B&G Foods Inc (BGS) 2008 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the B&G Foods, Inc. First Quarter 2008 Financial Results Conference Call. Today's call is being recorded. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. I would now like to turn the conference over to Mr. David Wenner, Chief Executive Officer of B&G Foods. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to the B&G Foods First Quarter Fiscal 2008 Conference Call.

You can access detailed financial information on the quarter in our earnings press release issued today and available on our website at www.bgfoods.com and in our quarterly report on Form 10-Q that we filed today with the SEC.

Before we begin our 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 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 non-GAAP financial measure EBITDA. A reconciliation of EBITDA to the most directly comparable GAAP financial measure is provided in today's press release and is included in our 10-Q.

As usual, we'll start the call by having our CFO, Bob Cantwell, discuss financial results for the quarter. After Bob's remarks, I'll discuss factors that affected the quarterly results, some of our business highlights and our current thoughts concerning the business going forward. Bob?

Thank you, Dave.

Net sales increased $12.6 million, or 12.1%, to $116.3 million for the first quarter of 2008 from $103.7 million for the first quarter of 2007. Cream of Wheat, which was acquired by us effective February 25, 2007, accounted for $11.7 million of the net sales increase, offset by a decrease in net sales of $800,000 relating to the termination of a temporary co-packing arrangement. The remaining $1.7 million increase in our net sales related to increases in unit volume.

Cream of Wheat net sales for January and February of the first quarter of 2008 were $9 million. We did not own the Cream of Wheat business during January and February of the first quarter of 2007. Net sales of our Cream of Wheat products increased $2.7 million, or 41.1%, during March 2008 as compared to March 2007, primarily as a result of increases in unit volume through new distribution. Our 10-Q has additional disclosure on brand performance during the first quarter.

Gross profit increased $2.2 million, or 6.9%, to $34.9 million for the first quarter of 2008 from $32.7 million for the first quarter of 2007. Gross profit expressed as a percentage of net sales decreased 1.5% to 30% in the first quarter of 2008 from 31.5% in the first quarter of 2007. This decrease in gross profit expressed as a percentage of net sales was primarily attributable to increased spending on trade promotions and slotting and increased costs for packaging, wheat, maple syrup, transportation and corn sweeteners, partially offset by the positive impact of the Cream of Wheat acquisition.

Sales, marketing and distribution expenses increased $800,000, or 6.8%, to $12.3 million for the first quarter of 2008 compared to $11.5 million for the first quarter of 2007. This increase was primarily due to an increase in consumer marketing of $800,000. Expressed as a percentage of net sales, sales, marketing and distribution expenses decreased to 10.6% in the first quarter from 11.1% in the first quarter of 2007.

General and administrative expenses decreased $0.4 million, or 25.8%, to $1.4 million for the first quarter of 2008 compared to $1.8 million in the first quarter of 2007, which resulted primarily from a decreased accrual for incentive compensation of $200,000, professional fees of $100,000 and all other expenses of $100,000.

Operating income increased 5.3% to $19.7 million for the first quarter of 2008 from $18.7 million in the first quarter of 2007. Net interest expense increased $500,000 to $12.6 million for the first quarter from $12.1 million in the first quarter of 2007.

Our average debt outstanding during the first quarter of 2008 was approximately $36.7 million higher than during the first quarter of 2007 as a result of $205 million of additional term loan borrowings made in February 2007 in connection with the Cream of Wheat acquisition, partially offset by term loan prepayments of $100 million made in May 2007 with a portion of the proceeds from our Class A common stock offering.

Net income increased 8.2% to $4.4 million for the first quarter of 2008 compared to $4.1 million for the first quarter of 2007. Our EBITDA increased 10.5% to $23.4 million for the first quarter of 2008 compared to $21.1 million in the first quarter of 2007. EBITDA expressed as a percentage of net sales remained relatively flat at 20.1% for the first quarter of 2008 versus 20.4% for the first quarter of 2007. Earnings per share of Class A common stock was $0.12 for the first quarter of 2008.

B&G remains healthy from a cash point of view. We increased our cash balance at the end of the first quarter of 2008 as compared to the end of the first quarter of 2007 by $5.3 million to $33.3 million, while paying out $27.6 million in dividends during the same time period. We also finished the first quarter of 2008 with $535.8 million in long term debt and $167.8 million in stockholders equity. I will now turn the call back over to Dave for his remarks.

Thank you, Bob. We're very pleased with the first quarter results given the challenging environment in today's food industry. The net sales increase of 12.1% represents continued success with the Cream of Wheat acquisition and stable sales performance from our base portfolio. Since we had not completed the acquisition until the end of February last year, Cream of Wheat accounted for the majority of our sales increase in the first quarter.

Net of an unrelated temporary co-pack business that ended after the first quarter of last year, Cream of Wheat represented approximately 86% of the sales increase. Our base business grew by 1.6% in net sales, all of which was volume. We announced price increases last year as of January 1st, so our first quarter 2008 lapped those increases with no further benefit.

Our price increases this year were announced in March and we began to see their effect in April. As I said in previous calls, we expect approximately $10 million in benefit during 2008 from those increases. We have also announced price increases in the food service channel that will take effect in early May and are planning further price increases across all channels in late summer to address cost increases that we have seen and expect to see. Although our pricing plans are still fluid, we hope to offset most, if not all, of the cost increases we expect to see in 2008. I'll discuss those increases in a few moments.

Cream of Wheat continued to perform very effectively for us in the first quarter. As Bob said, March was the first month in which we had a direct comparison to our own performance and the results were very encouraging. Last March's net sales on Cream of Wheat were $6.5 million, while this year's March net sales were $9.1 million, a 41% increase. Much of that increase was due to added distribution and promotional activity in the month, but we also began shipping two of our new products, the Cream of Wheat Whole Grain product and the new Cream of Wheat Variety Pack. The very early shipments of these new products accounted for approximately 15% of the increase in March, with the remainder coming from existing products.

Acceptance of the two new products has been outstanding so far. Each has been accepted in over 6,000 points of distribution. Our plan is to continue to build distribution on these products through the spring and summer in anticipation of coupon and advertising support for the fall hot cereal season. The capital project to move production of the Instant Cream of Wheat products to our Wisconsin facility is very nearly complete and we expect to begin production in the next few weeks.

Our base portfolio had a solid quarter, with 12 brands up and five down in net sales in the three months. The Ortega brand had the largest dollar increase and continues to enjoy growth from both new products and expanded distribution. We launched three new rice mixes under the Ortega label in the first quarter and two black bean items.

In addition, new products launched in 2007 accounted for approximately three-quarters of Ortega's first quarter 2008 growth. So new products are a very important element of our continuing effort to grow this very successful brand.

Our Las Palmas brand and to some extent our Polaner brand and molasses brands, Grandma's and Brer Rabbit, grew nicely versus last year because of the early Easter holiday. Easter is an important Hispanic holiday, which certainly affects Las Palmas, and one of the two seasonal peaks for molasses.

Our Maple Grove Farms brand continued to show solid growth, over 3% for the quarter on top of exceptional growth in 2007. The rest of the year is shaping up as a challenge for this brand. However, as it is almost certain now that the maple syrup crop in Canada is one of the worst in over 10 years, first estimates put the crop at 70% to 80% of annual global demand and there is no meaningful industry inventory to buffer the shortfall.

What this will mean is higher prices for the syrup in the fields and much higher prices at retail. We have already cancelled all promotional activity on maple syrup products and are preparing to issue immediate price increases pending the final outcome of the crop. That should be known within the next few weeks. It's possible that we may have to allocate supplies to customers as well.

We do not expect this to affect profitability. Interestingly, it's not uncommon that shortages like this improve profits because lower margin sales to some customers are dropped in favor of more profitable sales. Given the shortage, we also see no reason not to take pricing to a level that is at least neutral to our profitability.

Several of our brands did not -- did see net sales declines in the first quarter, though none were more than $600,000. The Underwood brand declined the most in the quarter, but consumer data seemed to say this was an inventory phenomenon, particularly at Wal-Mart, since consumer sales did not decline. This brand actually has exciting prospects this year.

Now that we've completed the manufacturing move from the co-packer to B&Gs Portland, Maine facility, we have launched a new turkey item and a new barbecue chicken item. We've gained distribution at Wal-Mart with these items and are slotting them in supermarkets as well. So we hope to see healthy growth from Underwood going forward. The Regina brand continued to see low price competition and declined modestly as a result. Dollar sales were down as we responded to competitive prices, but volume was up.

The Emeril brand declined $500,000 in the first quarter, which was a disappointment given a successful fourth quarter. All of that decline, however, was due to pricing, as volume actually increased in the quarter. We tested a lower price point for pasta sauces at several major customers, including Wal-Mart and Kroger, and had very good success with the test.

Volumes nearly doubled at both accounts, which exceeded our expectations. We were able to do this test because we had moved pasta sauce manufacturing from a co-packer to our own facility last year and reduced cost. As we find ways to increase the volume, this means we will enjoy the benefit of that added volume in our facility.

The Emeril line also saw volume gains in cooking stocks, cooking sprays, mustards and seasonings in the first quarter. We expect to reenter the warehouse club channel in the second quarter with mustards and continue to work on new products for the Emeril line.

As you may have seen, the sale of Emeril's interest in television, food and other products to Martha Stewart Living on the media was concluded in early April. It's still early on in the transition but we are very optimistic that our part of the Emeril franchise will benefit from the transaction.

The other comment I would make on sales is that we're seeing a shift between channels as consumers are pressed by rising costs. Our sales in the food service channel softened in the first quarter, while retail sales firmed, particularly in mass merchant customers. Fortunately, we are well represented in these customers and should benefit from any increases in their business. Wal-Mart, for instance, carries 15 of our 18 brands.

Gross profit increased by $2.2 million but decreased by 1.5% of net sales. Gross profit was negatively affected by higher spending on trade promotions and slotting as well as cost increases. Our trade promotion spending was up over 1% of gross sales in the first quarter for a variety of reasons. The Emeril price decrease was one significant factor, as were new EDLP programs with several major customers.

Under these programs we are charging an everyday low price and the customer is funding promotional activity. While this will smooth promotional spending in the long run, it increases in spending in periods that previously saw low spending. This is exactly what happened with the B&M brand in the first quarter, for instance. The shift of Easter to March also shifted trade spending forward into the first quarter.

Cost was also a factor that restrained gross profit in the first quarter. In the last conference call I indicated that we estimated 2008 cost increases at $15 million to $16 million. First quarter year-over-year increases came in at approximately $4 million, at the upper end of that estimate. While there were dramatic increases in commodities such as wheat, we also saw cost increases broaden to include virtually all purchased goods except where we've locked in cost.

We are revising our estimate of 2008 cost increases to range from $16 million to $20 million, although we are currently seeing a continuation of the $16 million trend. None of these numbers, however, include the situation with maple syrup that I mentioned earlier. But if oil continues to set new highs, we expect costs to follow in some fashion and we are increasing prices accordingly.

But let me put our cost increases into some kind of perspective. In their conference call this morning, Kraft Foods said they expected their cost of goods to increase 12% in 2008. The upper end of our estimate, $20 million, represents 4.2% of our 2007 net sales and 6.5% of our 2007 cost of goods sold. Given that level of cost increase, we think that price increases needed to offset those cost increases are manageable.

Operating expenses were up 6.5% in the first quarter due to higher sales volume and higher marketing spending. We're spending more of our marketing earlier this year. That drove $1 million of higher spending in the first quarter, even though we expect spending for the year should end up even with 2007.

We also spent more slotting money in the quarter in an attempt to place new products earlier in the year and achieve a better payback on the slotting investment. Our distribution cost as a percent of net sales actually declined 0.5% of sales, the result of increased deficiency from Cream of Wheat volume and cost reduction efforts.

Our success with Cream of Wheat and efforts to maintain the stability of the base business resulted in an EBITDA increase of 10.5% to $23.4 million for the quarter. Net income rose 8.2% versus first quarter of 2007.

I think it's very important to reiterate that our balance sheet remains as strong as our quarterly results. Cash increased by $5.3 million at the end of the first quarter 2008 versus end of first quarter 2007. Cash on the balance sheet at the end of the first quarter represents over four quarterly dividend payments at the current dividend rate.

Over the past year we have funded an inventory increase of $7 million, most of that due to Cream of Wheat. We also funded higher than normal capital spending in 2007 and in the first quarter of 2008 as we completed the transfer of Cream of Wheat production to our Wisconsin facility. We expect CapEx to return to a more normal level for the remainder of the year now that the project is largely completed.

Consistent with the dividend policy that has been in place since our IPO in October 2004, we are paying our 14th consecutive quarterly dividend today and expect to announce our 15th consecutive dividend following our quarterly board meeting next week.

I know that there's frustration about the performance of the stock in recent weeks. We here at the Company certainly share that frustration. 2007 was a banner year for B&G Foods. We completed a major acquisition and exceeded our expectations on that acquisition while maintaining stable results from our base business.

Our first quarter of 2008 is much the same, excellent performance from the Cream of Wheat acquisition and solid performance from the base business. Cash flow is healthy, our balance sheet is solid, and we are dealing with the challenges in front of us through price increases and cost reduction efforts.

We have run this company for reliable results for over a decade, all the while growing it at an above average pace in net sales and EBITDA by effectively acquiring excellent brands. As we continue to do that, we're hopeful that our stock price will reflect that achievement. At this point I'd like to open the call up to questions. Operator?

Thank you. The question and answer session will be conducted electronically. (OPERATOR INSTRUCTIONS) We'll start with [Resa Vahavidzhaday].

Good afternoon.

Afternoon, Resa.

On the pricing front, you mentioned you didn't have any pricing year-over-year. Since you have taken your pricing, to what extent has competition signaled that they would match it or go along and what has been the reaction from the customer base?

Well, the retailers are very accepting of price increases right now. I think it's just a common thing. Competition response varies by brand. In some cases we followed other people's price increases. In a couple of cases we led. I think in general people are increasing prices along with us. The exception I would say is the Ortega business where, as far as we can see, General Mills still has not moved. But we used to complain about Smucker's not moving on the Polaner brand. They have announced price increases as well, so the odd man out right now is General Mills and the old El Paso brand.

But you're comfortable with your pricing and pricing gaps? You're not going to lose too much sales base versus your expectation right now?

We're comfortable about that so far. We still have to see how that works, but we're watching market by market where our pricing is and making sure that we're promoting effectively, which is an important piece of that business. And we'll respond as we need to based on what we see in reaction on that particular business.

You talked about your cost increases for 2008. What portion of your cost do you have some hedges or forward contracts on and to what extent are you kind of locked and loaded on some costs?

Well, we certainly have locked in things like corn through the fall. We're locked in now on wheat, albeit at a higher price than we were seeing in the first half of last year. In fact, the price about doubled what we saw in the first half of last year. We have contracts on things like glass, some of which -- some of which rolled over and caused price increases this year. We've been locking in as many things as we can where we think it's intelligent to do so.

But, Resa, where we're locked in pretty much takes us through the end of this year. We're really not locked in after 2008.

I hear you.

And some of the things, Resa, are some of the minor crops like cucumbers and peppers and even the recipe beans. It really is a crop to crop kind of thing. You set the price in the fall and you have a 12-month contract typically. Those will all reset in late fall.

I hear you. And then as far as cost, you talked about the cost increases. From all the in-sourcing that you're doing in manufacturing and consolidation, do you have some cost savings as well in 2008?

Yes, we've got about $2 million in firm cost savings, about $4 million or $5 million on the horizon that we're not claiming to have as firm cost savings now. But, yes, we're doing a lot of work around trying to reduce costs as well. Sometimes you feel like you're swimming against the tide here. And a lot of times your efforts turn into a cost avoidance rather than a cost reduction.

Okay. And then can you talk about the sales performance and outlook for some of the other brands, like Polaner and B&M?

We expect modest growth in those brands. We don't expect anything remarkable. We don't have any -- in the case of B&M we've launched a new product that we're slotting out there now called Grandma's, which is directly aimed at Bush in terms of flavor and sweetness profile. So we're hopeful that will help that franchise grow some this year. Polaner we're just continuing to expand distribution on things like sugar-free, but we don't -- we expect modest growth out of those brands.

Okay. And then -- and then, Bob, inventory levels were up year-over-year, although receivables were about the same. Any thoughts on that?

Yes, the inventory increase is specifically related to Ortega -- I'm sorry, Cream of Wheat. I mean we had to build inventory of the instant product as we moved it -- as we moved production out of the Kraft Canadian facility that started in March and we're moving it into our Wisconsin facility. So we have about a three-month buffer on inventory just to cover us on the startup.

And so will that come off at some point in time?

Oh, it's coming off as we speak, every day. But end of the second quarter that will be gone.

It's bleeding down, Resa. The other comment I would make is here's another example of your efforts to reduce inventory, just as reduced cost sometimes nets you out to zero. As we see cost increases, even though case inventory is down nicely, the cost increases keep the dollar value of the inventory pretty flat.

Got it. Thank you much.

We'll go next to Pi Aquino with Credit Suisse.

Afternoon.

Afternoon.

Good afternoon.

can you just talk a little bit about what you're seeing on the acquisition environment front?

Acquisitions, actually there's a good number of prospects out there, so we're, as we always do, looking at various acquisitions. I think the environment's a little more friendly in that cost -- price expectations are down somewhat and the financing market seems to be loosening up. So that's a nice thing to see, too. I mean certainly a few months ago we were saying there really isn't tremendous prospects for financing something even if we found the right acquisition. I don't think that's true anymore. I think there are viable prospects for financing the right acquisition.

All right. And then did I hear you correctly when you said that the $16 million to $20 million in your revised cost estimate, your cost increases this year did not include maple syrup? And if so, how does that change if you think about the 70% to 80% in the bad crop in Canada?

Well, we're still waiting for the price to settle out. It's a very dynamic situation up there. We're guessing that maple syrup costs for us will go up $4 million to $5 million out of where we think the price will end up. But as I said, we're kind of treating that as a separate event because we think we can price and be selective in customers to at least be neutral on that, if not actually improve profitability on that.

Sales almost assuredly will go down in that business as the volume slims down. But -- I should unit sales. Dollar sales may actually not go down depending on how big a price increase we take. But we're thinking it's going to come out to at least neutral and to the good but we don't know yet what the end result will be on the price.

The only other encouraging thing I can say is that the Canadian dollar is behaving itself and our exchange rate's a fairly neutral event right now, too. So that's to the good, too.

Right. And the only other comment there is all our competitors are paying the same price so we all have the same issue. We feel very comfortable we can pass price along at retail.

You're not going to get into a bidding war for pieces of business in this environment because nobody will have the syrup to take on new business. We tried increasing price with a major account a while ago. They put the business out for bid as a result of the price increase we handed them. Nobody bid on the business because nobody has syrup to go after new customers. They're worried about servicing their existing customers. There's not a lot of price competition among the manufacturers right now.

Got you. Thank you.

We'll go next to Edward Aaron with RBC Capital Markets.

Thanks. Good afternoon. Nice job on the quarter, guys.

Thank you, Ed.

Thank you.

Couple of questions for you, first with Cream of Wheat. I was hoping you could maybe talk a little bit more about -- you mentioned the sales numbers, but maybe a little bit more on full P&L of that business? I know you did a pretty big promotion this quarter, but how do the margins for Cream of Wheat in Q1 compare to -- maybe at the EBITDA level to what they were on a pro forma basis a year ago?

It's very consistent. We've been able to offset on Cream of Wheat. The margins are very consistent even with the higher wheat costs because we've been able to save money on distribution and warehousing that was on the Kraft P&L that we purchased. So the additional growth in sales is really just dropping as a similar percentage to our bottom line. So we -- and Cream of Wheat is one of our higher margin businesses.

So even with a -- even with $2 million of promotion, which I think is what you had in the first quarter, the EBITDA margin was about the same as last year.

Very close. We expect on a full year basis Cream of Wheat margins to be very consistent with 2007.

Okay. I was hoping you could elaborate a little bit on your comment about the financing market loosening up. Is that just more of a broad observation about the overall market or have you had some discussions with lenders and come to the conclusion that there's more financing availability for you specifically than there was previously?

That's a broad observation and we're watching the price of our existing bonds and seeing where it's trading. And our senior notes, for instance, are trading pretty much to par, which we infer means that were we to go to market, the interest rates would be more friendly than they had been in the past.

Okay. And then lastly just wanted to ask a question about kind of your full year outlook. I think last quarter you mentioned expectations were kind of flat to slightly up on EBITDA for the year compared to the reported EBITDA number for '07. Is that -- is that still roughly what you're expecting or has it changed either up or down since then?

I think we're still on that. And it's very hard given how dynamic the market -- the environment is to change it much more than that. We're trying to manage our business for some improvement here in 2008. I would make the comment that I think the second quarter's going to be a little more challenging as we hope pricing revs up. We obviously don't have the Cream of Wheat comp advantage that we had in the first quarter. So we need to have our pricing rev up to match our cost increases.

And to the extent that there's a lag, second quarter will be a little more challenging. But once we do catch up, which should happen sometime in the second quarter and certainly into the third and fourth quarter, we think at the end of the day we'll hit where we said we would hit, which is somewhat of an improvement from last year.

Okay. The Cream of Wheat growth that you saw in March, is that-I know you seem pretty positive that that was going to be continuing at a high rate going from now until you get into the back half of the year when you do that couponing program. Should we assume the March growth rate is similar to what we're going to see in that business in the second quarter?

Well, I wish I could tell you yes. No, I think that's an extraordinary number. You had a lot of pipeline in there from new products. You had pipeline from new distribution gains. And you did have the effect of a promotional activity. So high single digits is probably a -- I'm much more comfortable with a number like that. It was a very good month, though.

Yes. Fair enough. Actually one more question, if I could. You mentioned on the SG&A that you decreased your incentive comp accrual. How are you thinking about that for the year? You had a -- you had that one-time bonus payment that you did late last year and this is kind of shaping up to be a little bit of an odd year because I think relative to the environment, the numbers that you're putting up are pretty good. It's a little bit disjointed from where the stock is, as you mentioned in your prepared remarks. How do you think about from an incentive comp standpoint --?

Well, our incentive compensation is based on improvement in the business. Performance, but performance in the context of improving the business. So were we to do the same number we did last year, incentive comp for management would go down considerably. The bonus portion of it would be -- I don't have the numbers in front of me but I'm guessing about half of what it was last year. The long term incentive part would be considerably lower than it was last year. So we truly have a very performance-based plan and we need to make these things happen to get the compensation.

Okay. Thanks, guys.

We'll go next to Brian Hunt with Wachovia.

Thank you. I was wondering, just looking at your cash needs first on the balance sheet, the $33 million, what do you really need to run the business at the end of the day?

Well, because of the diversity of our brands, and if you look kind of quarter to quarter on our cash balance, you don't see much movement at all. Where we do generate a little cash every year is in the fourth quarter as we're at our peak of inventory heading into the fourth quarter and we actually sell it down a little bit. But quarter to quarter we do not need much working capital because we have a number of brands that are just different seasons.

So the cash is an arbitrage opportunity? Are you just storing cash in anticipation of making an acquisition?

Well, with storing cash, we don't have an easy way to just pay down debt at this point in time. But we look at our capital needs and look at the best use of capital and historically using some cash on acquisitions plus debt has been the best use of capital for B&J.

Okay. Next question, is there anything else you can co-pack out of your portfolio of products? And are you looking at anything this year besides what's been announced?

Well, we're actually, as I said, we're actually taking things out of co-packers into our manufacturing facilities where we perceive that we can lower cost.

That's what I was implying. I'm sorry.

yes, your question suggested quite the opposite. But yes, we actually do intend to bring salsa manufacturing in-house either late this year or early next year, depending on how much capital we have available to do that. And that's sizeable. Between the Emeril business and the Ortega business we have a nice salsa business. All things being equal, we feel we have a sizeable cost savings by bringing it in-house. So that's one major thing we're looking at and we're constantly examining everything else and challenging can we do this better.

All right. My last question is on merchandising. From a lot of the companies we talk to, family style items are doing very well. Obviously warehouse clubs are outperforming. Is there anything you're doing with regards to large pack items or even the family style meals this year that's new relative to last year where you see a real opportunity?

Well, we've been on a trend with Ortega where we have been doing meal solutions like the Grande Taco Dinner Kit, the pizza kit, the lasagna kit and we think those are great ideas for exactly this kind of environment. As far as club packs, we're always looking at larger sizes and multi-packs in different brands. Cream of Wheat's one where we want to penetrate the club channel still with that brand. Yes, we are very aware of the meal occasions that are going to happen at home around families and trying to design products to appeal to that, be it in the club channel or Wal-Mart or in supermarkets.

And is there anything specific you're introducing between now and the end of the year?

More extensions on the whole dinner kit kind of idea in Ortega is the main thing I would say.

Okay. Thank you very much.

We'll go next to Andrew Lazar with Lehman Brothers.

Good afternoon.

Afternoon.

Afternoon.

Just a couple of things here. One, is there any way to sort of estimate what maybe the early Easter added to your organic sales growth rate? I know -- I think organic sales was up about 1.6%, all volume. Trying to get a sense of if we should expect a similar but opposite sort of situation as we go into the second quarter from an organic top line standpoint.

I'm guessing it added $1 million to $2 million in sales total and that includes some Cream of Wheat sales. But that's the number we're kicking around. And yes, you're going to pay a little bit of a price in the second quarter off of that number. You're not going to sell the molasses in the Las Palmas. For instance, sales that happened around Easter won't occur in April now. So yes, there's a little bit of a deficit, especially in April, out of the Easter moving forward.

Okay. And then just as a clarification, when you talk about hopefully trying to keep your EBITDA base roughly flat year-over-year and hopefully better, what is the base that you're using when you think about that? Is it the pro forma base, including Cream of Wheat for a full year or -- just so I'm clear on that.

It's our actual results of 2007.

It's off the [94 or 5]

Okay, got it. And then if you -- if you did see something from an acquisition standpoint, and I know you said the financing is getting a bit looser, but that couldn't fully finance through-- let's say through debt. Would there be a consideration for putting sort of the dividend at risk at all for the right acquisition?

No, I don't think that -- I don't think that accomplishes what we want to accomplish with --

Yes.

-- business. It doesn't fit our model. And when we look at acquisitions, we're looking at free cash flow out of that acquisition net of the interest cost and whatever CapEx, which is usually minimal, comes out of that cost. And if it doesn't fit the profile that we have had, which would be dividend friendly, not dividend adverse, we just wouldn't do the acquisition.

Got it. Yes, I'm just trying to address various concerns and things that I hear.

What you're suggesting implies that the cash flow isn't a positive event, that we're not getting substantially more free cash flow out of that acquisition which would allow -- of course allow us to continue to pay the dividend at the very least. And that's just not -- that doesn't fit our model. That isn't what we do.

Okay. And last, I'm sure this differs by sort of brand and product category for you, I'm curious how much -- if there are any areas where you've got sort of excess manufacturing capacity. I don't know how much, if any, co-packing you do for others and maybe that just doesn't make sense. It adds a lot of volatility, obviously, to results and such. But is there an opportunity there as you think about bringing more production in-house to produce for others just to absorb more overhead and particularly in an environment like this?

We certainly have the capacity. The problem is that we're approaching any private label opportunities in these days based on what we expect costs to be and we're quoting on them because you're typically locking in for one or two years on a price. So we're actually modeling our costs, saying, okay, over the period of this, what is the cost going to be? And so that really keeps you from being really aggressive on price.

And so it's unlikely with that philosophy, at least from what we've seen from competition on private label, it's unlikely we'll pick up any private label. But frankly, I'm protecting my ability to make any money if I get that business.

Yes. And I guess the last thing really is I know that you're not -- for the things that you can sort of hedge and cover yourself on, I think I heard you say it was not too much out beyond '08 at this stage. And who knows where things will be at that point. But given where certain key commodities are underlying for you today, I know you're trying to be closer to the cost curve with pricing, but are there some areas that you can already foresee that, given where again the underlying commodity is, you need to start thinking about additional pricing that just doesn't kind of help you cover things this year that potentially where things are going to be in '09?

I --

I'm talking about being a little bit anticipatory obviously, which I know can be difficult based --

-- But we are being more anticipatory. We look at things now, we cost all of our items out now for purposes of price increases trying to anticipate where they're going to be throughout the year. That's a new thing that you didn't have to do a few years ago. Now you really have to look forward.

Higher.

I mean -- pardon me?

Higher would be the --

Yes. That seems to be the trend, yes. But I wish I had a crystal ball. I mean wheat's a sizeable thing for us now. Where is wheat going to be in 2009? I can ask 20 people and get 20 different answers and it's very -- it's very difficult. But I think your higher is probably a good idea, yes.

Okay. All right, thanks very much.

That concludes the question and answer session today. At this time I'd like to turn the conference back to Mr. Wenner for any additional or closing comments.

Okay, thank you, Operator. Thank you all for joining us on the call. As you saw, we think we had a very good first quarter, which was a continuation of a very good year in 2007. We recognize that this is a very challenging environment for the food industry, but I would submit that our company does not have the size of the cost exposure that some of the other companies have and we certainly are trying to be very proactive in terms of pricing to accommodate what cost increases we see and anticipate going forward.

And our goal is to provide good, consistent results with the base portfolio while we continue to look for ways to acquire brands and continue our above average growth rate overall out of doing effective acquisitions. That's been our model, it will continue to be our model, and we think we're fairly good at it. So again, thank you all for joining us.

This concludes today's conference. We appreciate your participation. You may now disconnect.