B&G Foods Inc (BGS) 2015 Q3 法說會逐字稿

Good day, and welcome to the B&G Foods third-quarter 2015 financial results conference call. Today's conference call is being recorded. You can access detailed financial information on the quarter in the Company's earnings release issued today, which is available at bgfoods.com.

Before the Company begins its formal remarks, I need to remind everyone that the part of the discussion today including forward-looking statements -- these statements are not guarantees of future performance; and, therefore, undue reliance should not be placed on them.

We refer you, all of you, to the B&G Foods most recent annual report on Form 10-K and subsequent SEC filings for a more detailed discussion of risks that could impact the Company's future operating results and financial condition. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as result of new information, future events or otherwise.

The Company will also be making references on today's call to non-GAAP financial measures, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted diluted earnings per share, base business net sales, and comparable base business net sales. Reconciliations of these financial measures to the most directly comparable GAAP financial measures are provided in today's earnings release.

Tom Crimmins, the Company's CFO, will start the call by discussing the Company's financial results for the quarter. Next, Bob Cantwell, the Company's CEO, will discuss various factors that affect the Company's results, selected business highlights, and updates on the Green Giant acquisition and his thoughts concerning the remainder of 2015.

Now I would like to turn the call over to Mr. Tom Crimmins, CFO.

Tom?

Thank you, operator. Good afternoon, everyone, and thank you for joining us today. Net sales for the third quarter of 2015 increased 2.1% to $213.3 million compared to $209 million for the third quarter of 2014. Net sales at Mama Mary's, which we acquired in July 2015, contributed $8.5 million to our net sales for the quarter. Negatively impacting our net sales for the quarter was a $3.4 million decrease in net sales for Rickland Orchards as compared to the third quarter of 2014, a continuation of the weakness that caused us to impair the brand's trademark and customer relationship intangibles in 2014. The good news, from a base business comparability perspective, is that we have now lapped the impact from Rickland Orchards.

Comparable base business net sales, which excludes the impact of the Mama Mary's acquisition and the Rickland Orchards shortfall, decreased 0.4%. The decrease was attributable to a 2.2% decrease in unit volume, offset by a 1.8% increase in net pricing due to increases in list prices and reduced promotional activity. Also our Canadian net sales continued to be unfavorably impacted by the weaker Canadian dollar, which resulted in a $1 million reduction in net sales in the third quarter.

Net sales decreased by 22.3% for TrueNorth, 6.1% for Bear Creek, 4.4% for Maple Grove Farms, and 4.7% for Mrs. Dash, offset by net sales increases of 9.1% for Cream of Wheat, 3.2% for Ortega, 2.6% for Pirate Brands, and 23.3% for Grandma's. Net sales for all other brands, in the aggregate, decreased 1.2%.

Gross profit increased 13.5% to $71.6 million in the third quarter as compared to $63.1 million for the third quarter of 2014. Gross profit expressed as a percentage of net sales increased 340 basis points to 33.6% for the third quarter of 2015 from 30.2% for the third quarter of 2014. The 340-basis-point increase primarily resulted from price increases and lower delivery cost, partially offset by minor net cost increases in commodities and packaging, and the negative impact of the Canadian exchange rate on our net sales to Canada. Also, 2014 third-quarter gross profit was unfavorably impacted by approximately $3 million of write-offs related to certain Rickland Orchards raw materials and finished goods inventory.

Selling, general and administrative expenses increased 29% to $27.3 million for the third quarter as compared to $21.2 million for the third quarter of 2014. Expressed as a percentage of net sales, our selling, general and administrative expenses increased 270 basis points to 12.8% for the third quarter of 2015 from 10.1% for the third quarter of 2014. The primary drivers of the net increase were higher acquisition-related expenses of $2.1 million, distribution and restructuring expenses of $1.2 million, and compensation-related expenses.

Net interest expense for the third quarter decreased 2.7% to $11.3 million from $11.6 million for the third quarter of 2014, which was primarily attributable to a decrease in our average debt outstanding. In the third quarter of 2015, the Company's adjusted net income -- which excludes the after-tax impact of acquisition-related expenses and distribution restructuring expenses -- was $22.7 million or $0.39 per adjusted diluted share compared to adjusted income of $20.5 million or $0.38 per adjusted diluted share a year ago, which excludes after-tax impact of acquisition-related expenses, the non-cash impairment charges to Rickland Orchards intangible assets, and the related loss on disposal of raw materials and finished goods inventory.

Our adjusted EBITDA increased 7.4% to $53.1 million for the third quarter of 2015 compared to $49.5 million for the third quarter of 2014. Adjusted EBITDA as a percentage of net sales increased to 24.9% for the third quarter of 2015 from 23.7% for the third quarter of last year.

Moving on to the balance sheet, we finished the third quarter with approximately $933 million in net debt. Our net leverage was approximately 4.4 times adjusted EBITDA. To finance the Green Giant purchase price, closing inventory adjustment, initial working capital requirements, and related fees and expenses, we expect to borrow approximately $870 million during the fourth quarter in the form of an incremental $750 million tranche B term loan; and approximately $120 million of borrowings under our existing revolving credit facility.

At year-end, we expect our leverage to increase to 5.6 times our pro forma projected adjusted EBITDA. After combined financial savings for B&G Foods and Green Giant are available, we will consider issuing common stock in the first half of 2016 to de-lever, depending upon market conditions and other factors.

Our current dividend rate is $1.40 per share, per annum, or approximately $81.2 million in the aggregate, based on our current shares outstanding.

We are reaffirming our full-year 2015 guidance for adjusted EBITDA at a range of $199 million to $204 million, revising our net sales guidance to a range of $865 million to $875 million, and reaffirming our adjusted diluted earnings per share guidance at a range of $1.44 to $1.50. This guidance excludes the impact of the Green Giant acquisition expected to close in the fourth quarter.

And, now, I would like to turn the call over to Bob for more details on the quarter, an update on the Green Giant acquisition, and the remainder of 2015.

Bob?

Thank you, Tom. Good afternoon, everyone. Let you begin with providing you with some highlights and insights into our third-quarter performance.

Continuing the trend that began back in the first quarter of the fiscal year, the third quarter saw a continued growth in adjusted EBITDA and adjusted EBITDA margins. As Tom indicated previously, adjusted EBITDA grew $3.7 million or 7.4% to $53.1 million in 2015 versus $49.5 million in 2014.

More importantly, we continued our efforts to expand our adjusted EBITDA margin, already one of the industry's leading margins, increasing our adjusted EBITDA margin 120 basis points to 24.9% in 2015 from 23.7% in 2014. We accomplished this by implementing price increases and decreasing our promotional spending; increasing our year-over-year pricing by $3.7 million; and reducing cost, including delivery cost, as we continue to see lower fuel surcharges due to lower oil prices.

Moving on to sales, many of our brands had a strong quarter, including our most recent addition to the B&G Foods portfolio, Mama Mary's, which we acquired in July. We were very pleased to say that we were able to transition that business quickly and efficiently, and it is already exceeding our initial expectations for both EBITDA and net sales.

Ortega had another strong quarter, with sales up 3.2%. As highlighted in our last earnings call during the second quarter, we launched five new innovative Ortega products that have been widely accepted by retailers and are well received by consumers. We continue to have an innovative pipeline for this brand and expect to roll out more new products in 2016. We are also excited about the recent launch of a highly targeted digital and social media campaign to drive brand awareness, trial, and sales volume of key Ortega products across the country.

Cream of Wheat had an excellent quarter, with 9.1% net sales growth over last year. The brand is doing well in both the US and Canada, with most of the growth coming from volume. Our recently launched Cream of Wheat Instant Cups contributed nicely to the volume increase in the quarter.

Pirate Brands had a solid quarter, with sales up 2.6%. Our sales of Pirate Brand products in the retail channel continue to be strong in a highly competitive and diverse category. We anticipate Pirate's Brands full-year net sales will be in line with our expectations when the year began.

And while New York Style net sales were down approximately 3.5% for the quarter, we believe we have started to turn a corner with the business, especially as we have now lapped some tough comps. We did see a 4.7% decline in net sales from Mrs. Dash, which is due to cycling through a significant Brazilian shipment in the third quarter of last year, which did not reoccur in Q3 of 2015. Otherwise, the brand is doing very well.

We also saw declines in TrueNorth of 22.3% as our increased pricing has slowed consumer demand. Maple Grove declined $0.8 million as we exited low-margin club sales. Our Specialty Brands acquisition continues to perform quite well. We officially launched four flavors of Bear Creek Hearty Soup Bowl mixes, which are a new alternative for consumers who are looking for an easy, on-the-go, single-serve option. We also see additional opportunities to expand distribution of the brand's core dry soup mix items. Net sales of the bowl products exceeded $1 million in the quarter.

Our rollout with DSC Logistics is on plan; and, frankly, we couldn't have picked a better time to begin our relationship with DSC, with the pending Green Giant acquisition. We transitioned our first distribution center in Pennsylvania a few months ago. And this week, we are transitioning our Tennessee distribution center. The final DC in Houston will be transitioned to DSC sometime in the first half of 2016.

Turning to cost, we expect our overall commodity packaging and ingredient cost for the full-year 2015 to remain relatively flat as compared to 2014. The increases in nut prices are expected to negatively impact cost for our TrueNorth brand by over $2.5 million for the full year. We have taken substantial price increases at retail for the TrueNorth brand to offset this substantial cost increase, which seems to have been accepted by most of our major customers.

The weakness in the Canadian dollar has a positive impact on our maple syrup purchases, reducing cost of goods sold by approximately $5 million annually. We expect see half of this cost savings in 2015, with the remainder of the savings coming in 2016.

As for pricing and promotional spending, in general during 2015 we are not seeing aggressive promotional activity by our competitors, other than in the Northeast. And we expect to deliver over $13 million in incremental pricing for the full-year 2015.

So, with that, let's transition to an update on the Green Giant acquisition. Our team has been working hand-in-hand with the General Mills team as we work towards closing the transaction, and to make sure the post-closing transition is as smooth as possible. Internally, we have been putting the framework in place to stabilize and then revitalize the top line and regain market share. We expect to double the current marketing spend for Green Giant, and have begun the process of adding additional members to our marketing department to properly manage the new business and spend.

Our marketing team has started developing a comprehensive, long-term innovation strategy in the frozen and canned vegetable categories with a focus on nutritious products that meet the needs of today's consumer. The majority of our hiring goals to support Green Giant will be accomplished within the first six months after the acquisition closes. With financing commitments in place, we continue to target a fourth-quarter close.

So, to sum up, the way we are thinking about the future of Green Giant, I would say that B&G Foods is committed to investing boldly in this iconic brand, and supporting it with a 100% dedicated best-in-class team housed within a new forward-thinking marketing structure that properly supports the business and reinvigorates the Green Giant brand for today's consumer.

Green Giant is expected to produce approximately $95 million to $100 million in adjusted EBITDA in 2016, with approximately 60% of that adjusted EBITDA turning into excess cash. And we remain committed to returning a substantial portion of our excess cash to our shareholders in the form of dividends.

I also want to say thank you to all of the B&G Foods and General Mills employees for all their hard work during this very exciting time.

To wrap up, we had a very solid quarter, and we have great momentum as we move into the last quarter of 2015. We are happy to see the benefits of our pricing and lower cost help improve our year-to-date adjusted EBITDA margin to 24.1%, an 80-basis-point improvement from 2014. We expect to deliver adjusted EBITDA of $199 million to $204 million, excluding the impact of the Green Giant acquisition.

Clearly, we are excited about adding Green Giant to our organization in the coming weeks. But I also want to assure our shareholders that we remain committed to our entire portfolio of beloved brands, and will continue to execute our long-standing strategy of delivering best-in-class margins and cash flows, and that Green Giant will only further enhance that strategy.

With that, I would like to open up the call for questions. Thank you.

Operator?

(Operator Instructions). Sean Naughton, Piper Jaffray.

Just on the gross margin, clearly very impressive, up 340 basis points; sounds like just on pricing and some lower delivery costs. And you did have some headwinds. Can you talk about how you think about the sustainability of that trend, as we look forward here? And then also, was there anything from your relationship with DSC that was in that number as well?

Well, the last part of that question, nothing yet on DSC. The transition has really just begun, so we will not really see those savings until the latter part of 2016. For a lot of reasons, with the pricing increases and fundamentally some lower cost and flat cost in most areas, we expect, and continue to expect, our margins to be better than prior-year on a go-forward basis.

And part of this is mix, too. We've had a very positive mix as brands like Ortega and (technical difficulty) as Cream of Wheat and Ortega have grown very nicely, and a few others. Even Grandma's Molasses, for example, has really helped the mix on margins. So we expect that to continue, excluding some of the one-time charges. And Tom did mention some of the one-time charges that were in the gross profit and gross margin from last year that we didn't have this year.

Okay. And then just any comments just on the $10 million change in the top-line guidance for the full year, maybe what was different from plan that you initially had expected from Q2, as now we get in here to Q3.

Well, we expected -- we've gotten the pricing this year, but we haven't gotten the volume we wanted totally on some of our base businesses. And as we looked at our actual results here through the third quarter, just didn't feel comfortable that we could achieve the original guidance; that we needed to take it down.

We've got a number of brands doing well. A lot of it is pricing, and volume is relatively -- a little short of where we wanted it to be. So we are very comfortable with the guidance as we look at the fourth quarter here, based on our run rate, and what we do know is happening in October and November here.

Okay, great, thanks. And then last question: any comments on -- clearly, there has been a few additional retail issues going out there in food retailing with respect to bankruptcies. Any impact that we should be thinking about on your business as we think about the fourth quarter and looking into 2016? Thank you.

Well, part of our guidance takedown a little bit here is in the Northeast. A&P was a very strong customer of B&G. Most of the stores are being transitioned and bought out by various retailers, but it's going to create some noise in the system in the fourth quarter. And that's going to affect our sales by about $1.5 million in the fourth quarter.

A lot of our Northeast brands -- A&P was a big supporter. The rest of the consolidations and what else is going on in the industry is not going to affect our sales. But we certainly do have what we think will be a short-term negative effect on B&G, as all gets transferred into new chains.

Great, that's helpful. Thanks for the color, and congrats on the margin improvement.

Jon Andersen, William Blair.

I wanted to ask a little bit more about the price and volume dynamic that you referred to, Bob. Are you happy or -- comfortable maybe is a better word -- with what you are seeing in terms of the price coming in ahead of your initial expectations of 10 to 12 for the year, but the volume is a little softer? And are you rethinking or maybe exploring a need to invest in price in order to get the volumes back up? Thanks.

At this point, no, because the promotional spending we've pulled back. And where we have seen some price benefits, which has helped us improve margins, were sales that we were making at either too low of a margin or negative margin last year, especially in the early part of last year. So we went into this year understanding we were going to lose some of that volume because we just weren't promoting -- running those deep, deep deals.

We are very comfortable where it has come out. The volume expectations are kind of in line with where we expected, and the shortfalls are somewhat in line with where we expected. And we are seeing some better results on the top line, just because of incremental pricing above and beyond what we expected. So we are really comfortable with this decision. Now we are lapping this. It's really just a little bit more here in the fourth quarter, but we are entering into next year with really not looking at expanding -- increasing pricing more than we have done in 2015.

Okay. And on the DSC -- the program with DSC in your supply chain, have you seen any initial results? Or are there some initial learnings from the plant that has converted? I'm just trying to get a sense for whether the $8 million to $10 million in savings is something that you are getting better visibility into at this point. I understand most of that is something that's going to come in 2016, not necessarily this year. But as these things begin to convert, are you getting an initial read on how it's progressing, relative to your expectation?

Well, we are seeing -- and hopefully we are seeing some big changes as this slowly gets integrated into our system. We are certainly seeing obvious things from how they run, versus what we ran. In addition to just being able to use a lot less space in the same facility because of their systems, the amount of employees who touch product are substantially less. So we are seeing the obvious savings.

There's even further incremental that we are actually getting with Green Giant showing up with the shelf-stable as we have created space in these warehouses that we didn't have before. And a lot of the Green Giant will now fit into our existing -- under our existing structure. So that's just pure incremental on top.

But we are, as of today, still comfortable with $8 million number that we have talked about, as we head into the second half of next year. And once we get this second warehouse under our belt, we will be able to really see that, to have a better view of what that's going to look like. But just from all the just standard cost in a warehouse, they are just doing it cheaper because they are just more efficient and they just have better systems to do it.

Makes sense. My last one is on Green Giant. It was interesting; you talked about developing a framework for stabilization of that business and eventually growth. Where do you see the most opportunity or the nearest opportunity within that business? Is it within frozen? Is it within canned? Is it within a specific segment within frozen? Just some color around how you are thinking about, number one, the opportunity to stabilize; and then, two, re-grow.

I think from the stabilization, I think it's pretty equal. I think a lot of our effort initially is the basic blocking and tackling, from packaging to proper promotional programs to marketing support, and letting our customers know that B&G is going to really support this in both shelf-stable and frozen. So there's a lot of stabilization on both sides there.

I think as we look at the innovation pipeline, there will be some in shelf-stable. But the majority of that innovation will come in frozen. And building that pipeline, and getting that pipeline out into distribution is really -- the bigger upside on the business is really driving first securing what we have in shelf-stable and frozen, and then really trying to drive frozen on the upside, as well as shelf-stable, but certainly more opportunities with innovation in frozen than you really have in shelf-stable today.

Sitting here today, when you think about this next 12 months, do you think the bigger piece of work ahead of you, or the greater risk, is in stabilizing the business? Or is it in the operational integration work around it? Or do you feel you have your arms around both of those in equal measure?

Fair question. I think as we look at this is -- we feel very comfortable we can stabilize the business, and hopefully start moving it in the right direction in 2016, but certainly stabilize it. The operational complexities -- from a sales side, pretty straightforward go-to-market; we do this with 40 of our other brands. We can do that and we've got some work, but fits right into our structure.

Operationally, we have a great team and a great leader in operations who is absorbing this. But certainly more operational complexities than a typical B&G deal, but we are very comfortable. We have a long transition with General Mills as they are helping us through this process. And we have a transition agreement with General Mills that can go out 12 months on all the operational pieces, and 24 months on the piece that they will continue to co-pack for us.

So, plenty of time; it's come a long way here in the last two months. We're very comfortable, but it's more complex operations. And over the next 6 to 12 months, we will feel even more comfortable that it fits into our organization and gives us opportunities for growth in the future.

Thanks a lot for the comment. Good luck.

Farha Aslam, Stephens.

Could we talk about the Canadian dollar? What percentage of your sales are in Canadian dollar? Would you expect the negative impact of the Canadian dollar weakening? Or is that going to be entirely offset with this maple benefit of like $5 million?

Yes, the maple syrup is locked in because we've already bought it. We sell it basically through July 1 through June 30 of next year. The ongoing exchange rate -- the comparison gets a little closer as the months go on, as the exchange rate was dropping pretty dramatically last year at this time. But you are looking at a business today in Canada without Green Giant that's around $25 million in sales. So it's right around in the mid-20s. And we have been affected at the same rate; it's kind of about $0.10 on a dollar. That will affect us in the high $2 million range on sales for this year, in total.

That's helpful. And then just a question on Green Giant. So as you think about bringing up your operational capabilities to take in Green Giant, are you hiring people right now? Will that cost be in the fourth quarter? And are you going to take that extraordinary, or included in normal operations?

The ongoing labor costs, once we hire people, we are going to take on including in operations. The one-time expenses, especially on the higher people, such as recruiters and stuff, probably take as a one-time cost. Some will happen in the fourth quarter. We've got a lot of activity looking for people, as we speak. A lot of it is not really going to come into play until the first and second quarter of next year, as we build out this organization. So I think more of the dollars spend will happen in that first quarter of next year.

We started looking, but by the time you actually find people and you get into holidays and things, when people want to leave their jobs, the year is almost over.

Great. That was our key questions. Thank you.

Andrew Lazar, Barclays.

Two things from me: first, I just want to come back to the underlying volume performance for a minute, just to make sure I understand it. If I'm not mistaken, I think on the last quarter's call there was maybe like $3 million or $4 million of sales that were going to get shifted from 2Q into 3Q. If that happened, if we were to adjust that out for a minute to get a sense of what the underlying base business is doing, that would suggest volumes maybe were down not 2, but maybe 4. And I don't know if that's really like an accurate run rate or way to think about things going forward, or if I'm not looking at that properly.

Well, you're looking at it properly as we came into this quarter. Because we saw that benefit, $3.5 million of incremental sales, in the early part of July. So we did get that. And then we had some things at the end of the quarter that really got pushed into the fourth quarter here.

I guess the way I look at this is, as we look at a year-to-date basis, our base business sales is basically relatively flat, up 0.1%. $2.2 million of that -- it could be $2.2 million higher, except for the exchange rate in Canada that affected our sales by $2.2 million.

And we got pluses and minuses on the volume. Pirate's Brands didn't move as high as we would have liked it to in this quarter. It still had an okay, strong quarter; it just didn't really produce some of the higher-volume trends we were hoping. And that was offset by some really good brands that were relatively higher.

Got it.

I think it's timing. Certainly, quarters are important. We're looking at these brands, since most of these brands are 100-plus years old, on an annual basis, more than quarters. And some things just move within the quarters. And we are looking to pretty much finish this year, on the base business, flat to up a little bit. It's going to be up a little bit, but it's not going to be up a lot.

Yes. But with that kind of pricing, obviously I realize that's a pretty significant result. Is there a way to give a sense of what caused some of the sales to be pushed into 4Q? Was that a substantial amount, or not particularly?

It's not the same size as it was, the $3.5 million to $4 million that happened in the second quarter. There's a couple of million dollars that just -- some of it is just part of the transitional timing and things as we've gone through transition with DSC, as we are working through some kinks on how things get shipped at quarters' ends; and the movement between warehouses, et cetera, that we are still working through those kinks.

Got it. Okay. That's helpful, thank you. And then it's sort of like a big elephant in the room, from a retailer perspective. And this isn't just as it relates to B&G, but of course to the industry as a whole. But obviously a lot of the potential changes and a lot of the discussion out there around changes around the industry's largest retail customer, which may or may not come to pass, and we may not know the form of what they will be yet.

But I'm trying to get a sense just from you, particularly because you are having good success in pulling back on ineffective trade spend. And some people look at those things and say, is that consistent with what a large customer may want to do for the industry as a whole, not just you, going forward? So maybe just even your broader or general thoughts on that would be helpful.

I think, in general, ineffective trade spend doesn't work for the customers, either. So smarter trade spending, sometimes more often trade spending that is smarter, is better for the customer as well as it's better for all of us. And customers have -- in all of this, there has been no pushback from our customers on when we pulled back some of this trade spending. So I think it's part of an overall support of the brand that seems to have worked well with us this year. So we don't see that as a problem. And we will see what happens in the future.

But as we look at going forward, we are not looking to do today anything differently in 2016 on the brands that we currently own; differently, in a big plus or minus way, versus what we did in 2015. So this was really a one-time resetting on things that we were overspending in the two years prior.

Got it. Okay, that's helpful. And then lastly, any early feedback from key customers or stakeholders around your planned purchase of Green Giant? Have you gotten unsolicited feedback from key retail partners? I'm just curious what that had looked like.

We get into a lot of positives. And probably the biggest positive is they have heard from our announcement, they have heard from the conference calls that we are going to double the marketing support of this brand. They are anxious to see what that actually means.

So I think we've gotten a lot of positives that we are going to support the category, because doubling the marketing support of the brand supports the category, too. And if we can drive more usage out of the frozen section, everybody benefits; hopefully, Green Giant more than the competition. But getting more consumers to the section makes a difference.

So really certainly no negatives, and a lot of positives, especially with the amount of support we are looking to put back behind the brand.

Thanks very much.

Robert Moskow, Credit Suisse.

Bob, I think you mentioned a few kinks in the system that you are finding during this transition to DSC. And I think this subject has been discussed already, to some extent. But you did mention last quarter that the shortfall was specifically caused by a shortage of freight carriers heading into 4 July holiday. Maybe you can just give us -- is that truly what caused that shift? And did that resolve itself in the third quarter? And maybe just be a little more specific as to what are the DSC people finding in your system that needs to be corrected.

Okay. Certainly, the shortfall in carriers at the end of the second quarter was what affected -- the first week out of the box, we were up almost $4 million in sales versus prior-year on a comparative basis. So those orders really went out that following week, and we knew that when we had the conference call.

I think the difference with us and DSC is they are just better at what they do than we were. And they are more -- everything is about systems. And everything works -- it's less about the people, and the people follow the systems, where we were just the opposite. We didn't have the sophisticated systems at warehouse, and people made a lot of decisions on the floor.

So you had a lot of legacy people who knew when certain orders came in for B&G's almost 2000 SKUs that weren't just a typical shipment to Kroger with 150 items on it. It could be a food service order that needs to get there by tomorrow or the next day -- or some other thing in the Northeast -- that the kinks are really making sure DSC's systems have that information, customer-by-customer, to understand the customer needs.

So they got all the information for all the big customers, shipping to Walmart, [we're] shipping to Kroger and Safeway. That all works. We also sold a lot of different ways, in a lot of different ways to go to market. And a lot of the legacy people at the warehouse who would make those decisions more by hand versus the system are now -- now everything is relying on the system. So the only way you have that working is you have to have all that information properly stored in the system. So when that order comes out for XYZ food service guy in the Northeast, the system knows when that has to get delivered, and how it gets picked.

So part of it -- we knew there would be growing pains. It hasn't been -- actually, it has been pretty efficient. But there has been some growing pains. But we were very comfortable that we've gotten through most of the growing pains, and that's why we switched over to the second warehouse, basically this weekend. And this week is the -- we're transitioning to that warehouse as we speak. So we were very comfortable going with the second warehouse because we've gotten through a lot of the glitches here as we are heading here into November.

But this was a big switch-over, going from somewhat -- an unsophisticated warehousing system to someone who is very sophisticated and just a lot better at it than we were. We are not seeing anything that is going to affect us long-term. And every day, most of those little issues have gotten fixed and are getting fixed.

Got it. Just one more question: you mentioned that you are going to wait until the first half of 2016 before doing the equity offering. Can you explain -- why wait? Why not a little bit earlier? You don't really know what the market conditions are going to be like next year. Let's hope they are positive. But can you give me that logic (multiple speakers)?

Yes. It's pretty much a technical issue. Because I agree with you; you can never predict where a market goes. And our market is kind of okay now. But Green Giant is a large enough acquisition for us, we are required by the SEC to file three years of their historical audited statements. You have up to 75 days from closing to get it done. They are being worked on by the accounting firms now. But you just look at closing in the fourth quarter, and getting those done, you are already in the first quarter. And then we got to wait really to announce our results.

So the earliest we could go to market -- and hopefully the market conditions would be there -- would be end of February, early March, after we release our results. And we can't do it until we get those audited statements filed with the SEC. And that's just not going to happen that quickly. It will happen within 75 days from closing, at worst; hopefully a little sooner. But it's still pushes us out to -- we need to announce our year-end results first.

Got it, makes sense. Thank you so much.

(Operator Instructions). Eric Larson, Buckingham Research Group.

Most of the questions have been answered. Just a couple follow-ups. I think in your prepared comments, you did say that the promotional activity was a little bit greater in the Northeast. Did I hear that correctly? Or was that related to the discussion of the retailer that's in bankruptcy?

It has actually been -- it has been something that's -- it's not bad; but it has been more promotional activity on some of our smaller brands in the Northeast. We have some legacy brands here in the Northeast like B&G Pickles, Polaner jams and jellies, B&M Beans, Vermont Maid syrups. And it just seems that the retailer activity and our competitors are little bit more aggressive here, where we are not seeing that aggression on brands like Ortega and Cream of Wheat, and the larger brands that are more national in scope.

And we don't see aggressive promotional activity on those brands, even the Northeast. It's much more regional. It's much more our regional brands, which is -- at the end of the day, they are not that large a brand for us, so it's not a big deal. And we have been able to absorb that and be competitive.

Okay. And then just a follow-up, I think on Andrew's question: you have been very successful this year in dialing back your price competitive activity. From a strategic point of view, I don't know how you attacked the problem this year, or the issue. It may have been tactfully done where you do with certain brands. Is there more upside to maybe reducing some of your promotional spending again next year, as well? Or do you think that the majority of the inefficiency will be completed this year?

Well, you can always do more, and you can always do better. But the majority has been completed. We knew the trade programs that were completely inefficient in the two years prior that just needed to be pulled back on. So we are always looking to be more efficient in our spend, because it's substantial dollars we spend, just like anybody else in this industry. But you won't see large gains in pricing as you did this year.

Okay. And then just one other quick follow-on: your Cream of Wheat revenues were really strong in the quarter. And that's a very profitable brand for you. And I think you put some innovation against that brand. And pardon me for forgetting what that was; I don't know if it was a single-serve cup, or -- I remember you've put some innovation against that. Is that why the brand is responding so well? And does that give you confidence that that could continue its momentum on the upside?

Well, what's interesting -- it's kind of the Green Giant analogy that you need innovation to build out your base business, too. So as that innovation got presented to the major retailers, and the major retailers took it, it was helpful in the third quarter. But a large part of the gain in the third quarter was our base business, getting additional distribution on our core items in a couple of the larger key retailers. So taking the innovation in helps us sell in some of the core better. So we got a benefit of both. But most of the Cream of Wheat increase was from the core items this quarter.

Okay, thank you very much.

Kevin Ziets, Citigroup.

I guess the first one is on the equity issuance, where your leverage target will be, post- an issuance. And are you just trying to build capacity for additional acquisitions? And how quickly do you think maybe you could think about going after additional M&A?

I think, as we've always looked at -- if you follow B&G for a number of years, our balance sheet is extremely important to us. And having our balance sheet always loaded to be able to do the next acquisition is very important to us. It's certainly important to our shareholders, because these accretive acquisitions and accretive cash flow acquisitions have been a win for all our shareholders for many years.

So getting leverage down -- as we've always said, we don't want our leverage to really be much more than 5 times, and keeping leverage below 5 times is important to us. So if we do an equity issuance, we're going to try to get leverage below 5 times, so we are ready for the next acquisition.

We are always ready for the next acquisition. We certainly want to absorb and transition Green Giant in over the next number of months. But we are not going to not look at something that comes to market that would make sense for B&G, either. But we've got a lot of transition work on Green Giant, and that's first and foremost here. And really getting our balance sheet ready, as you look into the late winter, early springtime is perfect for us to be able to do it, assuming the market is there, and perfect to be ready for the next acquisition, assuming one comes along.

That makes sense. And then in terms of the doubling of the marketing spend, I just want to be clear. Is that what you think is needed for the stabilization? Or is part of that also driving spend for the innovation that you are expecting to bring to market?

It's a combination. A lot of it would be more toward the innovation. It's certainly about the brand, so it's first and foremost about the brand. But it's first and foremost -- second, it's to support the brand going forward. So certainly letting the market know we are here, and we are stabilizing, is important. But it's more of a longer-term goal to build this brand and grow this brand in the future, not just stabilize it.

So it sounds to me -- tell me if I'm wrong -- that you think it's more in advertising and brand-building than necessarily promotion and trade spend. Or am I wrong about that?

When we are talking the piece that when we say double the marketing spend -- and General Mills was spending around $15 million, $16 million in the last 12 months. You go back three or four years, they were spending double that. And we are really taking it back to the double. And that's all about marketing. That's advertising; that's social media; that's TV; that's print -- all the typical go-to-market advertising. It's not trade promotion.

Okay. And do you think there is additional trade promotion that needs to be adjusted?

We don't see that. The brand is on a price level during promotional periods, is very competitive with the competitors today. There is no reason -- we believe in this brand and the power of this brand. We need to market it. We don't need to price below the competition.

I appreciate that. And then my last question is on the -- you mentioned a digital and social media campaign for Ortega. I'm wondering if overall advertising spend -- away from, obviously, Green Giant -- is going to tick up here in the fourth quarter, and what your thoughts are on additional or similar campaigns, moving forward.

If I understand your question right, we are planning on spending the level of marketing we basically spent last year on our existing business. And a lot of that spend has been transitioned a little bit more oriented toward social and digital media. As we go forward, we will see the results from that. But we are pretty excited about what those results can look like.

And the Green Giant is going to be a combination of many things. And certainly digital and social media really fit for this brand, too. It's such an iconic figure; it's an iconic brand; and it sells well through social media. So there's a lot of opportunity there, but there's a lot of opportunity with traditional advertising on Green Giant, also.

Okay. So it's just a shift in the existing spend, not an additional spend?

Not additional.

Okay, thanks so much.

And that's the final question we have today, Mr. Cantwell.

I'll turn the call back over to you for any closing remarks.

Okay, I want to thank you again for joining the call today. We look forward to a strong finish to 2015, and are very excited about adding Green Giant to our portfolio of brands this quarter. Thank you.

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation.