B&G Foods Inc (BGS) 2012 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the B&G Foods Incorporated fourth-quarter 2012 financial results conference call. Today's call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session, and instructions will be provided at 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, sir.

Thank you, Operator. Good afternoon, everyone, and welcome to the B&G Foods fourth-quarter and full-year 2012 conference call. You can access detailed financial information on the quarter and the full year 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 statement, whether as a result of new information, future events, or otherwise.

We also will be making reference on today's call to non-GAAP financial measures, adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share. Reconciliations of these measures to the most directly comparable GAAP financial measures are provided in today's press release.

We'll start the call with our CFO, Bob Cantwell, discussing our financial results for the quarter and for the full year. After Bob's remarks, I will discuss the various factors that affected our results for the periods; selected business highlights; and our thoughts concerning 2013.

Bob?

Thank you, Dave. First I will review the full-year briefly, then talk about the fourth quarter. Net sales for 2012 increased $89.9 million or 16.5%, to $633.8 million compared to $543.9 million for 2011. Net sales of the Culver Specialty Brands, which B&G Foods acquired at the end of November 2011, contributed $81 million. And net sales of the New York Style and Old London brands, which we acquired at the end of October 2012, contributed $8.4 million to our overall increase. Net sales for our base business increased $0.5 million, with a sales price increase of $13.1 million, offset by a unit of volume decline of $12.6 million.

Net sales increased by $3.8 million for Ortega; $1.8 million for Las Palmas; $1.2 million for Maple Grove Farms of Vermont; $1 million for B&M; $0.9 million for Ac'cent. These increases were offset by a reduction in net sales of B&G of $4.2 million; Cream of Wheat of $2.5 million; Don Pepino of $0.8 million; and Underwood of $0.7 million.

In the aggregate, net sales of all our other brands remained consistent. Gross profit for 2012 increased $45.6 million, or 25.6%, to $223.3 million from $177.8 million in 2011. Gross profit expressed as a percentage of net sales increased 250 basis points, to 35.2% in 2012, from 32.7% in 2011, attributable to a sales mix shift to higher-margin products, primarily due to the Culver Specialty Brands acquisition and pricing gains of $13.1 million, partially offset by commodity and packaging cost increases.

Operating income increased 31.3% to $149 million for 2012, from $113.5 million in 2011. Net interest expense increased $11 million to $47.7 million in 2012 from $36.7 million in 2011, attributable to the increase in indebtedness to finance the Culver Specialty Brands acquisition, and an additional $2.8 million of amortization of deferred debt financing costs and bond discount relating to the acquisition financing.

The Company's adjusted net income, which excludes the acquisition-related transaction costs and loss on extinguishment of debt, was $66.7 million, a 25.6% increase as compared to adjusted net income of $53.1 million for 2011. Adjusted diluted earnings per share increased 23.9% from $1.09 per share in 2011, to $1.35 per share in 2012. Adjusted EBITDA, which for 2012 excludes the impact of $1.2 million of transaction costs relating to the New York Style and Old London acquisition; and for 2011 excludes the impact of $1.4 million of transaction costs related to the Culver Specialty Brands acquisition, increased 28.9% to $169 million from $131.1 million in 2011.

Adjusted EBITDA as a percentage of net sales increased to 26.7% for 2012 from 24.1% for 2011.

Turning now to the fourth quarter of 2012, net sales increased 15.8% to $173.7 million compared to $150 million for the fourth quarter of 2011. Net sales of the Culver Specialty Brands contributed $15.7 million, and net sales of the New York Style and Old London brands contributed $8.4 million for the Company's overall increase in the fourth quarter.

For our base business, the sales price increase of $2.8 million set by a 3.2 million unit volume decline, resulted in a net sales decrease of $0.4 million. Net sales increased by $0.9 million for Las Palmas; $0.5 million for Ac'cent; $0.5 million for B&M; $0.3 million for Emeril; and $0.3 million for the Polaner business.

These increases were offset by decreases of $1.3 million for Maple Grove Farms of Vermont; $0.9 million for B&G; and $0.7 million for Cream of Wheat. All other brands remained consistent in the aggregate.

Gross profit for the fourth quarter of 2012 increased $10.2 million or 20.7% to $59.5 million, from $49.3 million in 2011. Gross profit as a percentage of net sales increased to 130 basis points to 34.2% for the fourth quarter of 2012, from 32.9% in the fourth quarter of 2011. The increase in gross profit as a percentage of net sales was primarily attributable to a sales mix shift to higher-margin products and pricing gains of $2.8 million, partially offset by commodity and packaging cost increases.

Excluding acquisition-related transaction costs -- selling, general, and administrative expenses increased $3.7 million to $18.8 million for the fourth quarter of 2012 compared with $15.1 million for the fourth quarter of 2011. The increase was primarily attributable to an increase in consumer marketing of $3.4 million. Expressed as a percentage of net sales, our selling, general, and administrative expenses increased 50 basis points to 11.5% for the fourth quarter of 2012, from 11% in the fourth quarter of 2011. Operating income increased 20.8% to $37.4 million for the fourth quarter of 2012 from $31 million in the fourth quarter of 2011.

Net interest expense for the fourth quarter of 2012 and the fourth quarter of 2011 remained consistent, at $11.8 million. The Company's adjusted net income was $17 million, a 15.8% increase as compared to adjusted net income of $14.7 million from 2011. Adjusted diluted earnings per share increased 6.7% from $0.30 per share in 2011 to $0.32 per share in 2012.

For the fourth quarter of 2012, adjusted EBITDA increased 20% to $44 million from $36.7 million for the fourth quarter of 2011. Adjusted EBITDA as a percentage of net sales increased to 25.3% for the fourth quarter of 2012, from 24.4% for the fourth quarter of 2011.

Moving on to the balance sheet, we ended 2012 with $637.7 million in long-term debt. And our leverage was 3.6 times pro forma adjusted EBITDA. During the fourth quarter of 2012, we redeemed $101.5 million of our 7 5/8 senior notes and amended our credit agreement to, among other things, effectively reducing interest rates on our tranche B term loan by 50 basis points. These actions will reduce our ongoing cash interest expense by $8.5 million. Annual cash interest expense for 2012 was $42.6 million. Cash interest expense for 2013 is expected to be approximately $34 million. Capital expenditures for 2012 were $10.6 million, and are expected to be approximately $13 million for 2013.

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

Thank you, Bob. Good afternoon again, everyone. This was a quarter of significant accomplishment for our Company, but it was not without its challenges. The number Bob cited represents record net sales in a single month, December, in a single quarter, with almost 16% increase we saw in the fourth quarter; and on an annual basis, was a 16.5% net sales increase in fiscal 2012. The 28.9% increase in adjusted EBITDA to $169 million set a Company record as well; as did the almost 24% increase in adjusted diluted earnings per share.

At $169 million, adjusted EBITDA for the year came in at the middle of our projected range of $168 million to $170 million. The improvement in performance for the year reflected the continued success of the Culver Brands acquisition from November 2011, continued price increases into the fourth quarter, and benefits from our cost reduction efforts.

In addition to all of this, we completed another acquisition -- this time, in snacks, at the end of October -- that we expect will contribute to further gains in our business in 2013. We also completed a stock offering that reduced our leverage in the business to a pro forma number right around 3.6 times adjusted EBITDA at year end. This of course positions our Company to execute any prospective acquisition that may arise in 2013 with speed and surety.

All in all, it was an eventful and productive quarter. The challenges I alluded to revolve around volumes in our base business. Net sales in the quarter were down 30 basis points overall, with decline in volume of just over 2%, offset for the most part by net price increases. I characterize the increases in that way because the smaller share of the increases came from changes in list pricing. For the most part, pricing came from the continued elimination of inefficient trade spending. This is a discipline that we've been exercising for a number of years. And we continue to refine our trade programs every quarter, even in the face of increasing trade spending in certain categories.

Our volume decline in the quarter was roughly 2% of fourth-quarter 2011 sales, a bit higher than the decline seen in previous quarters. The wildcard in the fourth quarter was of course Hurricane Sandy, which severely affected our strongest markets and even our headquarters. B&G corporate offices were without power for the better part of nine days. And only good work and foresight by our IT group prevented the shutdown of our systems. As it was, the hurricane shut down many supermarkets and food service operators in the New York/New Jersey area. While it's very difficult to be precise in gauging the effect, I'm comfortable estimating that Sandy accounted for at least one-third, and as much as one-half of the volume decline we saw in the quarter.

Setting Sandy side, the volume trends improved overall in the quarter, but did not fully recover. We are seeing similar results at other food companies. And syndicated data indicates that industry volumes have not yet recovered as well.

The wildcard as we enter 2013 is now the payroll tax increase, which will most certainly squeeze a large percentage of people. The question still to be answered is, will that result in a pullback to cooking at home -- which could benefit us -- or a more general pullback, as was seen in 2012? We did see growth in our tier 1 brands, which gained 1% in net sales for the quarter. Las Palmas and Ortega both grew in the quarter, with Las Palmas had a particularly good quarter with a 9% growth. This brand continues to be very strong on the West Coast, and our efforts to spread its distribution to other geographies continue.

Cream of Wheat sales were soft, comparing against the strong fourth quarter in 2011 that saw several new product pipeline fills. We will continue to prioritize tier 1 in 2013. For example, as I speak, we have 18 new Mrs. Dash products and flavors being presented to customers; many in new forms and applications, with more to come as the year progresses. New Ortega seasonings and dinner kits are being presented as well, with the dinner kits formatted to offer a value proposition to consumers. We will continue to expand the current products in Cream of Wheat and Las Palmas. Fully 60% of our budgeted new product slotting dollars and over 80% of our marketing dollars are being focused on tier 1 brands in support of these efforts.

Tier 2 brand net sales were down just under 2% for the quarter; nearly all of that due to food service sales of maple syrup, which we view as a temporary dip at a key customer. Most brands in tier 2 saw sales increases, including the important Underwood and Ac'cent brands. An exciting addition to this tier were the Crock-Pot slow cooker seasoning mixes that we launched in the second half of 2012. This line is exceeding our expectations. We believe it has the prospect of reaching 1% of our total sales in 2013. Given the response from our trade customers and consumers, this line will be a point of emphasis for us in 2013.

We're also launching new products in the former Culver Brands that fall into tier 2. That includes Baker's Joy, Static Guard, Sugar Twin, and Molly McButter. All of them will see new products offered in 2013 as we work to grow those brands.

Tier 3 brand sales were flat for the quarter, but we did see substantial impact from Sandy on several brands. In particular, brands such as B&G which is very much a metropolitan New York business. Losses in that region were somewhat compensated for by gains in more nationally distributed brands such as Emeril brand, which was up 6% due to new products in the pasta sauce line.

Sales trends by channel followed the pattern of previous quarters, but not as dramatically as in the past. Our supermarket business was flat for the quarter; the strong gains in the West offsetting weakness in the East, partly due to Sandy and partly a result of some struggling chains in that region. Food service sales were down for the quarter; much of that, the maple syrup issue that I cited earlier; and part of it, B&G food service business in the New York/New Jersey area. Mass merchants continued to grow, but not as much as previous quarters.

We continue to gain additional distribution in key mass merchants. In each case, points of distribution on our base business are up double-digit percentages from the end of 2011. Sales to dollar and drug customers were up 18% in the quarter, but the base year remains relatively small at just over 2% of total sales.

Moving to costs -- manufacturing costs increased modestly in the quarter and for the full year of 2012. Cost increases, net of cost savings, came in just below $6 million or roughly 1.5% of total cost of manufactured and co-packed products. This was modestly lower than we originally projected, and reflects cost reduction benefits of over $11 million from our continuous improvement efforts. This cost effort was a very meaningful accomplishment by our organization that limited the need to take price increases and helped our competitiveness.

Our philosophy of committing to the price of commodities 12 months out wherever practical served us well in 2012. And we continue to follow that practice in 2013. In some cases, this means that costs will increase for part of the upcoming year. But we still project a modest overall cost decrease for the full year. Even though fuel surcharges were generally higher than in 2011 last year, our distribution costs actually decreased as a percent of sales by 20 basis points in 2012, thanks to efficiencies gained from the Culver Specialty Brands acquisition. We foresee relatively stable costs in this area for 2013, barring any unusual events.

Our SG&A expenses increased $3.5 million for the quarter, and $8.6 million for the year. The large majority of that represented increased marketing spending on the Culver Brands, and the remainder increased selling expenses associated with the acquisition. Our total brand support, if you will -- coupon, slotting, marketing, and advertising -- increased by over 20% in 2012. This spending was well within the projections we made at the time of the acquisition.

In 2012, the Culver acquisition met all of our expectations in terms of what it would bring to the Company in increased sales, profitability, margins, and cash flow. Net sales, EBITDA margin, and cash flow benefits were almost exactly in line with projections. The very successful integration of this large, important acquisition once again illustrates a key element of our Company, our ability to source acquisitions that are immediately accretive to our results, stabilize their sales, and then develop them to bring promise for future growth to the Company.

As Bob mentioned, we accomplished a great deal in the fourth quarter in terms of adjusting our capitalization to reduce our 2013 interest expense, and better position ourselves for the next acquisition. The very successful stock offering that we completed in October allowed us to exercise a clawback provision and redeem $101.5 million of our senior notes at year-end. This reduced our leverage to 3.6 times adjusted EBITDA on a pro forma basis. At this leverage level, we would be able to fund a $50 million EBITDA acquisition at a competitive multiple, and still stay under the 5 times leverage level that we believe begins to cause investors concern. That's not a signal that we have intentions for such an acquisition; but, rather, an illustration of our capacity, and the value of our capitalization work done in the fourth quarter.

As far as M&A goes, the market has started the year quietly, which is not unusual. 2012 saw multiples for larger brands at very attractive levels if you were a seller. That makes one believe the brands will become available as the year progresses. One rule of thumb that has been part of our acquisition strategy for many years has been that properties over $100 million in sales attract more buyers; and in particular, buyers willing to pay higher multiples.

That proved to be true in a number of instances last year, and is part of the reason our acquisitions to have tended to involve smaller brands. Whether this trend will continue in 2013 remains to be seen. But one has to believe that the environment for selling a business or a brand will never be better than it is today. And, as I illustrated a moment ago, our Company is prepared to fund the right acquisition should it come along.

In the meantime, we are working hard to integrate the New York Style and Old London snack brands we purchased at the end of October. This acquisition performed very well in the two months we owned it in 2012, posting net sales of $8.5 million. That sales rate puts the annualized sales number at the high-end of our $45 million to $50 million projection. Here again, margins and cash flow are all also tracking projections. Our brief ownership of the brands has only reinforced our belief that this business has an opportunity to grow at a rate well beyond the typical B&G acquisition.

The snack portion of the business is expected to benefit from our planned refresh of packaging and better support of the products. We believe that the deli-based snack portion of the business offers very significant opportunity. When we sold the bagel chip business 12 years ago, it was essentially the largest part of deli snacks. In the intervening years, snacks sold in the deli section of the supermarket have grown tenfold; and New York Style, to this point, has not participated in that growth.

We believe with a dedicated sales force that is now in place, and a focused effort on product and packaging, we can carve out a piece of that growth. The opportunity is significant, but certainly not without competition. If we succeed, this will be a meaningful growth vehicle for our Company. And unlike when we sold the bagel chip business, our ambitions are backed by a state-of-the-art manufacturing facility with capacity to support that growth.

As I said at the beginning of the call, when we look back on the fourth quarter and full-year, we see tremendous progress and accomplishments within our business. Net sales for the year increased by 16.5%, and adjusted EBITDA by 28.9%, both to record levels for the business. Our adjusted EBITDA margin increased by 260 basis points, to 26.7% of net sales, reflecting the extraordinary profitability of our portfolio and the margin benefits from our tier-based approach to managing our base business.

Excess cash before dividend payments increased by 39%. And as a result of that performance, our shareholders saw two increases to our dividend rate announced in the year. The dividend just paid on January 30th was 26% higher than last January's, a strong affirmation of our commitment to return a meaningful portion of our excess cash to shareholders. That, in combination with the 17.6% gain in the stock price last year, made for another year of substantial gains for our shareholders.

This model, which we have executed for over 15 years now, works because we buy strong brands with stable margin structures and manage those brands as cost-effectively, all the while looking for that next accretive acquisition. 2013 will see us continue to execute the model. In that vein, we have issued adjusted EBITDA guidance of $178 million to $182 million, reflecting the benefit of an additional 10 months of the New York Style and Old London brands, and modest growth in our base business. We recognize the challenges the year brings to the industry and to our Company, and we look forward to meeting those challenges.

At this point, we'd like to open the call up to questions. Operator?

(Operator Instructions). Bryan Hunt, Wells Fargo Securities.

I was wondering if you could talk about what percent of your sales in 2012 came from new products, and how do you expect that to change in 2013?

It was probably a couple percent. You know, hopefully, it will go up. We have, as I said, some exciting things -- the Crock-Pot license is a very exciting proposition, that the business that we've got out there now is tracking to do about 1% of total sales. And we are adding more SKUs as we speak to expand the line, and hopefully seize that opportunity. So we'll see. But we have a sizable offering of new products across a whole lot of brands. So, we're looking for it to contribute more in 2013.

Do you have any loading on those new product introductions? Are most of those first-half or first-quarter?

You know, normally, I would say it's loaded towards the first half. But now with category reviews, it's much more spread out than it was. We used to have a rule of thumb that after September 1 we really weren't going to take new distribution and spend slotting dollars, because you didn't get a return on your investment for that year. But now you have to deal with whatever the category review schedule dictates. And so it tends to be more spread out.

Okay. And then one of the opportunities was to -- you would have some the sales force in Canada, and expected to see some substantial distribution gains from that. Can you talk about where you stand from that opportunity?

We are launching some products into Canada now. We're out there offering the product, so we'll see what happens here as the quarter goes on. Probably most of the effect -- you won't see a meaningful effect until second quarter, but we are definitely out there pushing that. We did see a gain last year, just because -- as I spoke on previous calls -- we took a distributor margin out and basically put it in our pockets. So we saw a sales gain from that. But we're looking for much more meaningful gains by expanding the distribution.

And you keep saying that it's no better time than the present to sell a business. Are you seeing more opportunities today? And you said competitive multiple, you could make a $50 million acquisition. What do you think a competitive multiple is?

Well, for a smaller brand I think it's below double digits. The bigger brands seem to be going for 12 times plus. Certainly depending on what number you want to attribute to Heinz, that multiple is there. And it really follows the rule of thumb that the bigger it is the higher the multiple tends to go, and the more aggressive the buyers tend to be. And that's something we've believed for many years. The range of multiples has moved around depending upon on what financing costs are. The brands that we are buying, not double-digits. But we bought Culver for about 9 times, and that's a competitive multiple, I'd say.

Okay. Well, Dave and Bob, thank you. I'll get back in the queue.

Robert Moskow, Credit Suisse.

I wanted to know -- maybe you gave a number on the call -- but quantifying the profit impact of Hurricane Sandy in the quarter, is it about $1 million short, $2 million short? And in your guidance for fiscal 2013, have you accounted for that? And do you think that -- has that lower your base? Or are you taking that out of your base when you think about what 2013 would be?

Well, it's not in the millions of dollars. You know it's -- whatever sales we lost due to Sandy would carry the typical EBITDA margin at best on the business. So, if you say half to sales loss this quarter was to Sandy you're still only -- you're talking less than $0.5 million profit hit.

Okay. So there was no incremental cost that you took on in the quarter, like hiring temps or anything like that.

No, no, not at all. We saved on utilities, actually.

Okay. In that case, I think the Street something higher in fourth quarter and for next year. Did you look at those assumptions, and did you have different assumptions internally? I guess as I look at how the quarter came in, I think you came in at the low end of your EBITDA guidance for the year, right? Like $168 million?

Right at the middle, actually. It came in at $169 million, which was right in the middle of our guidance.

Okay. So maybe the Street -- not me, of course, but the Street.

Well people took me at what I said in the last call which was, we hoped volumes would come to flat. But even if volumes came to flat you're not talking a significant EBITDA number. Because you're talking a few million dollars in sales. And again, the margin on those few million dollars in sales is not $1 million in EBITDA. So I'm not sure where people were getting very aggressive in terms of what that number was going to be. Because in our best hopes, our volume was going to get to flat. It did not quite get there.

But I mean, I would argue that it improved. Because if you say half of the volume drop was Sandy, the first quarter we saw volume go down 1.7%; second, 3.6%. Third quarter was down 1.9%, improving. And, if I discount Sandy it could be that volume was down 1% in the fourth quarter. So, there is an improving trend here. We just didn't quite get there. And when you look at Nielsen, you can see that things are crawling back to flat in all of the categories. But they're not there yet.

Got it. Okay. It makes sense. I'll get back in the queue. Thank you.

(Operator Instructions). Sean Naughton, Piper Jaffray.

You guys talked about the volume trends being a little bit challenging I think in the fourth quarter. Can you maybe update us on things are trending here, as we start the first quarter and head into 2013?

Well again, syndicated data in the categories that we compete in -- these aren't our numbers; it's just the general industry numbers -- are slowly recovering to a flat. But they're not there yet, in the latest things that I've seen. So it's still industry-wide. And I of course am watching as other food companies file. And by and large, I'm seeing people still talk about volume losses in their North American food business.

So, I don't think anybody has seen the light at the end of the tunnel yet. But I think we're starting to see a little glimmer. But again, as I said in the script, the wildcard now is what's going to be the reaction to the payroll tax increase? And what's that 50% of the population -- if you want to speculate, that that's a very meaningful hit -- what is their reaction going to be?

I've seen articles that say well, people aren't going to eat out as much. They're going to cook at home more. That's good for a B&G foods. But, in 2012 there was a general pullback which wasn't good for anybody. I don't know where that stands. So, it's not a certain thing, like it might've been without that.

Got it. And then you talked to couple of times about the some of the new innovation and packaging that you're doing with Mrs. Dash and some of the different SKUs that you had out there. If these are accepted by the retailers, when do you think we could start to see some of those on the shelves out there?

Well, hopefully by the end of the quarter, you'll see some of them on the shelves depending on what retailers take them. But yes, we are really taking Mrs. Dash into other seasoning-type things besides the jar that it's in now, and trying to do packets and seasoning mixes; and variant on the Crock-Pot slow cooker mixes that we have out there -- there is a salt-free variant to that; and trying to take that salt-free proposition further than it has been taken before in the seasoning category. So, we'll see -- we're getting good responses from retailers. We've worked hard to make sure that the flavors are good. Because the last thing we need to do is sell something that doesn't taste good. And then we'll see what the consumer response is.

Okay, and then just lastly, on the slow cooker spices that you have out there, is there any incremental distribution opportunity there with those? I know you're going to be starting to anniversary that when we hit the middle of the year. But is there -- are there new places where those products can be sold?

Absolutely. We've scratched the surface. And mostly we've scratched the surface in the people like mass merchants that take these things on quickly. We are doing a slow build in terms of supermarket distribution. But yes, this thing is going to continue to build through the year and anniversarying what we've done in the middle of the year is not -- is really not material, I don't think. If the reaction continues to be what it is, we'll see a nice build throughout through the whole year.

Okay great, thank you.

(Operator Instructions). Andrew Lazar, Barclays.

Two -- I guess a question on both volume and pricing, as we think about 2013. On the volume side, I realize that there's been a number of quarters now we've had some different issues -- one quarter it was some seasonality; one, obviously, it was Sandy and such. But I guess volume has been down year-over-year and I guess five straight quarters. And part of that obviously is the overall industry backdrop you've talked about. But you've taken, and needed to take, a lot less pricing than a lot of those food companies that have had steeper volume declines. So I'm just trying to get a sense maybe why that is, in terms of the volume declines you've had. And my sense is, we should be thinking still a pretty modest, very low single-digit kind of full-year volume increase in 2013.

Yes. I would agree with the modest volume increase in 2013. You know we've attributed the fact that we did take lower price increases in general to the fact that we didn't see the volume declines other people saw. And, it varies by category, of course, where we took larger price increases in things like preserves, as did our friends at Smucker. You know, the category and we suffered as a result more than we suffered in other pieces of the business. I mean, that's to be expected. The consumers already respond more dramatically to higher price increases. But costs in that category skyrocketed last year with sweeteners and fruits.

And I think if you dissect it as the people who had large volume declines should see the exact same things. People with flour costs skyrocketing and things like that. What does that mean? We've had different reasons for the overall decline as quarters went by. But I think the underlying theme is that in the past we've always had these issues, if you will, within a brand or a specific event with a customer, or something like that. But the momentum has been positive in the rest of the business and so it doesn't even show up.

In this case, for 2012, the softness is everywhere, to the extent that it doesn't cover up those little warts that show up every now and then. A negative sticks out because there aren't a lot of positives to offset it, if you will, because there is a general malaise in the industry.

Got it. Thanks for that. And then on pricing, you mentioned that most of the pricing improvement you got in the quarter was really more the more effective sort of trade spending work in discipline that you've been doing. So as we think about pricing as we go through 2013, have you pretty much lapped all of the rates or like-for-like pricing at this point, such that any improvement in pricing is more of this sort of effective trade spend? And if it is, how much of that is really left to go, in terms of the improvement we could see in 2013?

Well that's -- yes. We have lapped pretty much all of the announced price increases. There's tuning of prices here and there; mostly in food service and some of the very limited co-pack businesses we do, where we expect a certain level of profitability. And if we can't get it, we start questioning why we are doing the business. So we might raise the price in something like that.

But other than that, it will be trade spending. We don't see the dramatic gains in trade spending that we've seen in the past. There were years -- a few years ago, where we improved margins 100 basis points or more by reducing trade spending. It's more in the low-single-digits -- or double-digits, I should say, excuse me -- that you would tune up your margins by continuing to do this.

But it's a discipline that we challenge every event we do. And as I say, it's not -- we're not even begrudging the spending. We're begrudging poor performance on the spending. And if we find a better way to spend it, we will spend the money. If we can't find a better way to spend it, then we won't spend the money.

Got it. Last thing would be -- just out of curiosity, today's announcement, obviously, on the Heinz acquisition; I'm just curious of your thoughts around potential for something like that to spur maybe more non-core brand divestitures of some larger companies, maybe even Heinz; asset swapping, if you will. I'm trying to get a sense of how you think that may well or could change the landscape in terms of availability of assets for companies of your size.

Well, I don't think it will reduce the availability. I think there is the prospect that a Heinz -- especially if these people go in there and do what their reputation precedes them, in terms of cutting costs. And if they can (multiple speakers)

They're fairly effective at that.

Exactly. And if they can see that owning these small brands is requiring us to carry this overhead that we really need to question why -- what's the solution here in terms of reducing this overhead? Because we don't have to manage these small brands. It could very well make them decide to divest some things. And we certainly have the laundry list of brands that Heinz owns that we would be very interested in. They own a number of small sauce businesses -- things like Wyler's and Mrs. Grass and things like that that really just can't be meaningful in the context of Heinz -- that we would be very interested in.

Okay. Appreciate your thoughts. Thanks.

And that will conclude our question-and-answer session. At this time, I'd like to turn the call back over to management for any additional or closing remarks.

All right, thank you Operator. And thank you all for your interest. We believe that the -- this was a great year for the Company. Very strong gains in the top line and the bottom line, and ending the year -- even though we did an acquisition towards the end of the year -- ending the year with very, very good leverage level that does allow us to sit here and say that we're ready and able to do that next acquisition, should the right acquisition come along. But, meanwhile, we will manage the business to our best abilities and hopefully take advantage of the growth prospects we see in the snack acquisition we just did. Thank you.

Again, that does conclude today's conference. We do thank you for your participation.