B&G Foods Inc (BGS) 2010 Q1 法說會逐字稿

Please stand by. Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the B&G Foods, Incorporated first quarter 2010 financial results conference call. Today's call is being recorded. (Operator Instructions).

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, Operator. Good afternoon, everyone, and welcome to B&G Foods first quarter fiscal 2010 conference call. You can access detailed financial information on the quarter in our earnings release issued today, which is available on our website at 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 statements, 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 adjusted net income, adjusted earnings per share, and EBITDA. Reconciliations of these measures to the most directly comparable GAAP financial measures are provided in today's press release.

We will start the call as we usually do with our CFO, Bob Cantwell, discussing our financial results for the quarter. After Bob's remarks, I'll discuss the various factors that affected our results, selected business highlights, and our updated thoughts concerning the remainder of 2010. Bob?

Thank you, Dave. Net sales for the first quarter of 2010 increased 6.6 million, or 5.5% to 125.2 million, compared to 118.6 million for the first quarter of 2009. The increase was attributable to unit volume and sales price increases up 4.7 million and 1.9 million respectively.

Our 10-Q has additional disclosure on individual brand performance for the quarter. Gross profit increased 3.3 million for the first quarter of 2010, or 8.5% to 42 million from 38.7 million in the first quarter of 2009. Gross profit expressed as a percentage of net sales increased 90 basis points to 33.6% for the first quarter of 2010, from 32.7% for the first quarter of 2009.

The increase in gross profit percentage was primarily due to increased sales prices of 1.9 million, and a decrease in commodity and aggrieving costs, slightly offset by an increase in packaging and fuel surcharge cost. [Dell's] marketing and distribution expenses increased 0.5 million or 4.7% to 11.5 million for the first quarter of 2010, compared to 11 million for the first quarter of 2009.

This increase is primarily due to an increase in consumer and trade marketing of 0.5 million. Expressed as a percentage of net sales, our sales, marketing, and distribution expenses decreased 10 basis points to 9.2% for the first quarter of 2010 from 9.3% in the first quarter of 2009.

General and administrative expenses increased 0.2 million, or 8.8% to 2.5 million for the first quarter of 2010, compared to 2.3 million in the first quarter of 2009. This increase is primarily due to an increase in professional fees and other expenses.

Operating income increased 10.7% to 26.4 million for the first quarter of 2010, from 23.8 million in the first quarter of 2009. Net interest expense decreased 3.7 million, or 25.7%, to 10.6 million in the first quarter of 2010 from 14.3 million in the first quarter of 2009.

The decrease was primarily attributable to a decrease of 1.7 percentage points in the effective interest rate on our long-term debt to 7.9% in the first quarter of 2010, from 9.6% in the first quarter of 2009, and a reduction of 58.3 million in the average principal amount of our long-term debt outstanding, as compared to the first quarter of 2009.

The decrease in the effective interest rate and our long-term debt outstanding is a result of our refinancing of our 8% senior notes and 12% senior subordinated notes, with the proceeds of the issuance of our 7.625% senior notes during the first quarter of 2010, and our public offering of Class A common stock completed in the third quarter of 2009.

During the first quarter of 2010, we recorded a loss on extinguishment of debt of 15.2 million, in connection with the retirement in full of our 8% and 12% notes, which I will discuss in more detail in a few moments when I discuss our balance sheet.

Excluding the impact of items affecting comparability relating to the interest rate swap and loss on extinguishment of debt, the Company's net income for the first quarter of 2010 was 10.4 million, a 56.3% increase as compared to net income for the first quarter of 2009 of 6.6 million.

Adjusted earnings per share for the first quarter of 2010 were $0.22 per share, or 22.2% increase as compared to adjusted earnings per share for the first quarter of 2009 of $0.18 per share. Out EBITDA increased 9.7% to 30 million for the first quarter of 2010, compared to 27.4 million in the first quarter of 2009.

Moving onto the balance sheet, we finished the first quarter of 2010 with 69.4 million of cash, compared to 39.9 million at the end of fiscal 2009. Our current dividend rate is $0.68 per share, or approximately $32.4 million per annum, based on our current share count.

We also finished the first quarter of 2010 with 477.5 million in long-term debt. Our leveraged net of cash was 3.9 times EBITDA as of April 3, 2010. As I mentioned earlier, we issued 350 million principal amount of seven [unintelligible] senior notes due 2018 during the first quarter of 2010.

We used a portion of the proceeds from the note offering to repurchase or redeem the remaining 69.5 million principal amount of our 12% senior notes, and the entire 240 million principal amount of our 8% senior notes. In connection with the issuance of the new notes, we capitalized approximately 8.2 million of debt financing costs during the first quarter, which will be amortized over the term of the notes.

Our inventory at the end of the first quarter of 2010 decreased 5.1 million to 88.8 million, compared to 93.9 million at the end of the first quarter of 2009. Our expected cash interest for 2010 is approximately 36 million. Our expected cash taxes for 2010 are approximately 5 million. And our capital expenditures for 2010 are forecasted at 11 million. I will now turn the call back over to Dave for his remarks.

Thank you, Bob. Good afternoon again, everyone. As you can see from Bob's summary of our first results, the first quarter was an outstanding period for our business. Strong sales and relatively neutral costs allowed us to reach a Company record quarterly EBITDA of $30 million.

Cash generation was also very strong, and we ended the quarter with nearly $70 million of cash on our balance sheet. Net sales were up 5.5% for the quarter, which was more than we expected several months ago. In previous calls, we've forecasted 2010 volume growth on the order of 3%.

Actual volume growth for the first quarter came in at almost 4%. That was complimented with net pricing growth of 1.6%, again somewhat higher than we had anticipated. I'll discuss specifics of the volume growth in a few minutes. Meanwhile, the net price improvement we saw was virtually all attributable to lower trade spending, which was down by over 2% of gross sales for the quarter.

A portion of that improvement was continued reduction of promotional activity around holiday periods, in this case the Easter holiday. We also did not run several aggressive promotions on key promotional brands, B&M being a prime example. Unlike many of the promotions we have eliminated, there was a volume penalty for stopping that activity.

But, the net result was improved profitability. The reduction in spending was more than expected because we had intended to run promotions at higher price points. Several key retailers refused to execute these promotions and so, in some cases, no promotions were done.

As we go forward, we will have to make judgments on the correct balance of promotional activity on our brands that respond that kind of support. Retailers will have to get used to higher prices, as if often the case when promotional price points change.

While lower promotional spending improved net sales, our net sales increase was actually lower than it otherwise might've been, due to higher spending on coupons and slotting on new products. We entered 2010 with much more confidence in our business we had in early 2009.

And we're more aggressive with coupon and slotting spending. First quarter 2010 spending on these two areas was higher than prior year by $1.8 million. We expect spending here to be consistent with 2009 for the remainder of 2010. First quarter gross profit improved by 8.5%, or $3.3 million.

The net pricing gain of $1.9 million played a part in this, as did a favorable sales mix. Manufacturing costs for the quarter were flat as a percent of sales. We saw modest year-to-year cost declines in some commodities, such as wheat and corn syrup, and increases in areas such as packaging and meats.

For better or worse, we have extended our forward commitments on commodities wherever we can, as far as second quarter 2011, in some cases. I remain concerned that oil in the $80-plus range will increase commodity costs eventually, and we will receive more upside risk than downside opportunity on cost, hence the extension of our commitments.

The 2010 maple syrup crop, in the meantime, is essentially complete. And it appears, on average, to have been a good year. While there is no quick, formal reporting mechanism on the crop, common wisdom is that the US crop was below average, and the all-important Quebec crop was above average.

As a result, we expect field prices to be at the level set by the Federation in Quebec. At that level, the field price would decrease enough year-over-year to almost offset the stronger Canadian dollar and produce a relatively neutral cost in US dollars.

With maple syrup costs settled, we now have a 2010 cost outlook in line with our earlier predictions of slightly lower costs for the year. Oil is, of course, increasing fuel surcharges for shipping. Fuel surcharges are currently 70% higher than this time last year, which would be a 10% overall increase in distribution costs for us, all things being equal.

In our case, however, we have done a very good job of creating efficiencies that more than offset this cost increase. The major distribution center we opened in Pennsylvania last year has reduced mileage in our distribution system by roughly 20%, and generated savings that lowered distribution costs in the first quarter even as fuel costs increased.

We expect that similar cost reduction efforts throughout our operations group will help offset future cost increases, and are working diligently to generate meaningful cost efficiencies throughout the Company. Operating expenses were higher in this year's first quarter than last year for several reasons.

The single largest increase came in marketing and advertising where, again, we've been more aggressive this year. We were on television with advertising on two brands last quarter, Polaner, for the first time in many years, and Ortega, for the first time since we owned the brand.

The Polaner ads ran in selected markets around the country in February and March, while we tested Ortega advertising in the northeast. Those ads will continue through April. We're still assessing the effect of this advertising. But, the latest 12-week Nielsen data are very encouraging, showing Polaner sugar-free preserves up 15%, and many segments of the Ortega business up double digits, as well.

The outcome of all these factors was a record quarterly performance on EBITDA of $30 million, a 9.7% increase. EBITDA margin for the quarter was a remarkable 24% of sales. As delighted as we are by this number, I must caution everyone that the first quarter is typically a relatively high EBITDA quarter compared to each of the other three quarters.

For instance, last year's first quarter EBITDA of $27.5 million was disproportionately higher than our annual EBITDA of $103 million. Going into our sales results in a little more detail, we had a generally good showing for the quarter with a strong majority of our brands up in sales.

Our molasses brands both posted increases of almost 20%, probably as a result of the early Easter holiday. Maple Grove Farms came in at just over 14% increase, and the maple syrup sales in food service, branded, and private label all recovered versus last year, when we were still experience a maple syrup shortage.

Our Hispanic brands both had a solid quarter. Las Palmas was up 8.7% in net sales, and Ortega up 7.5%. Both of these brands' factory sales were negatively affected by our promotional changes around the Easter holiday, but we saw no effect at consumer level.

Polaner had a good quarter, showing an increase of just over 10%. The sugar-free with fiber product is doing very well at retail, as mentioned earlier. And our new all-fruit with fiber added product is rolling out into distribution. Finally, Cream of Wheat experienced a 12.8% increase in the first quarter, with both instant and stove top sales doing well.

Nielsen continues to show Cream of Wheat consumer sales gains, even as the hot cereal category shrinks. And we believe our new products are an essential aspect of that success. Several brands did have notable declines in the quarter, including B&M, down 22%, and B&G, which was down over 6%.

The B&G net sales decline was all due to heavy slotting charges, as we transitioned the final pieces of our Store-Door distribution system to grocery warehouses. Without these charges, net sales would've increased for the brand. That's encouraging, because it says the brand performed well over the Easter holiday in the new mode of distribution.

The positive Polaner sales reinforce our belief that this transition has been accomplished with minimal disruptions. In the case of B&M, two factors came into play. The first was a December buy-in against the price increase we announced effective January 1 of 2010.

December sales were up 47%, as retailers bought inventory before the increase. B&M was also affected by changes in promotional prices, as I mentioned earlier. Several promotions were not carried out at chains that sell significant amounts of B&M because of the higher promotional price points.

Joan of Arc was also affected by a buy-on, ahead of a January 1st price increase. We have begun 2010 with a strong start in terms of pushing new products out into distribution, as well. Cream of Wheat healthy grain products continue to expand in distribution, along with the new dollar-store format for instant products.

We've added an additional line of products, Cream of White Instant Cereal in microwaveable cups, primarily for food service distribution. The Emeril line is offering several new products, including a chicken cacciatore dinner sauce that's been accepted throughout Kroger, a line of instant dip mixes, and two types of [unintelligible] coatings.

Polaner sugar-free with fiber and now all-fruit with fiber are both expanding distribution and gaining sales in existing distribution. Finally, Ortega remains a point of strong emphasis. Our whole grain taco shells, whole grain taco kits, the new whole grain tacos, soft, whole wheat tortilla dinner kit, and SpongeBob SquarePants whole grain taco kit are all gaining new distribution throughout the United States.

We have even added international sales to the Ortega mix by selling product for distribution in South Africa, thus putting our toe in the water internationally, so to speak. Between new products, new distribution, and increased marketing support, the retail side of our business is driving growth.

Net sales through retail channels of distribution, which include mass merchants, were up 7.5% for the quarter. As has been the recent trend, most of that growth came from traditional supermarket customers. Growth at Wal-Mart remains slower due to their clarity and private label initiatives, but we have noted indications that this may reverse somewhat as they review the effect of past actions.

This outstanding growth in retail, which comprised over 80% of our business in the quarter, was dampened by a 3% decline in food service net sales. While that number represents an improvement over past declines, the broad weakness in food service is still apparent. A modest increase in maple syrup sales, the result of improved supply, was one of the few bright spots in the channel.

Looking at other aspects of the business, we are also very pleased with the balance sheet. At $69 million, cash is at an all-time high for the end of a quarter. At current performance level, the business is generating cash at the rate of 24% of EBITDA, even after paying dividends.

We have also improved our cash position by reducing inventories. Finished goods inventory was down almost $15 million, or 20%, versus first quarter 2009. Total inventory was down only $5.1 million, due to high inventories of maple syrup. Now that we know the crop is at least normal, we can deplete that excess throughout the remained of 2010 and reap the full benefit of the finished goods inventory reduction.

We also solidified our capital structure during the first quarter, refinancing all of our non-credit facility long-term debt with a new issue of senior notes in January, obtaining a favorable interest rate and pushing the maturity date into 2018.

Combined with the actions we took in 2009, we believe we have changed the capital structure in a very positive way for both the Company and our shareholders. Evidence of this is the fact that the adjusted earnings per share increased 22% in the first quarter, even though we had 31% more shares of Class A common stock outstanding than we did at the end of Q1 2009.

We also believe that our actions taken in 2009 and 2010 have positioned the Company well to finance any acquisition opportunity that may present itself. In that vein, activity on the M&A front remains spotty, but appears to be on an upswing.

We are seeing properties with increasing frequency, although we are not close to doing anything substantive at this point. As a result of the very strong first quarter, we are increasing our EBITDA guidance for fiscal 2010 from the previous $106 million to $109 million to $108 million to $111 million.

As before, this guidance assumes nothing exceptional will happen on the cost side of the business, and that current trends will continue. Having said that, we believe we are well-insulated from cost pressures, having locked in the majority of our costs for the year.

Our job now is to continue to execute on expanding distribution of our new products, and to expand the marketing support for our key brands, driving further sales growth. We expect success in both those efforts, and a continuation of the excellent first quarter financial performance. At this point, we'd like to open the call up to questions. Operator?

(Operator Instructions). And we'll go to Reza Vahabzadeh with Barclays Capital.

Good afternoon.

Afternoon, Reza.

Good afternoon.

Congrats on the results.

Thank you.

You talked about your sales trend. Was there any timing of shipments, new products or not, that would've impacted this quarter's sales at the expense of any other quarter?

I don't think so, not on that. I think, if anything, we shifted a little business into the first quarter from what we would've done in second quarter, year-to-year, because of Easter. It's not huge, because only a few brands are affected, like molasses. But, there is some movement around that Easter holiday.

Got it. And then, you talked about these strong sales trends in a couple of product lines. I don't know. Did you talk about Ortega?

Yes. Ortega was up about 7.5%.

Okay. And then, away from Ortega, how did the Polaner business do in totality, because I know you [unintelligible] the advertising, but I'm not sure if you gave the sales numbers?

Polaner was up about 10% for the quarter, and that was driven by sugar-free. And then all-fruit had a good quarter, too. And that's very gratifying, whether it's because of advertising or not. I'm still waiting for the results. I think we have exciting new products in both of those lines. And they're going into some new distribution because of the fiber aspect of those lines.

And we're seeing much higher sales in the existing distribution because of that fiber. And the advertising, if nothing else, is reinforcing that trend. So, Polaner's doing very well, and it's especially gratifying because in the core home market, if you will, in New York, as we said, we changed from our Store-Door distribution system to warehouse, and we still saw uptrend. So, we weathered that potential storm well.

Got it. And then, Bob, you talked about the cost environment with the commodity cost being down, but the packaging costs being up. Is that a pattern that you would anticipate continuing for the rest of the year with ingredient cost being relatively deflationary, and then packaging plus transportation being somewhat higher?

Yes. And we're pretty much locked in there. We kind of know where all of our commodities and ingredients are going to finish the year out. And we kind of know where our packaging is. I mean, really, the only wild card to our cost today is pretty much where fuel goes, and where--.

--Okay--.

--Where price of oil goes.

Got it. So--.

--Packaging is more sensitive to that than--.

--Right--.

--Any--than the commodities are. We've locked in the commodity cost. The packaging contracts tend to have energy inflators in them. Where we can, we've locked in--.

--Right--.

--The natural gas cost underlying those energy inflators, but we can't do it everywhere--.

--Got it. And lastly, obviously, you offer it in different sales channels. Any unique trends in the mass channel versus the grocery channel versus the food service channel? In the past you talked about the mass channel, some SKU rationalization and maybe over rationalization in some retailers, any changes there? Then, have you seen any improvement in the food service channel?

Well, the food service channel is less worse, and that's kind of what I said the last call, what the forecast was going to be. From major distributors we saw was that the food service, it was going to be less worse in 2010. That's what we're seeing. I mean, the decline we saw last year was more than double the decline we saw in the first quarter. So, it is getting better. It's still not good. I guess I won't be surprised if it's flat in the second quarter, but we have to do some work to get there. So, we'll see.

I think the trends we're seeing a general comment about what's going on at retail. I think the grocery stores have come back some, where the movement was very much towards mass merchants for a couple years. And I think the grocery stores are rallying, and, in particular, the retailers who really have their act together.

We're seeing very strong performance out of a number of retailers who really have their act together. So, I think that tide has shifted a little bit, and I think that's part of the reason Wal-Mart's assessing its performance in light of what it did with clarity and private label.

Got it. Thank you much.

Yes.

Our next question comes from Ed Aaron with RBC Capital Markets.

Thanks. Good afternoon, everybody.

Hey.

Huh.

Dave, it sounded like you mentioned earlier that perhaps there was a bit of a difference in how, kind of, the manufacturers versus the retailers view the world in terms of the types of promotions that should be in place, and can you just elaborate a little bit on your experience with that in the quarter? Just it wasn't immediately clear on the call.

Well, there are magic price points that retailers love to do things. I mean, 10 for 10 is a very popular, catchy, promotional price points. And that says you're selling things for $0.99, and that's one of those magic numbers that works in a variety of categories.

But, as cost goes up, and I've been doing this for, pushing 20 years now, and I've seen the inflation push you past those price points any number of times, and it's always a little traumatic, because the retailers love those price points, but you can't give them to them, because you are losing money when you sell them products to hit those price points. And we're there now in a couple of our brands where we just have to come off of a particular price point and in the past, at least, everybody's gotten over that eventually and you move on.

I mean, grape jelly, once upon a time, sold for $0.49, 32-ounce grape jelly on sale. It sells for $1.99 now. I mean, that's just life. And unless we have deflation, that's the way it's going to go. So, you have to work your way past these things. We encountered some of them here in the first quarter. I think we'll work our way past them and get back to a regular promotional schedule.

Okay. And then, just on the M&A front, it sounds like you're seeing some more opportunities. Nothing sounds imminent. Do you think that to the extent that there's still [hang] up there, would you attribute that to just maybe the lack of complete readiness by the seller, or is it more of like a difference in what the assets--or opinion about what the assets are worth?

There really hasn't been anything that's been in our sweet spot in terms of things that we're interested in buying. The things we've seen just haven't been a good fit for us no matter what the price. So, those kind of brands we're looking for haven't come in front of us yet.

Okay. Thank you.

Yes.

Our next question comes from Tony Gikas with Piper Jaffray.

Hey, good afternoon, guys. Congrats on the quarter.

Thank you.

Thank you.

A couple quick questions. You indicated that retail sales were up 7.5% in the quarter, what were the retail shipments in the quarter, maybe just to comment on inventories there?

I don't have that at my fingertips, but it's pretty proportionate to what the overall was. It's about two-thirds volume and one-third price. So, it would--.

--Okay--.

--5% volume and 2.5%--.

--Right--.

--Price.

Okay. So, there wasn't any material difference there. And what is price expected to be year-over-year for the balance of the year?

We really didn't expect a lot of price gains. And I think they'll dwindle as the year goes on, because it is really all about trimming promotional activity and that's not something you can do forever. So, we think we've gotten all the low-hanging fruit and we're just refining it now. So, in one point--what'd I say?

Nine.

1.9% for the first quarter, that's probably going to be the high point for the year and it'll dwindle down there from there.

Okay. And then, does the guidance assume any positive change to the food service side of the business?

We're hoping food service is kind of neutral for the year. If we can hit flat, that'd be great. Any growth would be gravy.

Okay, any new product opportunities at Wal-Mart?

Well, we're always showing Wal-Mart new things. But, in the context of them still reassessing whether they want to be private label or branded, it's an uphill fight.

Okay. And then, my last one, I might've just missed this. You were quantifying some of these. What was maple syrup sales up in the quarter, how much?

Maple Grove Farms was up 14% in the quarter, and that's pretty much all syrup.

Perfect. Thanks a lot, guys. Good luck.

Yes. Thank you.

Thanks.

We'll go next to Robert Moskow with Credit Suisse.

Hi, thank you. Hey, I guess I wanted to understand Wal-Mart a little bit more. You're saying that they're switching to, or evaluating switching to private label. How many categories of yours are they doing that in? I remember hot cereal certainly coming up as a category where they might rationalize brands. So, maybe we could start there and just tell me, are they done making their decisions, you think?

I think you misunderstood me. I was referring to the past efforts they've done with clarity and private label, where they put a lot more--they've decreased the number of SKUs and they've put a lot more private label SKUs in. I don't see them doing more of that. But, they certainly are not moving aggressively to put a lot of new branded products into the stores, and that's what I mean by the comment that it's kind of an uphill fight.

Okay. Well, Dave, what categories did they really do that in for you in the past year, if we add it all up? And any of these--?

--Well, the two main ones that we saw them do through private label, and they did private label maple syrup, for instance, but we're supplying it--.

--Okay.

So, the only maple syrup in Wal-Mart is our branded product and the maple syrup product. And so far that has been a net positive for us between the two. Other than that, we really have not seen private label impinge as much. We're also doing some private label Mexican for them that's driving some growth at Wal-Mart for us. But, I can't say that they've really hit us in our branded sales with their private label effort.

Where we have seen some slight erosion in some areas, it's more out of clarity than private label, where they've trimmed distribution of some product lines. But, at the end of the day, our sales to Wal-Mart increased in the first quarter, albeit not at the rate that they had in 2009.

Okay. And then, when you say clarity, hot cereal? That's definitely a category where that occurred?

Virtually every category had some clarity impact. In a lot of cases, it wasn't total elimination of SKU. It was elimination of some geography for certain items. We did lose, as I've said in other calls, we did lose flanker items in something like accent, where we had very limited distribution of two- and 10-ounce and full distribution of 4.5-ounce. We retained the full distribution of the 4.5 ounce and lost the flankers. We're rolling over against all those events as we speak, though. Those things happened here in the last nine to 12 months.

Okay. And just a last thing, you said that some retailers didn't execute the promotions that you threw out there for them.

Right.

Does that mean that you still have kind of like money saved up there, and that you could throw it at them again in the current quarter and maybe go at them again? Or are you kind of at an impasse on how to execute those promotions?

No. We're offering promotions to them. We're not offering as deep of promotions as they would like, because those are unprofitable events. As far as I know, we're set to execute the promotions we've offered.

Okay. And lastly, I'm encouraged by the fact you took price increases on a couple of lines here, B&M and Joan of Arc. I'm wondering, is there anything that you can think of in the next six months where you might be able to take another increase? And will that depend, as you said, on the commodities such as oil and packaging?

I think there would have to be a significant cost event that would allow us to take any kind of meaningful price increase on anything. I think there's tremendous resistance on that. And you have to really jump through a lot of hoops from a justification point of view to get there. And frankly, there hasn't been any significant commodity event that would warrant something like that.

Right. Okay, thank you very much.

Welcome.

Our next question comes from Andrew Lazar with Barclays.

Good afternoon.

Afternoon, Andrew.

In looking at some of the volume numbers for some of your big brands, molasses and Maple Grove Farms, the Hispanic brands, Polaner, Cream of Wheat, in all are pretty significant leader, high single-digit or low double-digit types of growth year-over-year. So, I'm trying to get a sense, just so I'm clear, those types of numbers are, you think, pretty consistent with what takeaway on those brands has been, as well?

Yes. Yes. In fact, we've been explaining that up until now the factory sales aren't tracking what consumers do because of all the trimming we've been doing on promotion that was incenting wholesaler purchasing and warehouse purchasing and all of that. We're finally seeing here in the first quarter where the factory sales are starting to track against consumer sales in a lot of these brands.

Got you, okay. Just because those are, obviously, strong numbers and certainly stand in, I guess, stark contrast to maybe some other numbers we're seeing out of a whole bunch of other categories, at least from all the data that we're able to read, which admittedly is not the full sort of universe. And it's certainly quite a bit different from let's call it some of the larger categories from Company perspective that we follow.

Yes.

I'm just trying to get a sense of what your sense of maybe some of the difference might be. Or are you seeing trends that maybe are more representative or a leading indicator of what we could see for the industry? It doesn't feel like that, but I'd love your perspective on that.

Besides good management, you mean.

Correct, of course.

Right.

I just think we have focused on a key number of brands here. We've launched a lot of new product activity on those brands. We've come up with innovations, even within the existing products, like putting fiber in all-fruit, with the Polaner business.

And although we don't have the money that General Mills has to push those products out into distribution, I think we've done a pretty good job of putting those products out into distribution and getting retailers excited about them, first off. And then, doing a decent guerilla marketing effort to get consumers excited about them, and I think it's paying off.

So, you're not, obviously, overly concerned at this stage around some of the sustainability of some of those sorts of trends on those brands where you've obviously done a lot of that sort of work. I'm not saying it'll be up this amount every quarter. But, again, I lead to an earlier question, nothing that stands out as being one-off in nature about some of those volume trends this quarter per se?

No. I think we have very good momentum on a number of those brands, and we continue to gain new distribution on them. So, that said, the momentum should continue. Will it continue at the excellent pace that we saw in the first quarter? That remains to be seen. And that'd be wonderful, but I think that's the top end of our aspirations right now.

Yes. Okay. And then, in terms of some of the promotions that were not executed by retailers, do you find that in some of those key categories where that was the case, your key competitors are sort of in the same place, typically, as you are, in other words trying to push through higher promoted price points, as well?

Yes.

Or did somebody else get those promotions at your expense?

The answer is yes. Our competitors are trying to do the same thing as we are. And in some cases, the retailers didn't do any promotions in those categories.

Got it. Okay. Thanks very much.

Yes. You're welcome.

Next, we'll go to Reed Kim with Bank of America Merrill Lynch.

Thanks. Good afternoon. Following up on the Hispanic brand questioning, I actually seem to remember on the last call you talked about those brands, perhaps, generating mid-teen growth this year. Hopefully I didn't hear incorrectly, which would imply that you actually see some acceleration in sales growth later in the year. Is that correct?

I think we just saw a little hiccup in the first quarter. As I said, we did some promotional trimming around the Hispanic brands around the Easter holiday, and we clearly saw very specific factory sales that did not repeat towards the end of the quarter on those brands, or the growth would've been much higher. The underlying consumer says that that, as we've seen before, is a temporary thing and that the consumer trends are double-digit. We expect factory trends to follow.

Okay, great. And I may have missed it, but what was the proportion of your growth on those brands in this quarter that was related to new product intros, roughly?

It'll be very roughly, because that's another one I don't have at my fingertips. But, I would say more than half of the growth came out of new products.

Okay. And then, I was wondering if you could just comment broadly across your portfolio on anywhere where you think you kind of gained ground on private label. It seems like that trend is maybe stabilizing a little bit. And how you feel about price gaps, I guess, against your private label competition.

Yes. I don't know that we've gained ground on private label anywhere. We are taking share, but it's typically against branded competition. The few categories where there's a meaningful private label presence, private label looked like it remained pretty solid. I'm sorry. What was the second half of the question?

Just in terms of price gaps, how you feel about that given your price increases you've taken, relative to private label,

Well, again, most of our price increases have not been list price increases affecting everyday shelf prices. They've been net price improvement off of lower promotional prices. So, we're promoting at higher prices. List prices have remained pretty consistent. We really haven't taken a meaningful price increase broadly since the first of 2009. So, the gaps are pretty consistent and I think all's pretty stable there.

Okay. Just last one, on financial policy, I mean the very high cash balance. Are you perhaps thinking about raising the dividend at all, or given that it's a pretty high payout level, do you think you're just going to stand pat on that?

I'm sure that will come up in our board meeting in a few weeks. And I guess, again, as always, it's a judgment by the board of whether stockholders get a better return by increasing the dividend or saving the money and doing an acquisition down the road. We're always looking to maximize the shareholder return long-term.

Okay. Thanks a lot.

Sure.

Our next question comes from Robert Kirkpatrick with Cardinal Capital.

Good afternoon.

Afternoon.

Bob, is the tax rate going to stay around 37% for the year, or is that a little low?

No, that's, as of today, what we expect for the full year.

Okay. And can you quantify at all the amount of syrup that you think you'll be so to speak liquidating over the balance of the year?

Our inventory was pretty heavy last year. We're looking to finish the year somewhere around 7.5 million less in syrup year-over-year.

And did you see much of that in the first quarter?

You saw a couple of million, 2 million to 2.5 million of that in the first quarter.

Okay. And then, finally, Dave, would you like to comment at all on the disagreement with SK Foods?

Well, that's very difficult to do any kind of comment, because it's ongoing litigation. Our stance is that we're the victims here. We're the ones who were defrauded. So, in the context of the bankruptcy and everything it'll all sort out. But, we really don't think the claims have any merit. And we're going to defend ourselves vigorously.

Great. Thanks so much.

Thank you.

(Operator Instructions). And we'll go to Adam Plissner with Credit Suisse.

Hi, good afternoon, guys.

Good afternoon.

Just a follow-on on the success of the fiber-infused product. I'm just curious. I know you mentioned it is both new distribution and it sounds like success taking share. Are there competitive product offerings out there against the Polaner or Cream of Wheat or even the syrup that exist now? Do you expect them to follow on any time in the near future?

I can't tell you what Smucker's going to do. I can tell you that today they don't have a product like that. Our product is totally unique, in the preserve category, both the all-fruit and the sugar-free. Obviously, in the cereal category, adding fiber to Cream of Wheat was more an attempt to match the healthy claim that oatmeal has around--.

--Right--.

--Fiber, while still having all the superior nutritional we have in the other aspects of the product. So, in one case, we were trying to show consumers that Cream of Wheat has the same, if not better, health aspects than oatmeal. In the case of preserves, yes, we were trying to do something totally unique, and in the case of taco shells where we've come out with whole grain taco shells, again, something totally unique in the category.

I mean, is there to the extent of cannibalization, are brand-loyal customers also switching as an option that they didn't have before? Or is this [unintelligible]?

In the case of Polaner, it's a total replacement of existing products. So, it is total cannibalization and we're depending on increased usage and switching from Smucker or other competitors to build our business there. In the case of whole grain, yes, there's going to be some cannibalization.

Frankly, it's very modest. And so, it's very much a positive move to come up with whole grain taco shells. And the same applies with Cream of Wheat. We've kept the regular products out there. We've added the healthy grain products with fiber. It has been a net plus to the business.

So, I was recently part of a product testing on the syrup. Has that been rolled out, the fiber-infused syrup?

No. We don't have a product like that.

Oh, well, I guess I was part of some testing at my gym. In regards to your commodity costs, I think, Bob, you mentioned that for the most part, taken a longer term view and you're locked in as far as the first quarter 2011. What are your options there as you continue to take the long-term view that that cost can go up? How far can you go out and how far are you willing to go out to lock in commodity costs?

Most of our major commodities, we're actually locked in through the first half of next year. And what we're typically doing is kind of keeping a rolling 12 to 15 months out. So, as each month goes on, we can lock in kind of another month or two going out. It's hard for us to get much more than kind of the year, 12 months to 15 months out. But, we've taken the view, it is better for us to know where we're at and just continue this rolling lock as we go forward.

Okay. And lastly, David, when you spoke about the M&A market, how there hasn't been really any good fits in terms of the brands, can you comment when you look at some of the auctions and the things that are being shown to you, is there sort of a trend in terms of the multiples that are being asked for? And is there going to be a price inflection point that you just aren't comfortable paying even with the right kind of brand?

I haven't seen an upward movement in pricing, no. As far as the price that we're willing to pay, it really has to fit our cash flow model. It's not about multiple, as much as it's about what is the free cash flow coming out the back end of the transaction? So, if we have an EBITDA of $20 million, and financing takes up $8 million, $9 million of that. It's shielded from taxes, like most of our brand transactions are. That's a great outcome. If you get the better CapEx of a million or so, if we can get 50% of cash flow out of that EBITDA, that's great.

40% is acceptable, but that's the sensitivity factor to us is what is the free cash flow coming out the back end? The price is a factor in that formula, financing cost is a factor in that formula. Taxes are a factor in that formula, and CapEx is a factor. So, all those things have to get plugged into the equation and the proportion of free cash flow coming out, whether that answer is right now, it's what drives our decision as much as anything.

Makes sense. Thank you.

Mm-hmm.

(Operator Instructions). And with no further questions in the queue, I'd like to turn it back over to Mr. Wenner for any additional or closing remarks.

Thank you. Thank everybody for joining us on the call. We're obviously very pleased with the first quarter. We hope it's just the first of four successful quarters for this year. We're delighted that we're able to raise the guidance for the year, and we look forward to meeting those new, improved numbers. Thank you.

And ladies and gentlemen, that does conclude today's conference. Thank you for your participation.