B&G Foods Inc (BGS) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you very much for standing by, and welcome to the B&G Foods Incorporated fourth quarter 2008 financial results conference call. (Operator Instructions). I'd like to remind everyone that this conference is being recorded and would now like to turn the conference over to David Wenner, Chief Executive Officer of B&G Foods. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to the B&G Foods fourth quarter and full year fiscal 2008 conference call. You can access detailed financial information on the quarter and the full year in our earnings release issued today available on our website at bgfoods.com and in our annual report on Form 10-K that we have 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 will also be making reference on today's call to the non-GAAP financial measures, net income as adjusted, earnings per share as adjusted and EBITDA. Reconciliations of these measures to the most directly comparable GAAP financial measure are provided in today's press release.

As usual, we will start the call with our CFO, Bob Cantwell, discussing financial results for the quarter and the year. After Bob's remarks, I'll discuss factors that affected our quarterly results, business highlights and our updated thoughts concerning fiscal 2009. Bob.

Thank you, Dave. First I will review the full year briefly, then talk about the fourth quarter. Net sales for 2008 increased $15.6 million or 3.3% to $486.9 million compared to $471.3 million for 2007. Net sales during both fourth quarter and full year 2008 were negatively impacted by the poor maple syrup crop in Canada that led to a global shortfall of maple syrup.

Excluding net sales of Maple Grove Farms pure maple syrup products and the impact of the termination of the temporary co-packing arrangement, net sales for 2008 increased $18.9 million or 4.3%. Of this $18.9 million increase, $8.6 million was attributable to sales price increases, $1.3 million was attributable to an increase in unit volume, and $9 million was attributable to two extra months of Cream of Wheat sales.

Net sales of our Maple Grove Farms pure maple syrup products decreased by $2.5 million, consisting of a unit volume decline of $8.2 million partially offset by sales price increases of $5.7 million. Net sales in 2008 were also negatively impacted by $0.8 million due to the termination of a temporary co-packing arrangement. Our 10-K has additional disclosure on the performance of our brands for the full year.

Gross profit for 2008 decreased $14.1 million or 9.5% to $133.9 million from $148 million in 2007. Gross profit expressed as a percentage of net sales decreased 3.9% to 27.5% in 2008 from 31.4% in 2007. The decrease in gross profit expressed as a percentage of net sales was primarily due to the increased cost of maple syrup, packaging, wheat, transportation, beans, corn and sweeteners partially offset by $14.3 million in sales price increases.

Operating income decreased 9% to $73.9 million during 2008 from $81.2 million in 2007. Net interest expense increased $5.4 million to $58.1 million in 2008 from $52.7 million in 2007. Net interest expense in 2008 includes a non-cash mark-to-market adjustment on our interest rate swap of $6.1 million subsequent to our determination in September 2008 that the swap was no longer effective hedge under the guidelines of FAS 137 due to Lehman's bankruptcy filing.

I'd like to take a moment to discuss EBITDA, a non-GAAP financial measure that we have reconciled to net cash provided by operating activities in today's press release. Excluding the impact of severance and termination charges, 2008 EBITDA was $90.3 million, a decrease of 4.4% as compared to 2007 EBITDA of $94.5 million. Including the impact of severance and termination charges, 2008 EBITDA was $89.4 million, a decrease of 5.3%.

Excluding the impact of items affecting comparability in unrealized loss on our interest rate swap and severance and termination charges, the Company's net income for 2008 was $14 million and earnings per share was $0.38. Including income -- items affecting comparability, the Company's net income for 2008 was $9.7 million or $0.27 per share.

During a portion of 2007 B&G Foods had two classes of common stock outstanding and computed earning per share under the two class method. As a result, even after taking into account items affecting comparability, it is not meaningful to compare earnings per share data for 2008 and 2007.

Capital expenditures in 2008 decreased $3.6 million to $10.6 million in 2008 from $14.2 million in 2007. During 2008 we incurred $8.1 million in connection with the completion of the capital project initiated in 2007 to expand our Stoughton, Wisconsin, manufacturing facility and move certain manufacturing equipment for our Instant Cream of Wheat into our Stoughton facility. The Company's projected capital expenditures for 2009 are approximately $11 million.

Turning now to the fourth quarter of 2008, net sales increased $2.5 million or 1.9% to $134.9 million compared to $132.4 million for the fourth quarter of 2007. Excluding net sales of Maple Grove Farms pure maple syrup products, net sales for the fourth quarter of 2008 increased $5.2 million or 4.2%. This $5.2 million increase was attributable to sales price increases of $7.1 million, partially offset by the negative impact of a change in the mix of products sold of $1.9 million. Net sales of Maple Grove Farms pure maple syrup products decreased by $2.7 million, consisting of a unit volume decline of $4.6 million partially offset by a sales price increase of $1.9 million.

Gross profit decreased $5 million for the fourth quarter of 2008 or 12.7% to $34.7 million from $39.7 million in the fourth quarter of 2007. Gross profit expressed as a percentage of net sales decreased 4.3% to 25.7% for the fourth quarter of 2008 from 30% for the fourth quarter of 2007. The decrease in gross profit was primarily due to increased costs of maple syrup, packaging, wheat, transportation, beans, corn and sweeteners partially offset by $9 million in sales price increases.

Sales, marketing and distribution expenses decreased $4.2 million or 28.8% to $10.3 million for the fourth quarter of 2008 compared to $14.5 million for the fourth quarter of 2007. These expenses expressed as a percentage of net sales decreased to 7.7% in the fourth quarter of 2008 from 11% in the fourth quarter of 2007. The decrease was due to a decrease in selling and consumer marketing of $2.7 million, compensation expenses of $1.1 million and brokerage expenses of $0.4 million.

General and administrative expenses increased $0.5 million or 18.1% to $3.4 million for the fourth quarter of 2008 compared to $2.9 million in the fourth quarter of 2007. This increase includes $0.7 million of the $0.8 million severance and termination charges and an increase in professional fees of $0.6 million offset by a decrease in compensation expense of $0.8 million.

Operating income increased 6.6% to $19.4 million for the fourth quarter of 2008 from $20.7 million in the fourth quarter of 2007. Net interest expense increased $8.3 million to $21 million in the fourth quarter of 2008 from $12.7 million in the fourth quarter of 2007.

Net interest expense in the fourth quarter of 2008 includes an unrealized mark-to-market loss on our interest rate swap of $7.5 million subsequent to our determination in September 2008 that this swap was no longer an effective hedge following the Lehman's bankruptcy filing.

Excluding the impact of severance and termination charges resulting from the workforce reduction, the Company's fourth quarter 2008 EBITDA of $24.3 million was flat as compared to prior year. Excluding the impact of the items affecting comparability, the Company's net income for the fourth quarter of 2008 was $4.1 million and earnings per share was $0.11 as compared to net income of $5.2 million or $0.14 per share for the fourth quarter of 2007. Including items affecting comparability, the Company experienced a net loss of $1.1 million or $0.03 per share for the fourth quarter of 2008.

Moving on to the balance sheet, we finished 2008 with $32.6 million of cash compared to $36.6 million at the end of 2007. During the fourth quarter of 2008 we used $2.5 million of our cash to buy back approximately 550,000 shares of our Class A common stock.

Our cash available to pay dividends in 2008 was $30.4 million. Our current intended dividend rate is $0.68 per share or $24.6 million in the aggregate per annum. We finished 2008 with $535.8 million in long-term debt and $144.6 million in stockholders' equity.

Our inventory at the end of 2008 decreased $4.3 million to $88.9 million compared to $93.2 million at the end of 2007. Annual cash interest expense for 2008 was $48.8 million; cash interest expense for 2009 is expected to be approximately $49 million.

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

Thank you, Bob. After two challenging quarters and frankly the most challenging year we have had in a long while, the business turned the corner in the fourth quarter and, excluding special charges for severance, matched prior year EBITDA as predicted. We are very encouraged by this outcome which was the result of hard work on both the cost and price fronts.

As Bob told you, net sales for the quarter increased $2.5 million or almost 2%. There were many moving parts that determined that outcome. Due to the shortage of maple syrup, our net sales of maple syrup products were down $4.6 million. Price gains of $1.9 million limited the net shortfall to $2.7 million. Without this shortfall, the overall net sales increase would have been $5.2 million, an increase of over 4%.

Price increases beyond those in maple syrup contributed approximately $7.1 million in the quarter, more than double the comparable gains seen in the third quarter. Unit sales beyond maple syrup were actually up slightly, meaning the small sales decline net of price was due to the sales mix. The quarter also had a 14th week as compared to 13 weeks in 2008 which normally would have boosted sales more than we saw.

Two factors offset this. The first was an intentional pullback in promotional programs that we deemed inefficient, part of our continuing efforts to maximize the efficiency of our trade spending. These were promotions that increased sales to our trade customers but had little consumer impact.

The second factor was an inventory pullback by a number of major customers in the latter part of the quarter. This was unexpected, but I have noted that a number of other food companies have mentioned the same phenomenon, so apparently it was not uncommon.

These two factors offset the net sales gain we might otherwise have seen from that 14th week. In any event, our sales were strong enough to produce the forecasted EBITDA for the quarter, and in the case of both factors the sales deferred in the fourth quarter have given us a stronger start to 2009.

Even though we reached the EBITDA forecast for the quarter, I'm sure some of you are concerned about the margin structure underlying the results. As Bob mentioned, gross profit was lower by $5 million and by 4.3% of net sales. We believe, however, that these numbers will improve significantly in 2009 and, in fact, in the first quarter for the following reasons.

First, some costs were still in transition in the fourth quarter, including wheat and delivery costs. Cream of Wheat costs alone, most of which was wheat, accounted for approximately 25% of the lower gross profit margin. These costs improved as the fourth quarter went on and wheat costs in first quarter are lower than the fourth quarter and essentially the same as the first quarter of 2008.

Delivery, our distribution costs to customers, were also higher for the first part of the fourth quarter and accounted for another 25% of the margin decline. These costs became neutral in December and were lower than prior year as 2009 began. Today as we speak, fuel surcharges are favorable versus this time last year and here we shift from a negative in the fourth quarter of 2008 to a positive in the first quarter of 2009. The remainder of the margin shortfall was due to a mix shift from high margin brands to low margin brands.

Sales increases in the B&G, B&M and Joan of Arc brands, several of our lower margin brands, offset declines in Ac'cent, Underwood and Cream of Wheat, all high margin brands. These high margin brands were disproportionately affected by our promotional cutbacks and by the customer inventory reductions. Since consumer trends in the brands are generally positive, we would have expected those sales to rebound in the first quarter and that is what we are seeing. At the end of the day we expect higher pricing, lower costs and a more normal mix to return our gross margin to a more normal level throughout 2009.

In general, we are very positive about sales trends in our brands. Over two-thirds of the brands saw sales increases despite the promotion and inventory cutbacks. Ortega led the way for the quarter with a 16% increase in net sales. This brand has shown that it is well positioned for this economic environment as it is showing strong growth due to, first, higher sales in existing distribution, second, higher sales due to expanding distribution and lastly, growth from new products.

We have had a healthy number of new products queued up for introduction in 2009 and are expanding distribution of existing products as well. Las Palmas, our other Hispanic brand, saw an 8% net sales increase, underscoring the growing popularity of Hispanic foods. Our two molasses brands' net sales increased by 15%, reinforcing our belief that more people are cooking and baking at home. The Polaner brand at a 12% increase and the B&G brand at 10% also had good quarters. Part of these increases was probably due to pipeline fill at wholesalers. We are gradually unwinding our store door delivery system in the New York area and intend to be out of that system by year-end 2009. B&M, Joan of Arc and Vermont Maid also saw healthy sales growth.

The brand most affected by our promotional changes was Cream of Wheat, which declined 5% in net sales for the quarter. In the fourth quarter of 2007 as we tested various tactics with the new brand we ran a very aggressive promotional campaign which did not have a meaningful impact on consumer purchases. It did, however, generate a considerable buy-in by our retail customers. We did not repeat that program in 2008. That change, combined with the inventory drawdown, affected sales temporarily at year-end. We remain very pleased with the brand's performance despite this dip in sales.

Consumer data shows that the brand sales and share are up. When we bought Cream of Wheat, it had a 6.1 national share in the hot cereal category and was declining 6% each year. The latest 12-week IRI data shows Cream of Wheat at a 7.3 share. Mass merchant sales are growing even faster with sales up over 20% in the last 12 months.

Here again we have a number of exciting new products that will be introduced in 2009 including a line of products with fiber added. The Emeril brand was one of the brands that struggled in the fourth quarter, declining by 7%. Reduced promotional activity was a factor here, compounded by weakness in sales through specialty distributors. We are finding that a number of these distributors are struggling in this environment, affecting the brand and Maple Grove specialty business to some extent. We are working closely with them to try and improve this situation.

As Bob mentioned, operating expenses were $3.7 million lower in the fourth quarter. Our marketing spending, which was front end loaded this year, accounted for over $1 million of the difference. Selling costs were lower by over $1 million, a combination of reduced broker sales expenses due to cost reductions, our headcount reduction and lower incentive compensation. We also saw headcount cost savings in our warehouse and G&A expenses as well as a benefit from lower incentive compensation in those areas. There were no bonuses or other incentive compensation payments to management in 2008 because of our results as we failed to meet our EBITDA and excess cash performance goals for the year.

Cash on our balance sheet remains very healthy at $32.6 million. While this is down slightly from prior year, the great part of the difference is the $2.5 million that we used to buy back stock during the quarter. All things being equal, we would prefer to buy back debt rather than equity, but at the prices we paid we were retiring stock paying an implied dividend rate of almost 15%. Even with our senior notes trading at a discount we would not approach that kind of return by buying back these notes, and our credit agreement restricts us from purchasing senior subordinated notes.

We were successful in reducing inventory by 5% at year-end and we will continue those efforts in 2009 primarily by shedding or restructuring those parts of our business that require high levels of working capital. Our exit from several private label pickle accounts is a great example of this kind of rationalization.

In last quarter's earnings call we broke with tradition and provided guidance for the fourth quarter and full year fiscal 2009. Having achieved the forecasted EBITDA for the fourth quarter, we are pleased to reaffirm our fiscal 2009 EBITDA guidance of $95 million to $98 million. As I said earlier, we expect costs to increase this year.

Specifically, we anticipate year-over-year increases in commodity and packaging costs as well as increases in management compensation for incentives because of improved financial performance. These increases are expected to be on the order of $15 million. We currently believe, however, that our cost reduction efforts and pricing which should total $20 million to $23 million will more than offset cost increases and return our margins to more normal levels. We expect the bulk of the year-to-year EBITDA gains to come in the first eight months of 2009 as we saw only modest price gains during the first eight months of 2008.

Currently, the only unknown of consequence is maple syrup. Maple syrup will remain an unknown until the crop starts in about four weeks. In 2008, with the disastrous crop, we were able to successfully pass on cost increases except for contractual limitations. So we forecast that this will be a neutral event no matter what the crop outcome.

Last Thursday our Board of Directors declared our 18th consecutive quarterly dividend dating back to our EIS IPO in late 2004 and we remain committed to our dividend policy pursuant to which we distribute a substantial portion of our cash available to pay dividends to our investors. At our current intended dividend rate of $0.68 per share per annum, our annual dividend payment in the aggregate is approximately $24.6 million. Assuming that we achieve EBITDA of $95 million, the low end of our 2009 guidance, then after paying $49 million in interest, $11 million in CapEx and $1.5 million in cash taxes, we will have generated cash available to pay dividends of $33.5 million in fiscal 2009.

As I said at the beginning of my comments, 2008 was the most challenging year our business has faced in over a decade. We were hard pressed to compensate for the very rapid escalation of costs on almost every front. It's a testament to the inherent stability of our business that our annual EBITDA declined only slightly more than 4% in 2008 and that the business righted itself by the fourth quarter. The performance of the business in 2008 reaffirmed to us the strength of our brands and the basic soundness of our business model.

2009 will have its own challenges as we, our retail customers and our consumers cope with the difficult economy. We believe that we have brands that are very relevant in that context, brands that allow consumers to feed their families inexpensively but with quality, be it Ortega taco shells and kits, Cream of Wheat hot cereal, B&M baked beans, B&G pickles, Polaner All Fruit, Maple Grove syrups, Emeril pasta sauces or any of our other brands and products.

The trend towards economy cooking at home should benefit us and we believe that we are well positioned to sell our products to consumers no matter where they choose to shop. We look at 2009 as a return to more normal performance in the business in both operating margins and cash flow. We hope that as a result, investors will appreciate how solid this business is and how attractive the investment opportunity.

At this point we would like to open the call up to questions. Operator.

Thank you. (Operator Instructions). First up from Barclays Capital this is Reza Vahabzadeh.

Good afternoon.

Afternoon, Reza.

David, you mentioned your commentary on the cost increases and that included packaging and what else?

Commodities.

Commodities.

Yes. What we're seeing, Reza, is that even though major commodity costs have come down from their peak, those costs tend to be fairly flat for us versus last year right now. And minor commodities, I guess that makes them not commodities, but things like beans and pickles and peppers and things like that had substantial cost increases in 2008 as the crops came in in the fall. Those cost increases will carry over into 2009 and they're just on top of very significant packaging cost increases.

I see. And do you sense any -- do you have any initial view on the maple syrup by any chance?

Not a clue, Reza. Until -- that's one of those things that until the crop is here you do not know what's going to happen. All we can say is at the prices that were in place last year, there's a lot of taps being pounded into a lot of maple trees up in Vermont and Quebec.

Got it. Now with the pricing increases that you've taken you seem to be able to cover your cost increases, but what about competition? What about the threat from private label and any pushback from retailers? Can you comment on that?

Well, take it backwards. First up, we have not seen a pushback or a request to lower prices from retailers. There's more resistance to price increases, and we just did one in January, than there has been in the past. And you're required to justify the price increases thoroughly, which we can do on things like B&M, where the beans went up 60% and the cans went up over 20% here in the last six months.

Competition has been very well behaved and I don't think until people really see a dramatic cost decrease, which I don't think most people have seen, we're going to see real aggressive competition on most brands. And most of our brands are not exposed to private label and frankly where we are exposed to private label we've seen a very good outcome.

The best example is Joan of Arc which is a very commodity product when you get down to it. It's kidney beans and chili beans and things like that. What has happened there when you look at IRI is the category is up double digits, about 20% or so. Private label is actually up commensurate with where the category is up and the brands are up as well, not as much as private label perhaps. So your share has gone down a little bit, but your sales are up because it's one of those, the rising tide is lifting all boats. So the private label is getting more share in a category like that, but our sales are still up. So it's a good outcome.

Right. And then just on inventory destocking, was that a significant number in the quarter, Bob?

Yes, it was. A lot of this was from the larger wholesalers who for various reasons, liquidity reasons, pulled back a little bit. That's upwards of, somewhere upwards of $5 million.

For the quarter?

Yes.

And you are done with it now?

Yes. I think it was just -- a lot of it was just timing at the wholesaler level and them just trying to generate more cash.

It was literally something that was announced, as you approached the latter part of December, a number of major customers just said we're done buying for the year.

Yes.

Got it. And lastly, as costs are coming down are you continuing to do some hedging or are you just on the swap market?

We're extending some commodities out as costs bleed down. So for wheat, for instance, we're locked in through 2009 with wheat and we're starting to take positions in first quarter of 2010 on wheat and we're following the cost down as it continues to go down. Having said that, when we look at wheat costs in Cream of Wheat versus when we bought the business, the costs are still up from when we bought that business by about 20%, 25% even as it's down significantly from the peak. So I guess when people talk about costs are down, it's all relative where they're down from and in reference to what.

Got it. Thank you much.

You're welcome.

Next up we'll go to Robert Moskow at Credit Suisse.

Hi, thanks.

Good afternoon.

Good afternoon.

Afternoon. Hey, in your prepared remarks you said that the inventory deload gives you a stronger start for this year. I'm just wondering why it would give you a stronger start. I mean, aren't these wholesalers just going to keep inventories low? And then, secondly, I was wondering, when are you going to get a little more insight on steel can costs? Do you think those costs could ever come down?

Well, we know that it was a very temporary thing as far as the inventory because we saw a very quick surge in sales at the beginning of January as people restocked. I think what people did was take their inventories down to an abnormally low level to, I'm speculating, meet some year-end number that they wanted to show on working capital or whatever and once that was over they needed to get back in stock on things in their pipelines. So we saw the flip of the volume in the last two weeks of December versus the first part of January. What was the other half? I'm sorry.

Yes, the steel cans.

The steel cans, I'm hearing people saying that maybe in the second half of year that the steel people will lower their prices and the can producers will follow, but we haven't seen anything definitive yet.

Okay. I don't really hear a lot from your peers about a lot of restocking taking place in January. If you see it happening, I mean, and your quarter is two-thirds over, so I guess that is very encouraging and --

That's what we saw.

Yes. Well, that's good to hear. Thank you.

Yes.

We have a question now from Ed Aaron, RBC Capital Markets.

Great, thank you. Afternoon, guys.

Afternoon, Ed.

So you mentioned the price increases went through and they seem to have stuck, but you did cut back on the promotions in the quarter, and if you listen to some of the retailers out there they seem to want some sort of concessions moving through 2009. I'm just wondering what's kind of the outlook for having to maybe reaccelerate some of that promotional spending in order to satisfy the retailers?

Well, if we start doing stronger promotions, it will be in response to competition, not in response to retailer demand and it would be because -- I assume it would be because costs have declined, as I said before. I don't think anybody's at that point now and I guess the example I gave with wheat is a great one. Our wheat costs today are basically where they were this time last year.

However, the wheat costs this time last year and today are 50% higher than they were when we bought Cream of Wheat not quite two years ago. In that context we have taken a 7% increase in price in Cream of Wheat. So the single major cost element of Cream of Wheat has gone up 50% in the last two years with what we're buying today. We have taken a 7% price increase. We don't think we're out of line there.

Fair enough. Have you seen, in categories where you have more private label competition, have you seen any more aggressive competitive activity from the private label competitors?

No. Everybody is pretty well behaved and the private label competitors, the very few places we're exposed typically are in canned goods and they've seen all the increases that we have seen in beans and cans and all those things. So their costs are up substantially. There's no relief to those costs as of today that I can see and that they can see. We're not going to get relief on the beans until the next crop this fall. So I think everybody's pretty well behaved in that context. And other than those kind of goods, we're not real exposed to private label.

Thanks for the color on that, and then the other thing I want to ask you about, you alluded to this in your prepared remarks but I'm not sure I quite understood it. You bought back BGS stock in the quarter. Meanwhile, if you look at the units and the implied bond price it's pretty crazy actually. And just wondering, I know you have some limitations with the credit agreement. Is there any opportunity to maybe get some of that waived so you can be more active in redeploying your capital to buy back those units and take advantage of the dislocation between the two securities?

It would be a wonderful thing if we could go get it waived. Unfortunately, the worst thing in the world you can do today in term of negotiating is go to banks and say we'd like to redo some of the covenants or restrictions on our credit agreements. It's not a good time to go ask for that. You get held up pretty badly.

I understand. Thanks.

(Operator Instructions) We'll move to a follow-up now from Robert Moskow at Credit Suisse.

Yes. Two-fer.

Okay.

Your dividend yield is 17% and you've given us some good math here on how much cushion you have. Can we be pretty comfortable that if, let's say you're at the very low end or -- of EBITDA, that there's no threat of a dividend cut and if -- what would the circumstances be that would lead to a dividend cut if there were to be one?

I think we would have to not improve our performance like we said we were. I mean even at the current EBITDA in 2008 of $90 million we're able to fund that dividend and have excess cash. So we're -- we just don't see a scenario in 2009 where a dividend cut is even considered.

Okay. And just as you bridge your EBITDA this year and growing it next year, you provided the cost reductions that offset the commodities. That's one thing. What about revenue growth? How much revenue growth do you expect and what's driving it? Is there any volume improvement that you're expecting or is it all price?

I guess what we're thinking right now is that unit volume is worse case going to be flat and that any revenue growth we see would come out of price increases. If you take that $7 million of non-maple syrup price increases in the fourth quarter and fold it in at that rate through the first almost three quarters, first eight months anyway, that's the kind of revenue growth we expect unless we see some more volume growth. The volume growth is more problematic because we're exiting some of these private label businesses. We don't know where maple syrup is going to go. There's a few factors that may inhibit our volume growth a little bit.

Are you assuming like a lot of profit growth in that maple syrup business or are you assuming nothing for maple syrup?

Well, we're assuming recovery of some lost profit on the Cracker Barrel arrangement. That was an over $3 million hit last year. We expect that to be marginally profitable this year, so there's a pretty good swing there in our EBITDA and that's one of the positives that we factored in. Other than that, we actually -- once we got price increases in place we were actually making better margins on our pure maple syrup sales than we had prior to the cost increase just because it was a much more rational market.

Okay. That maple syrup business seems to come up a lot as being a problem, whether there's too much maple syrup or there's not enough maple syrup. You say margins have improved a lot, but is this Maple Grove business, is it impaired? Do you ever have to think about taking a charge on this?

No, no. Not at all.

Nothing like that, okay. All right. Thank you.

Thank you.

Moving on now to a question from [Nick Edney].

Hi, guys.

Afternoon.

Good afternoon. My question is regarding the stock and bond buyback. You mentioned that basically, it's more advantageous to buy back the stock because you're obviously -- there's a higher dividend yield on it than there is on the senior notes. Why, I guess at this time -- I mean, a lot of other companies that have high leverage have been cutting their dividend to sort of reduce leverage. Why not maybe reduce the dividend and then just put all the buyback towards buying back the senior notes?

Well, because that's not the philosophy the company is operated under. When you look at our company and who our stockholders are, there's really not a lot of selling of our stock by a large core group of stockholders. They bought this stock for the yield. They've stuck with us through the decline in the stock price and we understand that they're there for the dividend and that they're there -- they are willing to weather the storm, if you will, as far as the price goes as long as we continue to run this business well and there's no reason for significant alarm about the basic performance of the business or the surety of the dividend. So we understand that.

We've done roadshows and investor conferences and talked to many, many of these people and I think we have a very good feel for who our stockholders are and what their expectations are. And were we to cut the dividend or do away with the dividend, I think we would alienate and lose a very loyal stockholder base and then be out looking for a new stockholder base that's all about deleveraging and growth, but we know we have the one we have and that's the proposition we sold the business on. So that's the road we're going down.

Okay. It just seems that -- I mean, I understand all that. It just seems that the market isn't giving you any credit for it I guess is the thing that seems disappointing.

It's very frustrating. It's very frustrating and all we can do is again make the business perform, make people understand that this is not an investment that's going to evaporate tomorrow. And if people aren't interested in a yield that today is over 17% on that dividend, well, then I guess they have better places to put their money. I can't think of any offhand, but I'm sure they can.

Okay. Thank you and I guess just one follow-up just about the debt maturity coming up, I think -- is it next year? I forget when it is exactly.

2011. The senior notes mature in October of 2011.

Have you thought about -- have you done anything to think about maybe trying to address that early or are you just going to see how things play out?

Well, I don't think we need to worry about it for well over a year. Our timeline in terms of we need to really get active about this is maybe 12 months before the maturity, and at that time we hope that we have taken the performance of the business to a much higher level than it is today. And then we feel that we're going to be attractive to the debt market and we'll be looking for windows where we can do a financing at the best possible rates.

Okay, great. Thank you very much.

Thank you.

(Operator Instructions) Greg Robertson from TM Capital is next.

David, really appreciate those comments on the dividend and your commitment to it and for also putting your money where your mouth is. I see that you were a purchaser. All right. I'm sure that Bob, the only reason Bob didn't buy any more is because he didn't get his bonus, so --

Probably.

Could you comment on the opportunities for acquisitions in the current market and whether you're seeing any that you're having to pass on because of capital constraints?

Well, we would not be able to do a large acquisition because of capital constraints. The financing costs are very high. It would have to be a very unusual structure that it would allow us to do a sizable acquisition today. A smaller acquisition could be done with cash from the balance sheet if it were small enough.

What we're seeing on anything that's going in front of us right now, though, is seller expectations are still stratospheric which doesn't make any sense in this market but a few things happened here in mid-2008 that makes people still think they can get double digit multiples of EBITDA for businesses. Del Monte sold their tuna business and got a very, very good price for what in one man's opinion is not a very great business. So sellers look at those kind of things and say well, gee, I can do that, too. I just have to wait. So prices tend to be high still and financing obviously is very expensive.

Sure. Would you consider -- I mean it sounds like your cash flow and all is under pretty good control? So there's no reason to even consider any divesture of any of your products right now.

No. We are not considering divesting anything. Everything in our portfolio makes us money and contributes to the business obviously in different degrees in terms of margins, but there's nothing that we would be better off without.

Thanks very much.

You're welcome.

Moving on now to Keith Curtis at Brant Point Capital.

Just a quick question on the cost environment. In terms of the cost picture you portray for 2009, how much of that was reflected in the fourth quarter?

Well, fourth quarter definitely saw cost increases from the crops, if you will, the pickles and peppers and beans and all those minor crops that saw very substantial cost increases ranging from 20% to 60% probably. Some of the packaging increases, like the cans, happened at the beginning of the year and that's a multi-million dollar cost increase, just the increase on the cans. So a good amount of it was in the fourth quarter, but -- and we'll annualize at least for -- well, annualize in the context of it will probably be in place for the first nine months of 2009 and some of it happened at the beginning of the year.

Great. Thanks a lot.

You're welcome.

With that, ladies and gentlemen, we will thank you for your participation in the question-and-answer session. I'll turn things back over to management for any additional or closing comments at this time.

Thank you, operator. Thank you all for joining us on the call. As I said, we're very encouraged by this quarter. We really feel like the business has turned the corner and we feel that 2009 is going to be a very good year for our business.

Our pricing is in place. Our costs, although they are going to increase, they will increase moderately and we believe that between pricing and cost reduction efforts we're going to more than offset those. And we're very comfortable with the guidance that we have given for 2009. So we think it will be a great year and certainly a much better year than 2008. Thank you again.

Ladies and gentlemen, that will conclude today's conference call. Thanks, again, for joining us. Have a good night.