had last year that we are not going to have this year. Hopefully the supermarket part of the business can pick that up. But once we roll past those comparisons, I think Emeril is going to start looking good.

Thank you.

Thank you. Next we'll hear from Dirk Lever with RBC Capital Markets.

Afternoon. Can you hear me?

Yes, hear you fine, Dirk.

Afternoon.

Thank you very much. Wondering if you could touch upon, and you may have said it but it's very hard to scribble the notes -- numbers down as you're speaking. Did you touch upon your capital maintenance charge for the year and if you didn't, if you could give that?

And also if you could touch upon when you believe your tax-free horizon will come to an end? Since you've done two acquisitions, that's probably pushed that timeframe out.

I'll answer the easy one. Bob did say what the CapEx was for the year. It was 6.7 million.

Thank you.

The more complicated one is the tax question and I'll defer that to Bob.

Right. We will have kind of another free year in 2006 of zero cash taxes. And fundamentally, at our run rate without the acquisitions of 65.8 million, we would be a zero cash taxpayer. But any EBITDA growth above where we are today, once we get past 2006, we will be a cash taxpayer on that incremental growth at a rate of approximately 40%. But we still have enough NOL carry-forwards and things that take us to a zero cash tax base in 2006. But then you're talking about on every incremental EBITDA or above -- fundamentally 66 million starting in 2007 we'll pay 40%.

Thank you very much.

Right.

Thank you. With Credit Suisse we'll hear from [Robert Moskow].

Boy, if you taxed me 40% for every dollar I earned, I'd just stop coming to work.

I know. You've got to talk to the government.

If you live in New Jersey, between the federal government and New Jersey it's worse.

Leave at 5 o'clock on the nose.

Right.

Just wanted to know if you could give us a little -- give us a sense of what your merchandising plan with your retailers looks like for 2006. I remember a year ago you said you had presented your plans to retailers; you were excited about those plans. What does it look like now, especially in light of pay-for-performance?

Well, I think we're still working with retailers, as we did last year, to do the right programs and everything and there's not any huge retrenchment of the programs. We still spend 90 to $100 million with retailers on trade promotions. We're simply picking off programs and it's literally on a one-by-one basis with specific brands where we just don't see consumer lift out of the promotion and so we just don't do the promotion. B&M's a great example. B&M sales were down in the fourth quarter and I can point to the specific promotion activity we chose not to do in the fourth quarter that had zero impact with the consumer. All we were doing was having retailers buy product at a promoted price with no effective consumer lift and that's just wasted money.

So we're continuing to perform the vast majority of our merchandising efforts with the retailers. We're just being selective where we're not getting any results out of them. And in some cases, where menu prices for some of the retailers have gotten very exorbitant, we questioned the profitability of some of the ones we have done in the past, but that's very limited.

Okay, very good. And again getting on the gross margin in Q4, to see it down this low at 25%, it caught me by surprise. I mean, do you have plans to push products like Ortega, higher margin products in 2006 that will improve that mix so you don't have that happen again?

Well, very frankly, that's how we decide what brands we're going to invest in and not invest in to a great degree. We will, and I think just basic intelligence, we will take the high margin brands and shoot for growth in those brands where we have the ability to do that because that just makes good sense. So yes, Ortega is a -- is a high growth brand objective and we are launching an awful lot of new products here in the latter part of 2005 and going into 2006 on that brand. So in that sense, sure.

Conversely, the B&G pickle and pepper business, which is a relatively low margin business, you don't see us expanding distribution on that brand or launching a lot of new products in that brand. We're picking our spots to improve our profitability and margin structure.

Okay. Thank you very much.

Sure.

Next we'll hear from [Arthur Rollick] with [Angelo Gordon].

Hey, good evening, guys.

Evening.

Good evening.

The first question was, maybe I heard you wrong, but have you guided for sort of interest costs to be about 41 million in '06?

Correct.

And am I wrong to say that it was about the same in '05?

Cash interest cost was 39 million in '05.

39. And I guess the extra 2 was associated with the new...

Acquisitions.

...secured financing.

Correct.

And then the -- and also I'm not sure, did you give any guidance for EBITDA in '06?

No, we did not.

Will you?

I was saying to somebody earlier today that anybody who can try and predict EBITDA in this environment is either a liar or a fool. And I say that not facetiously. The environment is so volatile that all we're doing is here's the situation we're faced with today on cost and we're trying to deal with it and we're trying to take every opportunity to increase revenue through price, through new products and things like that, and improve margin.

But having said that, tomorrow somebody in the Middle East could blow the wrong thing up and the price of oil is $100 a barrel and whatever I told you for EBITDA is just worthless. The environment -- to me, it's that scary.

All right. So from the acquisition side, though, is that an incremental -- ?

That's what -- yes, I did say in my remarks that we're -- our commitment is to be consistent with prior year in this environment until we see the cost environment calm down and we don't see it calming down yet. As I said, we're still playing catch-up because we're still seeing price increases from packaging suppliers; we're still seeing cost increases on things like sweeteners. We're fairly certain we're going to see further cost increases on maple syrup. So we have to continue to compensate for all those things and that's our objective on the base businesses to, as we have in the last two quarters, deliver results consistent to prior year as the minimum expectation for our business. And then acquisitions would be additive to that, yes.

Got you. So it's the 66 plus...

Correct.

...whatever the EBITDA acquisitions are.

But you know, as one analyst write-up said, there's a pretty strong cost headwind out there right now and we're still fighting that.

Okay, thanks a lot.

And next from Seneca Capital we have [Pearl Chain].

Hi, good evening. I was wondering -- first question was just on pricing. You did mention in your prepared remarks that you saw a few pricing increases in first quarter of 2006 and I was wondering if you could provide some color on maybe some of the individual brands where you've seen pricing this year?

Well, we've announced pricing on a number of brands yes, and some of it's not effective yet so I'd rather not comment on that. But we've taken some more food service pricing in a number of our brands, B&G, Maple Grove and things like that. We've -- on the food service side with Maple Grove we've actually made our food service sales by and large an FOB sale, so freight is added where before we used to pick up the freight as part of the sale. That alone looks like it's $0.25 million benefit against a fairly sizable cost increase on maple syrup this year and prospects for next year. And then there's a couple of brands, as I said, that we've taken general price increases following competition but they're not effective yet so I'd rather not say which ones.

Okay. Okay, thanks. And just on the acquisition environment, you said that it was a little quieter but prices generally remained high. Have you seen -- I think you've previously spoken about maybe prices coming down a little recently, perhaps as buyers were more nervous on just the cost increase environment. Is this the case? Are you seeing multiples coming down at all or if you could provide just a little additional color there?

I haven't seen a lot of activity where I've been able to get a multiple here very recently. As far as I could see, most of the activity was still hovering around that eight times range, which is not where we like to play.

Okay. Okay, great. And just final question, just with respect to your inventory and your balance sheet, it did come down sequentially but it was still up for the year and I imagine it reflects, like, the higher costs. But I'm assuming it's still a little bit higher than you want. I was wondering if you could just comment on your initiatives to reduce inventory and kind of what your expectations are for 2006?

Well, yes, we do want to reduce inventory. That's one of the major objectives in the company. And yes, cost is inflating that inventory and that was a comment we made last quarter as well, that cost is taking our inventory up even as we try to get the unit inventory down. No, I'd like to squeeze about $5 million out of inventory in 2006. As that inventory inflates in cost, though, that's going to be -- that's a challenge.

Right, right. Okay, fair enough. Thank you.

Thank you. Next we'll hear from [Dennis O'Rourke] with Regiment Capital.

Yes, hi, guys.

Evening.

Hello.

With the [IDS] structure [inaudible] with another IDS [issue] where they recently put them on part of the structure, what do you guys think of the structure now? I think you're a little over a year into it. [inaudible - technical difficulties] as well?

Well, it's certainly working for us. I think our company, when we went IPO, was suited for it and we're still very well suited for it. And having made the dividend payments we've made and everything and still maintained a very healthy cash position on the balance sheet, there's certainly nothing wrong with the structure. And I think the final proof of the pudding that we are comfortable with the structure is the fact that we've managed to do some acquisitions, which to me was the last missing piece of the puzzle here, could this company continue to acquire brands even under the EIS structure? And the answer is yes, we can continue to acquire brands.

Now having said all of that, we don't -- it's kind of an academic question because we -- even if we [inaudible] structure there's no practical way for us to do it. The tendering for the bonds, for instance, would be very expensive. And I don't know that [inaudible] got a huge response except internally on tendering for their bonds. And we can't call bonds until, I think, 2009 and even then the premium's pretty hefty at that point.

So it's really something we haven't given a huge amount of thought because we don't see a practical way to do it, even if it were preferable for us to do it. And until it become economical, I don't think it's going to be the subject of a lot of concern. We're running our business and meeting our obligations under the structure.

All right, great. And then just last questions. Pinnacle Foods recently bought the Armour business. I was wondering if you guys looked at that business and is there a reason, if you did, why you passed on it?

We did look at that business briefly. It was way too big. And here's an example of something that we would have had to make major changes in the structure of our business to pull that off. There were some things that we weren't keen on about the business, but a lot of it was simply it was going to be a traumatic thing for us in terms of how the business was structured to pull something as large as that off.

Why is that, because they do less contract manufacturing or -- ?

No, it's just the whole financing of it and everything like that. It's a question of how do you -- how do you do that? And one of the unanswered questions with the EIS is if we wanted to do another offering to finance something like that, how does that work?

Oh, okay. So it's purely structural within the EIS structure that -- ?

It wasn't -- it wasn't...

...your hands a little.

It wasn't a business that we were all that excited about to begin with. But if we had been excited about it, we still would have faced an issue of okay, now how do we finance the darn thing?

All right, great. Thank you.

Thank you. And we'll go to a follow-up question from Reza Vahabzadeh.

Dave, Bob, you mentioned the higher syrup costs partly because of the Canadian dollar. Have you considered hedging the Canadian dollar? It's been going; up basically we've heard the same thing on the maple syrup for a while.

I know. And, Reza, as I said on the last call, I should have hedged at 76, I should have hedged at 79, I should have hedged at 81, I should have hedged at -- my only satisfaction is I now subscribe to about three different currency reports predicting what the currency is going to do, I guess sort of as intelligence as to whether I should hedge or not. And every one of them has been dead wrong for six months on what the U.S. dollar is going to do versus the Canadian dollar. So what do I do? If I went by -- and part of my -- part of my judgment was reading all of these analysts say Canadian dollar is going to weaken, the U.S. dollar is going to strengthen, and some of them are still saying that, by the way. That all said to me no, we shouldn't hedge, and the Canadian dollar continues to march upward.

Yes. Well, I mean...

...very difficult thing to call.

Right. And then on new products you anticipate the level of new product activity in '06 to be comparable with '05 and the same for slotting fees?

Yes. Yes, we're going to spend about the same money and probably launch about the same amount of new products.

And then on the cost and the gross margin front, year over year comparisons I'm assuming, correct me if I'm wrong, are maybe more difficult in the first half, maybe more manageable in the second half?

Well, we know we have challenges in the first half. If everything stays as it is, it should be more manageable in the second half. But I would have said the exact same thing this time last year and it got worse in the second half. And it all is about oil, as far as I'm concerned, because oil affects first, our distribution costs, obviously, but there's this huge ripple effect through all of our suppliers and especially on the packaging side. But even on the commodities side to some extent, although the lag is more pronounced, it takes a lot longer to ripple through the commodity side. Packaging side is getting very immediate when something like that happens. And if oil would pull back a decent amount, I think that would be wonderful for us. If it goes up a lot we'll have a whole new set of challenges in the second half.

You seem to have finally gotten a lot of price increases announced earlier in the year. How did volumes perform versus your expectations?

I think the fourth quarter was actually better than we thought it would be. I mean that's very encouraging that we had trade go down a little bit, price up nicely, and volume come in. So that's a great scenario. I'll sign up for that every quarter. And it was better than we expected to some extent.

Would you say that for the year as well?

We knew we would sacrifice volume early in the year and we did. It pretty much came out as we planned, probably recovering a little faster in the last part than we thought it would.

Thank you.

And at this time it appears there are no further questions.

Okay. Thank you all very much. I appreciate your calling in and listening and asking the questions and we'll speak to you again next quarter.

That does conclude today's conference call. Thank you all for your participation.