B&G Foods Inc (BGS) 2011 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the B&G Foods, Incorporated fourth-quarter 2011 financial results conference. As a reminder, 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 your questions. I would now like to turn the conference over to Dave Wenner, Chief Executive Officer of B&G Foods. Please go ahead, sir.

Thank you. Good afternoon, everyone, and welcome to the B&G Foods' fourth-quarter and full-year fiscal 2011 conference call. You can access detailed financial information on the quarter and for the full-year of fiscal 2011 in our earnings release issued today, which is available on our website, at BGFoods.com.

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 most recent annual report on Form 10-K and subsequent SEC filings 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 diluted earnings per share, and adjusted 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 with our CFO, Bob Cantwell, discussing our financial results for the quarter and full-year. After Bob's remarks, I'll discuss the various factors that affected our results for both periods, selected Business highlights, and our thoughts concerning the new year. Bob?

Thank you, Dave. First, I will review the full year briefly, then talk about the fourth quarter. Net sales for 2011 increased $30.5 million or 6% to $543.9 million, compared to $513.3 million for 2010. The increase was attributable to an increase in unit volume of $29.6 million and pricing of $1.7 million, offset by an increase in coupon and slotting expenses of $0.8 million.

Net sales of our Don Pepino and Sclafani brands, which we acquired during the fourth quarter of 2010, contributed $12.5 million to the overall increase for 2011, and net sales of the Culver Specialty Brands, which we acquired at the end of November 2011, contributed $6.5 million for the overall increase for 2011.

Additionally, net sales increased by $5.1 million for Ortega, $5 million for Maple Grove Farms of Vermont, $3.1 million for Cream of Wheat, $2.5 million for Las Palmas, and $0.7 million for Underwood. Those increases were offset by a reduction in net sales of B&G of $1.2 million Joan of Arc of $0.8 million, Trappey of $0.7 million, Grandma's of $0.7 million, and Emeril's of $0.7 million. All other brands decreased by $0.8 million in the aggregate.

Gross profit for 2011 increased $10.1 million or 6%, to $177.8 million from $167.7 million in 2010. Gross profit expressed as a percentage of net sales remained consistent at 32.7% in 2011 and 2010, attributable to pricing gains of $1.7 million and a sales mix shift to higher-margin products offset by higher input and distribution costs. Operating income increased 8.4% to $113.5 million for 2011, from $104.7 million in 2010.

Net interest expense decreased $3.7 million to $36.7 million in 2011, from $40.3 million in 2010, due to the termination of an interest rate swap which reduced our effective interest rate on $130 million of a terminal borrowings under our prior credit agreement. This was partially offset by an increase in interest expense for the additional debt incurred for the Culver Specialty Brands acquisition, and a $2.1 million charge relating to the write-off of the remaining amount recorded in the accumulated other comprehensive loss on the interest rate swap, due to our early termination of the $130 million of term loan borrowings under our prior credit agreement.

The Company's adjusted net income, which excludes the impact of items affecting comparability relating to the interest rate swap, acquisition-related transaction costs, and loss on extinguishment of debt was $53.1 million, a 22.8% increase, as compared to adjusted net income of $43.2 million for 2010. Adjusted diluted earnings per share increased 21.1% from $0.90 per share in 2010 to $1.09 per share in 2011.

For 2011, adjusted EBITDA, which excludes the impact of $1.4 million of transaction costs related to the Culver Specialty Brands acquisition, increased 9.5% to $131.1 million from $119.7 million for 2010. There was no adjustments to EBITDA for 2010. Adjusted EBITDA as a percentage of net sales increased to 24.1% for 2011, from 23.3% for 2010.

Turning now to the fourth quarter of 2011, net sales increased 5.7% to $150 million, compared to $141.9 million for the fourth quarter of 2010. This $8.1 million increase was attributable to an increase in unit volume of $5.6 million and pricing of $3.1 million, partially offset by an increase in coupon and slotting expenses of $0.6 million.

Net sales of the Culver Specialty Brands, which we acquired at the end of November 2011, contributed $6.5 million of the overall fourth-quarter increase, and net sales of the Company's Don Pepino and Sclafani brands, which we acquired during the fourth quarter of 2010, contributed $1.9 million to the overall fourth-quarter increase.

Additionally, net sales increased by $0.7 million for Cream of Wheat, $0.7 million for Maple Grove Farms of Vermont, and $0.3 million for Las Palmas. These increases were offset by decreases of $0.6 million for B&M, $0.4 million for Joan of Arc, and $0.4 million for Trappey's. All other brands decreased by $0.6 million in the aggregate.

Gross profit for the fourth quarter of 2011 increased $2.2 million or 4.7% to $49.3 million from $47.1 million in 2010. Gross profit expressed as a percentage of net sales decreased 0.3 percentage points to 32.9% for the fourth quarter of 2011 from 33.2% in the fourth quarter of 2010.

The decrease in gross profit percentage as a percentage of net sales was primarily attributable to an increase in commodity and distribution costs, partially offset by increased pricing of $3.1 million, and a sales mix shift to higher-margin products.

Excluding the acquisition-related transaction costs, selling, general and administrative expenses decreased $1.4 million to $15.1 million for the fourth quarter of 2011, compared with $16.5 million for the fourth quarter of 2010. Expressed as a percentage of net sales, our selling, general and administrative expenses, excluding the acquisition-related transaction costs, decreased 160 basis points to 10.1% for the fourth quarter of 2011, from 11.7% in the fourth quarter of 2010.

Operating income increased 7.2% to $31 million for the fourth quarter of 2011 from $28.9 million in the fourth quarter of 2010. Net interest expense for the fourth quarter of 2011 increased $3.3 million or 39.3% to $11.8 million, from $8.5 million for the fourth quarter of 2010.

The increase in net interest expense for the fourth quarter was primarily attributable to the additional debt incurred for the Culver Specialty Brands acquisition and a $2.1 million right off of the remaining amount recorded in accumulated other comprehensive loss, relating to the interest rate swap due to our prepayment and termination of $130 million of term loan borrowings under our prior credit agreement.

The Company's adjusted net income, which excludes the impact of items affecting comparability relating to the interest rate swap and acquisition-related transaction costs, was $14.7 million, a 7.4% increase, as compared to adjusted net income of $13.7 million for 2010. Adjusted diluted earnings per share increased 7.1% from $0.28 per share in 2010 to $0.30 per share in 2011.

For the fourth quarter of 2011, adjusted EBITDA, which excludes the impact of $1.4 million of transaction costs relating to the Culver Specialty Brands acquisition increased 11.8% to $36.7 million, from $32.8 million for the fourth quarter of 2010. There were no adjustments to EBITDA for the fourth quarter of 2010. Adjusted EBITDA as a percentage of net sales increased to 24.4% for the fourth quarter of 2011, from 23.1% for the fourth quarter of 2010.

Moving on to the balance sheet, effective November 30, 2011, our current debt structure includes a Tranche A term loan due November 2016 of $150 million, a Tranche B term loan, due November 2018 of $225 million, senior notes due January 2018 of $350 million, and an available revolver of $200 million due in November of 2016, undrawn as of December 31, 2011.

On February 15 of 2012, our Board of Directors increased the Company's dividend 17.4% from $0.23 to $0.27 per share of common stock per quarter. On an annualized basis, the dividend increases from $0.92 per annum to $1.08 per share, or $52.3 million per annum. Our leverage was 4.4 times as of the December 31, 2011.

Annual cash interest expense for 2011 was $31.4 million. Cash interest expense for 2012 is expected to be approximately $44 million. Capital expenditures for fiscal 2011 were $10.6 million, and are expected to be approximately $12 million for 2012. I will now turn the call back over to Dave for his remarks.

Thank you, Bob. Good afternoon, everyone. Before I get into the Business commentary for the quarter, I would like to highlight some of the accomplishments for the year, as cited in the headlines of our press release.

First, annual net sales increased by 6%, and I will cover the details of that in a moment. Adjusted net income increased by 22.8% for the year. Adjusted diluted earnings per share increased by 21.1% to $1.09 a share. Adjusted EBITDA increased by 9.5% to $131.1 million in 2011. Our stock price increased from $13.73 to $24.07 per share at year-end, a 75% gain. We declared dividends of $0.86 per share during the year, and increased the dividend twice.

That is quite a year on top of very good years in 2009 and 2010. And as you can see in the numbers Bob just cited, fourth quarter was another strong quarter for our Business, with net sales increasing by 5.7%, though as a result of somewhat different factors than we saw in the first three quarters of 2011. As with much of the food industry, base volume was soft the quarter. Our volume growth for the quarter, while good at 3.9%, came from acquisitions, and our overall growth also benefited from price gains.

The acquisition of the Culver Specialty Brands, which closed at the end of November, combined with the final benefit from the Sclafani and Don Pepino brands acquired in late November 2010, adding $8.4 million to net sales for the quarter. The latter two brands will be in the base Business comparables going forward, while we will continue to see incremental sales from the Culver Specialty Brands for the first 11 months of 2012.

Pricing, which was generally in place as of September of last year, added another $3.1 million to net sales, and helped offset higher coupon expenses for the quarter, as well as increased manufacturing and distribution costs. Net of acquisition growth and pricing, fourth-quarter net sales volume was down 2% overall.

For the year, our overall business was up 6% in net sales, with acquisitions contributing approximately 60% of the growth and the base Business the remaining 40%. Pricing gains for the full year were minimal, as the gains in the fourth quarter offset slight price erosion in the first nine months.

Our sales trends by channel for the fourth quarter followed the pattern of the first nine months. We grew nicely in mass merchants and alternate channels, but saw softness in sales to supermarket customers, particularly in the Eastern United States. Our sales in that region have been following general retailer trends, in that we are seeing sales declines with retailers who are struggling in their overall business, and unfortunately, not making up all of that decline with the more successful retailers.

This kind of inefficiency, if you will, is not unusual, and takes time to even out as consumers find our products in chains or venues that are relatively new to them. It's notable that the softness in supermarkets occurred early in the quarter, and may have been at least partly due to buy-ins ahead of our September price increases. Third quarter was a very good sales quarter, and though we do not see any unusually large purchases, it may have reflected this sale shift to some extent.

The fact that October, and to some extent, November sales were soft seems to bear that theory out. December sales were generally strong across the board, further reinforcing the buy-in proposition, and our early first-quarter 2012 sales trends have been positive. What we saw softness in the supermarkets, we did quite well with other channels, including mass merchants, warehouse clubs, dollar and drug stores.

Our sales to mass merchants increased by 14% for the quarter, and by 10% for the full year, implying building momentum with these customers. Warehouse club business was up 10% for the quarter and 3% for the year, and our business with a dollar and drug stores doubled in the fourth quarter. As I said in prior calls, the last is an impressive number, but the base is relatively small at not quite 2% of our annual net sales.

Still, our success in all three of these alternatives to supermarkets is gratifying. To us, it says that our products, established SKUs, as well as new ones, are able to follow consumers as they shift their buying habits in a constructive manner.

Food service sales were down slightly for the quarter, after a relatively flat first nine months. Private label price competition pressured sales in several areas, as most of our food service sales are branded. We've responded with promotional activity to offset this competition, but operators remain very-cost conscious in the current environment.

This is not a universal phenomenon however. A number of our brands such as Maple Grove, Polaner, and Trappey are doing quite well in the channel. In addition, sales in this channel were also affected by a crop shortage in tomatoes caused by Hurricane Irene, and the heavy rains associated with that storm.

The overall Food Service business remains stable. Sales in 2011 for the channel were down just 1%, but the tone is still tentative and very dependent on overall economic conditions.

The performance of our three tiers of brands reflected the overall business trends for the quarter. Net sales of Tier 1 brands grew by only 1.2%, with Ortega relatively flat for the quarter and the other brands in the tier growing in the 3% to 4% range. These brands are very much retail-oriented and saw sales patterns as I described earlier, weakness in supermarket customers and strength in other merchants.

In December, these brands returned to sales trends more in line with the first nine months, growing by over 5%, lending further credence to our belief that early fourth quarter weakness was an anomaly. Tier 1 brands grew 4.8% for the full year. The great majority of that volume growth, again, more oriented towards alternate channels.

Consistent with our strategy for Tier 1 brands, we continue to launch new products in support of sales growth. Fourth quarter saw the launch of a new Cream of Wheat instant cereal item, a chocolate-flavored product that delivers many of the same nutritional benefits of regular Cream of Wheat, with an indulgent chocolate flavor. 2012 has a slate of new products lined up for the brands, many of which we will launch in the first half of the year.

Tier 2 brands grew by 3.7% in the fourth quarter, and results were mixed among the brands, depending on their relative exposure to supermarkets versus mass merchants and alternate channels. The overall performance, however, was solid. Sales for this tier grew by 8.2% for the year, but that number was aided by acquisition growth.

Tier 3 brand net sales were down 1.4% for the quarter, and up 1.4% for the year. These brands have much more exposure to northeastern supermarkets than our overall portfolio, and saw the effect of weakness with these customers in the fourth quarter. We also saw a small amount of promotional dislocation with several brands.

Tier 3 brands tend to be more sensitive to promotional activities than others, and as we saw in early 2010, retailers resist increases in promotional price points, at least until the higher price points become the new norm. Several promotional events did not repeat on these brands due to price point changes, but we expect that to resolve as 2012 proceeds, much as happened in 2010.

Fourth quarter did see price gains across the portfolio. These were expected but still a welcome sight as costs increased in line with our expectations. The $3.1 million price gains seen in the quarter is very consistent with the September price increases that averaged 2% of net sales. As I just said, cost increases played out much as expected for the quarter.

Our long-term positions on commodities, such as wheat, advanced in price, in line with our contracts. This leaves our cost outlook basically as we have outlined it in past calls. With the exception of maple syrup, we are generally maintaining 12-month forward positions on commodities, with meaningful cost to us, as we have in past years. Our cost on most of these commodities will climb as 2012 progresses, and hit current spot prices sometime after mid-year depending on the commodity.

The harvest on minor crops, whose price is typically set annually, such as beans and other vegetables, brought sizable increases, as expected. Kidney bean prices, for example, increased by over 60%. This was anticipated and we included it in our estimate for 2011 and 2012 price increases.

We continue to actively pursue cost reductions to offset these increases and have made steady progress. Our past estimate in 2012 cost increases, on the order of 2% of net sales, has dipped to slightly less than that, largely due to cost improvements in packaging. Fuel surcharges have been fairly stable for the past seven months, and are expected to flatten on a year-over-year comparison in about four weeks, eliminating that as a factor in future cost increases, if it holds at that level.

Given all of this, we expect 2012 to be a relatively calm cost year, barring unusual global events of course, and believe that we have a good balance between price increases already in place, and known cost increases. SG&A expenses remained under very good control for the quarter and the year.

Our results for the quarter and the year are adjusted to exclude transaction expenses related to the acquisition of the Culver Specialty Brands. And so as that adjusted EBITDA increased by 11.8% for the quarter, and by 9.5% for the year. Included in this comparison is a $1.3 million one-time gain we experienced in 2010, as the result of a legal settlement. Excluding that one-time gain, adjusted EBITDA increased by 16.4% for the quarter, and 10.7% for the full year.

The very exciting news in the fourth quarter was, of course, the acquisition of the Culver Specialty Brands from Unilever on November 30. This acquisition very much fits our strategy of acquiring highly-profitable, high free cash flow niche brands. As I have discussed in other presentations, each brand has its strengths and opportunities, and we look forward to applying the B&G Foods formula of new products and new distributions to the brands, while maintaining their attractive margins.

We substantially completed the transition of the US portion of the Business to B&G Foods systems and infrastructure on January 14, and we expect to complete the Canadian transition by the end of March. We believe that the Canadian segment of this business gives us enough mass in that market to shift our base Business sales in Canada to a more direct method of distribution, eliminating distributors and reducing our cost of doing business in Canada.

As you would expect, following the acquisition of the Culver Specialty Brands, and in light of the performance of our base Business over the last few years, we are very excited about our prospects for fiscal 2012. At this point we are projecting 2012 adjusted EBITDA to fall within the range of $166 million to $170 million, with much of that spread dependent on the performance of the Culver Specialty Brands. At the bottom of that range, EBITDA would improve by nearly 26% over 2011's adjusted EBITDA, and by nearly 30% at the high end of the range.

In light of these prospects, our Board of Directors yesterday declared a quarterly dividend of $0.27 per share, a 17.4% increase in our dividend rate. That increase is the third dividend increase announced since the beginning of 2011, and is in keeping with our philosophy of returning a meaningful proportion of the free cash flow in our Business to our shareholders.

We believe that the solid performance in our base Business, selective acquisitions that are accretive to earnings and free cash flow, and a healthy level of dividends are the best means to provide our shareholders with the returns they have come to expect from B&G Foods. We think we did a great job of achieving all three in fiscal 2011, and we'll work hard toward the same performance in 2012. At this point, we would like to open up the call for questions. Sarah?

(Operator Instructions) We will take our first question today from Bryan Hunt with Wells Fargo Securities.

Dave, I was wondering if you could just talk about what your outlook may be for the growth by channel in 2012, and whether you anticipate any material changes in channel growth rates given what you saw in 2011?

I think we expect, as pretty much happened through most of 2011, except in the fourth quarter, we expect the supermarkets to be relatively low growth, and we expect to continue to grow in that other 30%, 40% of the business that is represented by the supercenters, the mass merchants, the warehouse clubs, dollar and drug. Consumer buying patterns are, to some extent, shifting to those channels, so that is where the fish are. But especially in the east, we have a number of supermarket operators that are struggling, and it's kind of a drag on the business as we try and shift our business to the ones that are succeeding.

And when you look at your new product launches, part of what you had put in the last couple presentations has been that the Company is designing specific products for new channels of distribution. Are you trying to fuel that fire with a greater amount of new products for that channel overall, or for the new products the Company is designing are targeted for all channels in general?

It's a little bit of both. Things like the chocolate Cream of Wheat is a grocery launch that will go into supermarkets and mass merchants, but it will also have a variant that goes into dollar stores, it will have a variant that goes into drug stores. So, it is really -- specific products are designed for specific channels, and the way they do business, and we are trying to cover all the bases as we do that. Now, with the existing lines, since they are already in supermarkets, you have more of a -- we're designing it for alternate channels. But new products we are certainly comprehending all the opportunities, when we put new products out.

Okay. And my next question is, when you look at your new products, you said you were going to launch the majority of them in the first half of the year. When you look at the number of new product launches on your existing business, do you have a greater degree of new products this year relative to a year ago, or would you say when you look at the number of SKUs overall, it's relatively similar?

It's actually down a little bit. As I said in the last call, we have trimmed the offerings a little bit, so that we can really focus on the ones we do; get a lot more emphasis on what we believe will be successful products, and not dilute our efforts as much as we might have in the past. Hopefully, we will get more impact out of fewer products.

Great. And then lastly, when you look at cost increases, and you said you have locked in the majority of those cost increases, is there any product in particular that you are seeing an inordinate amount of cost increases on, relative to the rest of the portfolio?

Like I said, everything is pretty much up. It's a rare commodity or rare agricultural product certainly, that is not up. And it really is a crop-specific as to how much it is up. We buy peanut butter, it is co-packed for us. We had a 50%, 60% cost increase on that. I guess that's a great illustration of how little forgiveness there is in the system, when there is any incident at all with a crop, how fast the costs can move, and why it's prudent to lock in your costs.

I will get back in the queue. I really appreciate your time this afternoon.

Next, we'll hear from Sean Naughton with Piper Jaffray.

Obviously the Culver acquisition, very exciting bringing that in. Can you talk a little bit about the potential for Mrs. Dash in its current distribution, or potential for distribution expansion? And then also, any seasonality we could potentially expect with the acquisition overall?

There's actually not much seasonality to the business. It's a pretty steady business overall. So, there is a little bit of seasonality to things like Static Guard, but when you look at the business in total, it's pretty smooth over the year. As far as Mrs. Dash goes, there hasn't been any new product activity for a number of years, and you're seeing what you would expect to see in light of that, which is an erosion of existing distribution. Is their Mrs. Dash product virtually everywhere you go? Yes. Is there as much as we think there should be? No.

So, we are pushing out flankers that otherwise would have lost distribution, and trying to get that back. And one of the ways to do that is to get excitement back in that part of the category, by launching some new products and talking about the programs you're going to put in place and things like that. So, we certainly expect to expand Mrs. Dash, but as far as new distribution opportunities, it's more about expanding the presence that is already there, than it is getting into new places. It's already in dollar stores; it's already in drug stores. It's got a very good club business. So, there's not a lot of new ground that is untouched out there, but there is certainly a lot of opportunity to flesh out what is there.

Okay, and then just in terms of some of the innovation there, is this one of these categories you guys are currently working on for this year, or is that something that could be second half of this year or into 2013?

Well, it's going to take a little while to get the new products together and get them out there, but we certainly hope to do some of that in the first half of the year. We tend to move pretty quickly, and there is things in work right now. So, we're not sitting still. Mrs. Dash will be a point of emphasis. Mrs. Dash is two-thirds of the Culver acquisition. It is a very profitable brand; it will definitely be a Tier 1 brand, and it will definitely be an emphasis for the Company.

Great. And secondly, it sounds like things have gotten a little bit better as we started 2012. Should we expect -- have you seen an improvement in the base business, excluding acquisition, as we've headed into the new year here?

Yes. As I said, a little bit different than what I'm reading for other food companies. Our weakness in the fourth quarter was front-end loaded, and as I said, one of the premises we have is that it may have been people buying some inventory in the third quarter, with the price increases. We certainly haven't seen the decline some other people have seen in the base business; ours was fairly modest. It definitely stopped around mid-November, and December was actually a very good month, and we have had a good start to the first quarter in 2012. So, whatever it was in the early part of fourth quarter, we appear to have shrugged it off pretty quickly, and are back to a more normal operating pattern.

That's good to hear. Best of luck for the rest of the first quarter. Thanks.

Next we will hear from Ed Aaron, RBC Capital Markets.

Good afternoon, everybody. I just wanted to follow-up on that last question about the consumer. You mentioned the difference between your recent trends and those of your peers, and we are all scratching our heads a little bit as to what's going on out there. I'm wondering how much of that might just be a reflection of your products and your categories maybe being a little less inflationary than others. If you look at some of the categories that you're in, where there's maybe more pricing going through than others, are you seeing that same trend of sequential volume improvement, month-by-month, as you seem to be seeing for your business overall?

There's no question that I think the more exposed the product line was to cost increases and the higher price increase you took and/or the higher promotional price you then put in place, you did have a certain sticker shock affect. And as I said, that happened to some extent with our Tier 3 brands, where you actually saw sales declines in a few, as retailers resisted new promotional price points and things like that. I think that is a very good theory.

I think when I look at some of our competitors or other food companies, where they've taken some sizable price increases, there is no question there's a sticker shock affect either at the retailer and/or at the consumer. That doesn't apply to most of our business, because as I said, we took a 2% price increase on average. Not a number that is going to shock you when you walk up to the shelf; some took more, some took less. But we don't have that exposure to inflation, as you said, that other people do, so I don't think we shocked the system like other people might have.

Right. That makes sense. And then on the channel shifts that are going on up there, I know you said in Q4 you saw similar themes there that you saw earlier in the year, last year. As you think about the last couple months, since that is where some of the volume seemed like they have gotten a little bit more squishy across the industry, have those trends even held the last, even into the first quarter? Are you still seeing, from a channel perspective, the same things that you saw last quarter?

We definitely are seeing the same things still. Some of it may be that we are trying to grow in those channels, so our efforts are being rewarded. But we are trying to grow in those channels because we perceive the consumers are doing more of their shopping in those channels, so it's kind of a cycle, a virtuous cycle if you will. But we are definitely continuing to see that shift to alternate channels, and if not away from grocery, then as I've said before, the incremental growth in the business is in those channels, and not in supermarkets.

And then just the last question, if I could. Just more from a balance sheet perspective. You obviously just did the Culver deal pretty recently. What's your short-term leverage tolerance, if there was an asset out there that became available that you might have interest in? Is it something that you would -- how high would you would be willing to take up the leverage on a short-term basis to do that?

We feel that we can do that. We think at some point, somewhere south of 5 times -- some potential shareholders, if not our shareholders, start filtering out the stock as something they want to buy just because of the leverage. The sad part of that is, you really have to understand the cash flow story to understand that leverage at that level is not something that is a danger to the Company at all. It is not that much higher leverage than where we're at today, and we are very comfortably accommodating the interest on the debt that we have today. But we do understand that out there in the market, our BGS stock would probably at least be handicapped by too high of leverage. So, we are certainly aware of that, and we think, for lack of a real scientific study, we think that is somewhere around the 5 times level.

Great. Thanks, guys.

Next we'll hear from Andrew Lazar with Barclays Capital.

Just a couple of things. First off, maybe a quick one. Number of companies, even including Smucker today, talked about some inventory de-loading at a couple of key retail partners. Just wanted to know if that played a role maybe in any of the base volume weakness at all, do you think? How do you feel about your inventory positions at key customers, to the extent you've got a handle on that?

A few customers took inventory down, but those customers typically have taken inventory down in the past at the end of the year. So, we didn't think that was a factor. One of our major wholesaler customers did shut a warehouse in the fourth quarter, and that certainly has an inventory effect. That inventory sort of vaporizes, and you lose those sales for a short amount of time. That definitely happened, and that definitely was part of the effect in the Northeast.

Got it, thanks. And last quarter, but correct me if I'm wrong, you mentioned you would be leading by some of your pricing, maybe even more then you typically have, and needed to kind of get a better sense as time went on, on how some of your key competitors in these certain areas either followed suit or how things played out. Any update on that, in terms of how the competitive angle has played out with respect to the pricing you've taken?

I would say, by and large, people have followed where we did lead. There are some exceptions, and we are dealing with those exceptions in terms of our exposure to lost volume. They are minimal, and very easily accommodated.

And then, the CEO of Smuckers today, again, talked about thinking that the industry learned their lesson, if you will, back in 2010, when there was some deflation and all of the food companies ramped up promotions to try and drive volume, which was actually quite unsuccessful at the end of the day. The worry now, of course, or one of the worries in this space is that, once we get some deflation, although that's not here yet, given that volumes have been so remarkably weak across the industry, that sort of, as he termed it, race to the bottom, could happen again. He was pretty confident that the industry learned its lesson last time, and that is not where we would go. Obviously, you're a little less exposed to this, given what you've already talked about, but I'm just curious on your take on that. Are you equally as confident, I guess is what I would ask?

Since I've been doing this for 20 years now, I have the ability to say I have never seen people get totally smart. I have preached this for a long time, that it is a zero sum game, and that kind of activity gets you nowhere, but everybody making less money at the end of the day because people can only eat so much, and they only have so much room in their pantry. But frankly, my outlook for 2012 is that I think most of the food companies are in the same place we are in, in that they have locked in their costs, and that those costs are going to ramp up to some degree for 2012, as those purchasing positions roll in. So even if commodities do back down a little bit, I don't think people are going to see it until like the fourth quarter at best. So it's not something I hope we have to concern ourselves about for most, if not all, of 2012.

Got it. And lastly, I appreciate your perspective, if we think about your base business in terms of pricing and volume, as we think about 2012 as a full year, is it safe to say, obviously, you've still got for much of the year, the incremental 2% pricing that started to flow through in your fourth quarter. So, we would see some positive pricing there, until you lap that. And then, volume, obviously the base business volume came off a little bit in the fourth quarter, but it seems like at least that is recently back on track. Would your expectation be for, call it, 1% to 2% pricing for the full year, and volume to be low single-digit modestly positive, or how do you think about that?

That's exactly how I would think about that. We're going to see the price increases roll through for at least the first nine months, and if you look at 2011, our volume growth in 2011 was not quite 2.5%. 2012 at that level wouldn't surprise me.

Great. Thanks very much.

Moving on to Gary Albanese with Auriga.

About the Culver acquisition/integration. I was wondering if you could just add some color. In terms of, as you get more exposure to the brand, as you sort of take them under your wing a little bit more, how is that perceived in terms of, has it been better than you expected? Has it been worse? Has there been more challenges or opportunities from when we last spoke?

I think it's about where we thought it was when we last spoke. It's a very typical acquisition in terms of the state of the business. It may not be declining as much as some of the other things we have bought, but it certainly, as I said earlier, has had no new product activity, and not a lot of emphasis from the sales point of view, which we look at, frankly, as an opportunity. That is unplowed ground that we can dive into and make use of. It's very typical. I think we are going to be able to perform on it like we have with our other acquisitions.

We love the business. I think we are very pleasantly surprised with things like Static Guard. I don't think we comprehended what a great little brand that was, just because we're not that familiar with household. So, I think we're very pleased with where we stand right now, and looking forward to the year.

Okay. I know you covered fuel costs earlier, in regards to how it affects your P&L, but historically when we have seen fuel spikes in the past for gas, how has that affected the consumer buying trends? Especially with some of your brands? Has there been any shifts away or towards brands when we see these spikes?

Well, I think our portfolio is affected -- by and large, when things get tough, our portfolio generally prospers. Food service is not quite 20% of our business. That part of the business tends to get softer when gas spikes and inflation kicks in and all of that, but bad economies drive people to eat at home, and they eat things like Ortega and B&M and all of the brands that we have. And we have never seen our portfolio suffer in bad economic times. It actually is a benefit to some extent.

Okay. Great. Thank you very much.

(Operator Instructions) Next, we'll hear from Thomas Scherr with Federated Investors.

Thanks for taking my call. Can you discuss your expectations for cash taxes in 2012?

We're looking at about, just a little over $20 million in cash taxes. Based on the guidance of EBITDA we gave out.

Thank you very much.

Next, we'll hear from Soraya Benitez with Cougar Trading. Your line is open. Please go ahead.

One quick clarification. When you talked about the trends by channel, you talked about the dollar, mass market, and warehouse. Was that the dollar represents 2% of sales, or those channels collectively represent 2% of your sales?

Just the dollar and drug stores.

And so, where do you see that like maybe in a year or two? You've talked about, it's obviously been a small part of the base for some time. Where do you think you could get to in a year or two?

I think in a couple years, we maybe double that. We are growing very quickly. It was up, as I said, 100% in the fourth quarter. There is only so much room in dollar stores. The opportunity is finite, in that sense. I think we could see another 50% growth in 2012, and then we will see where it goes from there.

And then just on your capital expenditures, thank you for the guidance, $12 million, looks like that's a little bit of a higher run rate versus what you've done in the last few recent years. Just wonder is that part of the Culver acquisition, or is there something more behind that number?

The Culver products are all co-pack, so there is minimal CapEx there. We are just guiding to that partly because of inflation, and partly because, as we really dig into costs, we think we may have some projects that are very good opportunities to reduce costs. If so, we're going to put CapEx against them.

And then to clarify, on some of the new product introductions you're doing in 2012, can you give us some color by tier, your four tiers?

The focus is absolutely on the Tier 1 brands. That is why they are Tier 1 brands, because they're going to get a lot of new product activity. And sometimes, as I said, it's as simple as a variant of an existing product that is now designed to go into warehouse clubs, dollar stores, drugstores, all of that. It's not necessarily a revolutionary new product. But as you go down through the tiers, the new product activity tapers off, but not necessarily goes away. It depends on the opportunity.

Another product line we launched in the fourth quarter that will fall under the Ac'cent line in terms of where we book the sales is we have licensed the CrockPot name for a few seasonings that we will sell as something to do a pot roast in a crockpot, and things like that. Those are out being sold in the marketplace now; we're out presenting those. So, that is not a Tier 1 brand, but we still have great opportunity to do a line of seasonings under -- within that name, and it looks to be a good proposition going forward.

Great. Thank you for taking the questions.

Next we'll hear from Paul Moomaw with Goshawk Investments.

I was going to ask if you could elaborate a little bit on your comments about moving into Canada, and any distribution possibilities that opens up for you?

We are in Canada now very modestly with our base business. We sell Cream of Wheat, we sell Ac'cent, we sell Underwood up there. But as I say, it is modest, probably not even 2% of sales. With the Culver acquisition, the Sugar Twin business does most of its business up in Canada, and it gives us enough critical mass that we're going to take these product lines that we've been selling up there, take them out of the distributor, and move them into more traditional, if you will, distribution warehouse right to a grocery warehouse. That lowers our cost considerably. It eliminates the distributor mark-up, and allows us to increase our price to get the same shelf price, and basically put most of the distributor margin in our pocket versus the distributor's pocket. So there is a benefit on the base business from that point of view.

It also takes you more mainstream, and gives you the opportunity to more directly put products into distribution, into the supermarkets. We are going to walk before we run here, so first we are going to get this infrastructure in place, and get everything going with a new broker and the new means of distribution. And then we're going to look at our opportunities to take more of our base business into Canada, if it's appropriate.

Okay. Sort of a follow-up on the previous leverage question. Have you described the Company's criterion ever for issuing equity as a way of evening out the capital structure?

No, we really haven't. We have done that once to retire some high-yield debt that had very high interest rates, and it was actually accretive to our earnings per share to do that. With the dividend we pay, it's an interesting dynamic between the debt you require, which has obviously a tax break, and the dividend you pay on those shares, which obviously does not have a tax break, and it's a question of how dilutive that issue would be. But no, we have never outlined that.

Okay. Thanks very much.

Next, we'll hear from Rob Moskow with Credit Suisse.

David, I always thought of 2011 as the year where you got out ahead of the commodity inflation, and hedged early. And I'm wondering, if you look back, do you think that was a competitive advantage? And as you look towards 2012, do you feel like it might be a tough comp because maybe that was a fortuitous year, or maybe you're just as far ahead this year? But does it strike you that it might be a tough comparison this year?

I really don't think so. As we have said, we have very modest inflation. We just don't have a lot of mainstream commodity exposure. 1.5% of net sales cost increases last year; we're forecasting not quite 2% of net sales cost increases this year. To buy better on those kind of cost increases really doesn't give you much of an edge, and the people who are in the categories that have those cost increases, have that same exposure. There is just not a huge edge there. If you -- if I was selling flour, and I bought flour much better than my competitors, and flour costs went up 30%, I would say I have a competitive edge. But when you're talking these kinds of percentages, I just don't think it gives you a lot of an edge.

As a follow-up, because the commodity inflation is not that noisy, it is just kind of mildly rising, is it fair to say that there isn't much risk of price declines as we head to the back half of the year? There's a lot of food categories where I am concerned you might see that, because of either hyper-promotion or commodities falling.

As I said earlier, I just don't see that in 2012 because I think people have positions that are going to roll over as the year goes on, and they will see, if they do have the same kind of positions we have, they will see cost increases through most of the year, against those positions. And who knows where we will be six, nine months from now, as far as where costs and commodities are? So, I think people would be foolish to do that. As Andrew pointed out, it doesn't really get you anywhere. Promotion is a very temporary high, if at all, because your competitors aren't going to sit still, they are going to respond.

And a price decrease, by the way, has to pretty much be done by promotion because an awful lot of time, if you take a list price decrease, the consumer will never see it. A decent number of retailers will put it in their pockets. So, how that will play out, I really don't know. But I think people are going to be -- have their hedge positions give them modest, at least, cost increases as the year progresses for a while.

Got it. And congrats on a great year, and sorry if some of the questions were repetitive. Appreciate it.

That concludes this question-and-answer session. Mr. Wenner, I would like to turn the conference back over to you for any additional or closing comments.

Thank you. Thank you all for joining us. We really look back on 2011, and look at it as a remarkable year where we created tremendous shareholder value, and gave our shareholders a terrific return on their investment. We aspire to do the same in 2012, and certainly the dividend increase that we announced yesterday is our first way of trying to do that. So, we're looking forward to the year, we're extremely excited about performing on the Culver brands as the year goes on, and hope to do more of the same in 2012. Thank you.

That does conclude today's conference. We thank you all for joining us.