B&G Foods Inc (BGS) 2012 Q1 法說會逐字稿

Good afternoon ladies and gentlemen, thank you for holding. Welcome to the B&G Foods Incorporated 2012 financial results conference call. Today's conference is being recorded. (Operator Instructions). Following the presentation we will conduct a Q&A session. I would now like to turn the conference over to David Wenner, Chief Executive Officer of B&G Foods.

Good afternoon everyone, and welcome to the B&G Foods first quarter 2012 conference call. You can access detailed information on the quarter 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 to all of you to our most recent Annual Report on Form 10-K, and subsequent SEC filling for a more detailed discussion of the risks that could impact our future operating results and financial condition. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

We also will be making reference on today's call to the nonGAAP financial measure EBITDA. Reconciliations of this measure 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, who will be discussing our financial results for the quarter. After Bob's remarks I will discuss the various factors that affected our results for the quarter, selected business highlights, and our thoughts concerning the next nine months. Bob?

Thank you Dave. Net sales for the first quarter of 2012 increased $25.9 million, or 19.7% to $157.3 million, compared to $131.4 million for the first quarter of 2011. Net sales of the Culver Specialty Brands, which we acquired at the end of November 2011, contributed $25.6 million to the overall increase. The remaining $0.3 million net sales increase was attributable to $2.5 million of price increases, largely offset by $2.2 million unit volume decrease for our base business. Net sales increased by $1.7 million for Ortega, and $1.2 million for Maple Groves Farms of Vermont, these increases were offset by a reduction in net sales for Cream of Wheat of $1.5 million, and B&G of $0.7 million. All other brands decreased $0.4 million in the aggregate.

Gross profit increased $11.9 million for the first quarter of 2012, or 26.7% to $56.8 million from $44.9 million for the first quarter of 2011. Gross profit expressed as a percentage of net sales increased 200 basis points to 36.1% for the first quarter of 2012, from 34.1% for the first quarter of 2011. The increase in gross profit as a percentage of net sales was primarily due to pricing gains of $2.5 million, and a sales mix shift to higher margin products, primarily due to the Culver Specialty Brands acquisition, partially offset by commodity cost increases.

Selling general and administrative expenses increased $2.4 million, or 17.6% to $16.6 million for the first quarter of 2012, compared to $14.2 million for the first quarter of 2011. This increase is primarily due to increases in consumer marketing and trade spending of $1.8 million, brokers expenses of $0.4 million, and warehousing costs of $0.2 million. However expressed as a percentage of net sales, our selling general and administrative expenses decreased 20 basis points to 10.6% for the first quarter of 2012, from 10.8% in the first quarter of 2011.

Operating income increased 31.2% to $38.2 million for the first quarter of 2012, from $29.1 million in the first quarter of 2011. Net interest expense for the first quarter of 2012 increased $3.8 million, or 46.4% to $12 million from $8.2 million for the first quarter of 2011. The increase was primarily attributable to additional indebtedness to finance the Culver Specialty Brands acquisition, and an additional $0.8 million of deferred debt financing costs and bond discount relating to the acquisition financing.

The Company's reported net income was $16.8 million for the first quarter of 2012, a 26.1% increase, as compared to reported net income for the first quarter of 2011 of $13.3 million. Diluted earnings per share for the first quarter of 2012 was $0.35, a 29.6% increase as compared to diluted earnings per share in the first quarter of 2011 of $0.27. Our EBITDA increased 29% to $42.6 million for the first quarter of 2012, compared to $33 million in the first quarter of 2011. EBITDA as a percentage of net sales increased to 27.1% in the first quarter of 2012, from 25.1% for the first quarter of 2011.

Moving onto the balance sheet, we finished the first quarter of 2012 with $20 million of cash compared to $16.7 million at the end of 2011. Our current dividend rate is $1.08 per share per annum, or approximately $52.2 million per annum in the aggregate, based upon our current share count. We finished the first quarter of 2012 with $717.9 million in long-term debt, our net leverage based on the midpoint of our guidance is at 4.2 times. Our expected cash interest expense for 2012 is approximately $43 million. Our expected cash taxes for 2012 are approximately $22.8 million. And our capital expenditures are forecasted at between $11 million and $12 million. I will now turn the call back over to Dave for his remarks.

Thanks Bob. Good afternoon again everyone. This was another excellent quarter for our business. Perhaps the single most important aspect of our performance for the quarter was the successful integration of the Culver Specialty brands into the B&G Foods portfolio. That success paved the way for our record breaking numbers in several important metrics, as Bob cited.

Net sales for the quarter increased by 19.7% to $157.3 million, net income increased by 26.1%, diluted earnings per share increased by 29.6%. And EBITDA increased by 29% to a quarterly record figure of $42.6 million. Last but certainly not least, as a result of our strong performance in fiscal 2011, and in anticipation of performance of the Culver acquisition, our Board of Directors increased the quarterly dividend by 17.4% to $0.27 per share on February 15th. As you can see from the numbers in our press release and in Bob's comments, the acquisition of the Culver Specially brand delivered the top and bottom line contributions that we expected when we made the acquisition.

Net sales of the CSB portfolio totaled $25.6 million, while this number is well ahead of the roughly $90 million annual sales estimate that we modeled. There is modest seasonality to the business. When that is considered the first quarter number is in line with our estimates. The first quarter numbers certainly reflect the fact that the overall portfolio is in generally good health. In fact this portfolio is probably the healthiest we have acquired in terms of stability at the time of the purchase. That is not to say that there were no issues that needed to be addressed, but the issued that we have encountered in the first four months of ownership were all very manageable.

The transition of the business from Unilever went very smoothly, with the US integration integrated into B&G Foods by mid-January, and the Canadian portion completed in March. As result of the integration of the Culver brands, we now go to market directly in Canada, and have a sales and distribution infrastructure there that should help us build sales of our entire portfolio with the Canadian retailers. Acquiring a business with minimal issues also allows us to concentrate less on recovery, and more on growing the business. To that end we have identified numerous distribution opportunities across the portfolio, and are working to fill what we perceive are distribution gaps across all classes of trade. We have also secured additional distribution of several brands already in mass merchants, dollar stores, and a number of supermarket chains.

This distribution will begin to contribute to our sales in the second quarter. We are also hard at work identifying and sourcing new products over a number of Culver brands, and hope to introduce some of them as early as third quarter. The integration also went smoothly on the manufacturing and distribution side of the business. All but one copacker continues to produce the brands as before, and the single exception was replaced without incident. Having secured the manufacturing base, we are now identifying cost reduction opportunities. An almost immediate cost benefit from the acquisition can be seen in our distribution costs, which declined 40 basis points, as a percent of net sales despite higher fuel surcharges. We had anticipated dilution of this cost from the acquisition, but the effect was even more positive than modeled. All-in-all, with just over four months experience with the Culver brands, I can say that we are very pleased with their performance, and are excited about their prospects going forward.

Turning to our base business the very good news is that the net sales increase we did see reflected price increases of $2.5 million. Much in line with our expectations, and also in line with our requirement to offset cost increases. The majority of the price related net sales increase came from pricing announced last fall. But the figure also reflected the more limited price increases we implemented in February. You may recall that our overall increase was modest, roughly 2% on average. So we have seen very little consumer effect from the pricing.

In general we are not out of line with competition either. There was only one brand where competition did not follow, and we were required to adjust price to remain competitive. Given these assessments of our competitive and consumer positions, we expect that we will continue to see pricing benefits similar to first quarter until we lap the timing of the increases. Volume in our base business did decline a modest 1.7% for the quarter. While it would be easy to attribute this to the general weakness that seems prevalent in the industry, in our case the reasons for most of the decline appear to be more specific.

We believe the primary reason was the unusually warm weather across the country. This affected several categories significantly, and our brands within those categories to a lesser degree than the category. Hot cereal felt the largest impact. The category volume was down 11% for the 13 weeks ended March 17th. Cream of Wheat, which accounted for two-thirds of our volume decline, felt that category weakness, even though it was less affected than the overall category. A similar effect was seen in the syrup category. Pancake syrups declined by over 8% in the 13-week period. Beyond the weather, we were affected by promotional dislocation similar to those we experienced in early 2009. Then as in the first quarter retailers chose not to run promotions on several brands where we raised promotional price points.

The ultimate outcome in 2009 was that the these new promotional levels were eventually accepted, and we expect that the same outcome will happen this time. Of these two phenomenon the weather effect was much more substantial and a bit surprising, Cream of Wheat has been growing steadily for a while now, so it is decline was unexpected. Our sales trends in the quarter continue to follow the channel shifts we have seen for the past year or more. A substantial part of sales decline we did see came from the supermarket part the business. And again generally from the eastern half of the country.

We speculate this is partly due to several chains that continue to lose same store business, and partly due to high sensitivity in that region to weather. In any event, the decline in this portion of the business was offset to a degree by growth in mass merchants, which grew over 9% for the quarter, and by warehouse club accounts up over 6%. Our sales to dollar and drug were flat versus first quarter of last year, due to lower sales of hot cereal. Sales of all other products to these outlets were up to 37%. Food Service sales were flat for the quarter.

Examining performance by tier, our Tier one brands in the base business grew by 1%, despite the Cream of Wheat sales decline. Ortega continued to be very healthy growing by over 5%. And Las Palmas grew by over 3%. We continue to make inroads in distribution on both brands across virtually all retail channels. We are also active on the new products front, launching new dinner tips and reduced sodium seasonings in the Ortega line, and rolling out the new chocolate flavored instant product in the Cream of Wheat brand. Beyond the hot cereal decline, the remaining volume decline that we saw in the quarter fell primarily in the Tier two brands, many of which declined very modestly.

The common thread here was weakness with specific supermarket retailers. Sales of the Emeril line were down for the quarter due to a supply issue with one copacker. That issue is now resolved and the business back on track. We have several new products planned for this line as well, most in them in the pasta sauce and seasoning categories. Tier three brands net sales in the base business grew by 1.4%, much of that in price. This tier's growth over the past few years has been driven primarily by the Maple Grove brand, and this quarter was no different. With Maple Grove net sales increasing by over 7%. The brand saw a slightly miss in maple syrup sales, but not nearly as much as seen in pancake syrups, but grew strongly on the specially side of the business, particularly in salad dressing.

We have launched several new dressing flavors in our all-natural dressing line, and two new organic agave syrups as well. Our Company has had good success with licensing well-known consumer-oriented names, the Emeril line and the Cinnabon flavored Cream of Wheat being prime examples. Following that path, we announced a few days ago that we have entered a strategic alliance with Jarden Consumer Solutions, to launch a line of Crock Pot seasoning mixes, for use in crock pot and other slow cookers. The initial launch includes three mixes, REB Stew, Savory Pot Roast, and Barbecue Pulled Pork. Response by retailers has been very enthusiastic.

The products have been accepted in over 5,000 points of distribution in the very early stages of presentations to customers. As a result we are very optimistic about the prospects for this line, which is yet another example how B&G Foods looks to create products that will be immediately accretive to our businesses top and bottom line. We are delighted to be working with Jarden to bring these products to consumers, and to provide these consumers with economical and delicious ways to feed their families.

Moving to the operational side of the business, the cost increases we experienced in the first quarter were very much in line with what we had forecast. Given our long term buying positions on various commodities, we are still not paying current market prices for these goods, but commodity and packaging costs did climb in the quarter, and will continue to increase into the fourth quarter, when we will finally reach current market cost levels. Our forecast for the total effect of increases in 2012 remains the same, slightly less than 2% of projected cost of goods sold. Virtually all of that increase is coming from agricultural input. Packaging costs are coming in neutral for 2012. And currency, a negative factor in 2011 appears to be slightly favorable What is encouraging is that these agricultural costs appear to have peaked, and even backed down somewhat in the 9 to 12 month time frame.

Our commodity cost positions for the first quarter of 2013 are generally lower, albeit modestly lower than our fourth quarter positions. Further good news is that it now appears that our single largest commodity expense, maple syrup will be a relatively neutral factor for the 2012 crop year. The US crop was only fair, and was abbreviated by warm weather, but the more important Canadian crop, which is still coming in, is shaping up as average at worst. This outcome will leave Canadian field costs at a slight increase, which should be offset by a favorable exchange rate.

The remaining wild card for cost this year is distribution, which of course depends on the price of oil, and resultant fuel surcharges. Higher oil prices in the first quarter meant that we experienced higher fuel surcharges than hoped in the quarter but this additional cost was more than offset by cost dilution from the Culver brands additional volume shipping through our system. As of today fuel surcharges are roughly at the same level as this time last year. If this continues, we will continue to see a net benefit from the Culver acquisition. As Bob mentioned, SG&A expenses increased $2.4 million for the quarter, substantially of that increased spending related to the added volume of the Culver brands, in the case of sales and warehousing expenses, and the marketing expense related to brand.

The CSB acquisition has increased our marketing budget from support of our brands by 45%. We are actively reviewing the spending that we inherited for the Culver brands, and identifying what is effective and efficient, and what is not. Our intention is to redirect monies as appropriate to more productive support of the base business, as well as the Culver brands. These various elements of the P&L combined to produce an increase in EBITDA of 29%, to a company-record quarterly number of $42.6 million.

The Culver Specialty brands acquisition contributed as expected with this number, and is on track to reach our estimates for the full year. Accordingly we have reaffirmed EBITDA guidance for 2012 of $166 million to $170 million. At the midpoint of this range our full-year EBITDA would increase by 28%. The result of successful execution on the Culver Specialty brand acquisition, and solid performance by our base business. At this time we would like to open the call up to questions. Operator?

(Operator Instructions). We will take our first question from Ed Aaron of RBC Capital Markets.

Good afternoon Ed.

Hi guys, good afternoon. Maybe you should start with the Culver business. It sounds like maybe you are maybe getting some early sales synergies there. Can you talk a little bit about just order of magnitude, what you have picked up and what that could mean in terms of sales contribution? And then also as a follow-up to that, could you if you have it give the comparable Culver sales number from last year's Q1?

Well, as far as where it is going to go, it is too early to say. I mean we are seeing gaining distribution, but so far it is a kiss and a promise. We have acceptances of the product but to nail down a contribution number from a sales point of view, you really need to get the timing of the shipment. And that is highly variable depending on the customer, and I can't say, but we do know that we have do have a significant number of promises that had distribution on this, and we are seeing some orders already, and it is really going to depend on the timing. But we are very encouraged by the trend. As far as prior year quarterly number?

We are up over a $1 million versus prior year same time frame on Culver for the first quarter.

Great and then last year I think you had a little bit of impact in your first quarter from the Easter timing shift. Was that a benefit on a year-over-year basis in Q1 that will reverse out in Q2 this year?

We don't really see volume move around Easter like we did last year. It was pretty neutral this year.

Alright. And then one last one. I think you made a comment about inventory changes in the channel. Is that kind of specific to one or two retailers, or is it something you saw more broadly speaking across the business?

I don't think I actually said anything about inventory in the channels, but we did see a couple wholesalers we believe hold back on inventory at the end of the quarter.

Great. Thanks for taking my questions.

And we will take our next question From Sean Naughton of Piper Jaffray.

Thanks. Congratulations on the quarter guys. I think you had mentioned before inflation on the cost of goods sold for this year. Maple syrup was going to be up around a little bit less than 2%, and given the fact that Maple syrup has come in maybe a little bit better than what people may be expecting, how should we think about the inflation and COGS for 2012?

Well the number we talked about really ignored or set aside maple syrup, for instance, to come in at neutral which we believe it will. We are still around 2% cost increase.

Okay and then given the fact that EBITDA was about 200 basis points in Q1, is that a fair way to think about kind of the total for the year on a year-over-year comparison. Do you expect to generate that kind of nice improvement year-over-year on the margin front?

Yes. The acquisition itself brings that mix of EBITDA up about 200 basis points.

Okay great. And I guess just lastly a couple of, cash taxes looks like it was up a little bit from what we talked about in Q1, excuse me on the Q4 call, is there anything that has changed there? Or how should we think about that?

No not at all. That is just a better reflection of where we expect to be. It is a pretty accurate number at this point of exactly where we will be for the year.

Okay. Fair enough, and then maybe one last question. Anything on the negotiations front in Portland Maine, I know there had been some sort of agreement coming up at the end of April?

The contract goes for a vote on Saturday. Other than that, I really can't comment.

Okay. Fair enough. Thank you.

And we will take our next question from Reza Vahabzadeh, Barclays Capital.

Good afternoon.

Hi Reza, how are you?

So on the acquired Culver portfolio, is it accurate to assess your comments that you have haven't found any negative surprises since you have acquired it in numbers, is it essentially in line with your expectations?

I think that is a fair comment. You always have a few little surprises, but nothing that I would call meaningful.

Got it. Any positive surprises. Anything that maybe you underestimated as far as the potential for the portfolio?

Well I think as I said in the last call, we were very pleased with Static Guard. It really was a little jewel in the portfolio, I don't think we fully appreciated how good of a brand that was. Speed to getting to this transition has helped us significantly in terms of I think securing some things that otherwise wouldn't have happened, and the primary example is that Bakers Joy went into the baking aisle at Walmart for the Easter bake season, and that helped Bakers Joy tremendously. And as I said earlier, we are really making a lot of headway in terms of going out there and pounding on the doors with the customers, and pointing out distributions gaps, and as the year progresses hopefully filling those gaps. So there is a lot of opportunity.

Right, and then as far as, you made some comments in prior calls that consumer is showing some elasticity of demand as promoted price points go higher, and volumes have been on the soft side in packaged food. Are you is still seeing that? Do you see any signs that maybe the consumer is adapting to the higher promoted price points?

Its very hard to say what is going on, whether it is price or what is going on with the consumer. I know everybody is very baffled by that. I can't say it is push back on price necessarily, because the response, the weakness in the industry seems to be very broad. The latest run of the all of the categories we compete in the other day, and as you would expect, it is a page-long list of all of the categories and anything that is negative is red. Well there is a sea of red. There were literally three categories that weren't down in unit sales for that 13-weeks. So I think it is more than price, and I think everybody is seeing a general malaise in the industry from the consumer, and of course the overlying question is what are they eating? But it certainly to me is more than a pushback on price. You see that in very specific categories, where the price increases are more substantial than our average price increase, but there is a broader trend than that.

Got it. I am sorry can you just highlight some of the brands that were affected by weather, I think you mentioned Cream of Wheat, anything that may have been effected by the warmer than usual weather?

Well we think our preserve business, our pancake syrup business, the maple syrup business to a small degree, but not nearly as much as the pancake syrup business. Even recipe beans, which is all about making chili, and things like that. Even that was somewhat weak. But definitely hot cereal was by far the worst.

Got it. Do you have field cost inflation in your COGS inflation estimate for the year?

Well, we estimated that we would see an increase in the first quarter, and then hopefully it was going to be neutral for the rest of the year. The first quarter fuel surcharge number was probably, and we are talking hundreds of thousands of here. Probably a couple hundred of thousand dollars higher than we expected for the quarter. But as I said we saw more dilution of the cost as a percent of sales coming out of Culver. It didn't add the expense we thought it might. So we ended up with a positive net effect there. For lack of better information we are forecasting that everything is going to be neutral for the rest of the year.

Got it. Appreciate it.

(Operator Instructions) We will go next to Gary Albanese of Auriga.

Hey guys, good afternoon. Thanks for taking my call.

Sure Gary.

Good afternoon. I was just wondering if you could expand on the Jarden alliance? I believe you mentioned three different styles by September, with plans to build out on that line in the future. Can you sort of quantify what your thoughts are on how big that product is going to be?

Well we really don't know how big it is going to be. That is the fun of doing new products, you put them out there and pray somebody buys them. The first good sign is that retailers are reacting very, very positively, and we are starting to ship product here in the second quarter. So it is not going to happen in September. It is going to happen now. And we will be shipping product in some quantity here next week. It will be $1 million or $2 million at the pace we are going right now. But certainly that could accelerate. If it is successful we will obviously look at expanding the offerings, and trying to expand on the opportunity. But when you are just getting the distribution out there, and you haven't got a clue whether consumers are going to buy the product or not, it is very hard to make a forecast.

Okay. And I know that I am getting a little ahead of myself, but is there a potential to expand upon the relationship with Jarden, either through stuff with the Coleman line or the Sunbeam line. There seem to be some pretty good overlaps that you guys could do with them?

There is potential to do that, we have a number of products that are good for cooking on grills, things like that. Absolutely. We just thought this was the most obvious one, because people know what to do with a slow cooker, and these are great recipes for that particular appliance.

Okay. And just lastly the capital on these for these products, probably going to be fairly minimal to start. Is that fair to say?

Oh, yes minimal inventory needs, and it is being copacked, so that reduces your working capital needs substantially. No equipment, or anything like that.

Okay. Great. Thanks, guys.

You are welcome.

One question remaining at this time, and that comes from Andrew Lazar of Barclays.

Good Afternoon.

Good afternoon Andrew.

Just a couple of things, first about your comment around some of the scanner data that you looked at, across all of your categories, and a lot of them are in the Red or what not. Have you seen any change in that data, if you think about it for the quarter versus kind of more recently? In other words is there a sense there that there has been any real stabilization? Potentially just things just looking less bad. I know we don't have all a lot of great explanation for why volumes in the industry as a whole have been weak, but maybe I can just hang onto some comments from companies that they are at least getting less weak for whatever reason?

Well, I don't have any more recent information, the latest four weeks hasn't come out yet. At least I haven't seen it, the one that would come out right about now, as a matter of fact for mid-April. So I don't have any more information beyond that. My sense is that we may start to flatten out some, once we get past this anomaly in terms of year-to-year of weather patterns, and things like that. Or we may not. I am just speculating. Because as you say, I am not sure exactly what is going on, I would say that the effect in most our brands is very, very minor, but it certainly detracts from positive sales that would have helped you on something as clear as the hot cereal negative.

Right. That was my next question, is getting into this how to parse out what the issues were on your base volume, versus those that the industry is seeing? As you said in your prepared remarks, you really don't think your volume weakness has a lot to do with the broader sort of industry malaise. I think you said, you may not have said this. Weather in your estimation it is kind of hard, but is that the lien's share of your volume weakness, as opposed to just the overall industry piece?

I think it was the lion's share of the decline we saw. I think the overall industry piece took away from upside in other areas that otherwise wouldn't have been weather affected, and kept us compensating for weakness. One of the real strengths of our business, the way we look at it is when we have as broad of a portfolio over as many categories we have, a specific product category issue is one out of many, and is more than compensated for by the others, assuming the others are performing normally. So when the whole world falls out of bed, which is very, very unusual, you just don't have those positives to pull the one or two real negatives up.

And then the comment around retailers merchandise some of your items in certain categories a bit less given the higher promoted price points. That sounds like it was more of a more minor issue impacting your volume in the quarter, and has that pretty much now worked itself through to the best of your knowledge?

Yes, I am assuming it is going to be the same as it was in 2009, because everybody gets a little huffy because what was $0.99 is now 4 for $5, but when they realize well that is the game now, because the cost associated with that went up 60%. Then we get over it. And actually the one brand B&M that had that kind of event, actually was up a little bit for the quarter in dollar sales, even though we missed some pretty good-sized promotions, we would normally have done otherwise. And that is the brand that the same thing happened three years ago, and we all made up and moved on with the higher promotional prices.

Two other things. One last quarter I think you had said that for the full year you would anticipate sort of base volume growth maybe up in the low single-digit range. Is the start to the year if you will for base volume, does which it change that thought process, just the slower start on the base side?

Well obviously it is not a great way to start when you are trying to get to those kind of growth numbers. It puts us in a little bit of hold to get to those numbers, I think it is too soon to say whether we are going to be able to crawl out of that hole fast enough, with only three months under our belt.

Okay. That last thing, and I assume again this is somewhat more weather related, but when you reported your fourth quarter it was really only like 2 months ago. And at that point you said, hey, the quarter is off to a really good start from a volume perspective. Was it just obviously from your standpoint sort of a weather shift that happened later in the quarter that just impacted Cream of Wheat volume primarily?

As I was re-reading my remarks I was thinking the same thing, because we had a very good January, and had a decent December, and then it all fell out of bed on the hot cereal side in February, and then volumes firmed again some in March. So it is not a steady thing like it normally is. Usually our business is very, very, level, predictable. There are certainly more gyrations to it than there are normally. But I think the hot cereal thing, I think you may have had retailers ordering as normal. Consumer sales didn't happen, now retailers have too much inventory, so you see a dramatic pull back in orders from retailers, so you have January chugging along in good shape, and then in February you get that kind of a response. Everybody lowers their inventories, and now you go back to normal, or near normal in March. That is very possibly what happened.

Okay. That is very helpful. I appreciate your thoughts.

Okay. Thank you.

And at this time there are no additional questions. I will turn call back to our moderators for any additional or closing remarks.

Thank you operator. As I said our base business did better than most in first quarter where we are very encouraged by the fact that we got the pricing we needed to cover costs in the quarter. We will see what happens with volume, but the volume drop was fairly modest. But more importantly, the Culver acquisition which was a substantial addition to our Company performed as we expected it to, and really presents us with a lot of opportunities to improve performance as we go through the year, and we are looking forward to executing that. Thank you all for joining us.

And this does conclude today's conference call. Once again, we thank you for your participation, and have a wonderful day.