B&G Foods Inc (BGS) 2016 Q1 法說會逐字稿

Good day, and welcome to the B&G Foods first quarter 2016 earnings conference call. Today's 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 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 the Company's most recent annual report on Form 10-K and subsequent SEC filings for a more detailed discussion of the 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 a result of new information, future events or otherwise. The Company will also be making references on today's call to the non-GAAP financial measures, adjusted EBITDA, adjusted net income, adjusted diluted earnings per share, and 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 affected the Company's results, selected business highlights, and his thought concerning the remainder of 2016. I would now like to turn the conference over to Mr. Tom Crimmins. Tom?

Thank you, Operator. Good afternoon, everyone, and thank you for joining us today. Net sales for the first quarter of 2016 increased 62.6% to $353 million compared to $217.1 million in the first quarter of 2015. Net sales of Green Giant acquired on November 2, 2015, and net sales of Mama Mary's acquired on July 10, 2015, contributed $130.2 million and $10.5 million, respectively, to our net sales for the quarter.

Base business net sales decreased 2.2%, or $4.8 million, driven by a decrease in unit volume. Net sales were also unfavorably impacted by $0.3 million due to the weaker Canadian dollar during the quarter, but this was offset by an aggregate increase in net pricings for our base business of the same amount.

Gross profit increased 72% to $115.9 million in the first quarter as compared to $67.4 million for the first quarter of 2015. Gross profit expressed as a percentage of net sales increased 180 basis points to 32.8% for the first quarter of 2016, from 31% for the first quarter of 2015. The increase in gross profit of percentage was primarily driven by the acquisition of Green Giant, which benefited from lower than anticipated trade spend and input costs particularly from our Irapuato, Mexico manufacturing facility, as well as greater than anticipated synergies with our base business. Gross profit percentage was also positively impacted by decreased cost for commodities, packaging and distribution. Gross profit percentage excluding the results of Green Giant increased 0.4 percentage points.

Selling, general and administrative expenses increased 73.5% to $39.6 million for the first quarter as compared to $22.8 million for the first quarter of 2015, with over 90% of that increase relating to incremental operating expenses due to the Green Giant acquisition. The overall increase consisted of increases in general and administrative expenses of $1.4 million, selling expenses of $2.5 million, acquisition-related expenses of $2.2 million, warehousing expenses of $1.6 million, which includes $0.5 million of restructuring, and consumer marketing expenses of $9.2 million. Expressed as a percentage of net sales, our selling, general and administrative expenses increased 70 basis points to 11.2% for the first quarter of 2016, from 10.5% for the first quarter of 2015.

Net interest expense for the first quarter increased 65.8% to $19.1 million from $11.5 million for the first quarter of 2015, which was primarily attributable to additional borrowings used to fund the Green Giant acquisition.

First quarter 2016 adjusted net income was $38.6 million, or $0.65 for adjusted diluted share, as compared to adjusted net income of $20.5 million, or $0.38 per adjusted diluted share in the first quarter of 2015. Our adjusted EBITDA increased 79.4% to $89.6 million for the first quarter of 2016 compared to $49.9 million for the first quarter of 2015.

Moving on to the balance sheet, we finished the first quarter with approximately $1.5 billion in net debt. Our net leverage was approximately 4.8 times pro forma adjusted EBITDA. Our current dividend rate is $1.68 per share per annum, or approximately $105.2 million in the aggregate based on our current share count. Now onto our guidance for fiscal 2016.

As a result of our strong Q1 performance and anticipated strength in profitability over the next three quarters, we are increasing our guidance for the full year. We now expect net sales to be in the range of $1.39 billion to $1.42 billion. Adjusted EBITDA is expected to be in the range of $310 million to $320 million, and adjusted diluted earnings per share is expected to be in the range of $2.05 to $2.15. It is worth highlighting that the first quarter benefited from the timing of certain expense items and favorable foreign currency activity. Bob will also provide additional detail on the quarter as part of his commentary.

In addition, our projected 2016 interest expense is approximately $72 million, including cash interest expense of $66 million, and interest amortization of $6 million. Our projected 2016 amortization expense is approximately $14 million. Our projected depreciation expense is approximately $23 million, and finally our projected 2016 effective tax rate is approximately 37%. Now, I'd like to turn the call over to Bob for more details or the quarter and his thoughts on the remainder of 2016. Bob?

Thank you, Tom, and good afternoon, everyone. We are extremely pleased with our performance this quarter, delivering Company records for adjusted EBITDA and earnings per share, soundly exceeding our internal expectations and achieving an adjusted EBITDA margin of 25.4%. I would like to spend a few moments explaining a few recurring drivers as well as one-time benefits we received this quarter that contributed to our strong performance. As Tom highlighted, we had a wonderful performance from Green Giant for the first full quarter of ownership. We far exceeded our initial profitability assumptions, which is a significant reason we are increasing our guidance for 2016.

We are also starting to see potential long-term benefits as our organization realizes more efficiencies. For example, late last year we merged our Snack sales force with our Grocery sales force, and saw an immediate savings of approximately $0.5 million in the first quarter and potentially $2 million for the full year of 2016. We are also starting to see a cost benefit from our transition to a third-party logistics provider for warehousing and distribution, which is now complete. Primarily as a result of our increased procurement leverage, we expect to achieve approximately $7 million of savings in commodities and packaging in 2016.

We also experienced three significant one-time benefits during the quarter. First, our Green Giant marketing spend is not linear in 2016. Although we still anticipate spending over $30 million this year, only a relatively small portion of that amount was expended in Q1, as our Green Giant marketing spend will be weighted more heavily in the second half of the year. Second, due to the strengthening of the Canadian dollar, we recognized a $1.9 million gain on cash we maintained in Canadian dollars for the purchase of maple syrup in Quebec. Third, we benefited from the timing of the implementation of our organizational hiring initiative to support Green Giant, as Q1 reflects the cost impact of only approximately one-third of our expected ongoing quarterly costs after a hiring initiative is completed.

Now, moving on to sales, base business net sales were down $4.8 million, or 2.2% for the quarter. And although there were a number of brands that have positive and negative results for the quarter, the two main drivers of the base business sales decline were Ortega and TrueNorth. Ortega net sales were down $3.5 million in the first quarter. The decrease, however, was primarily the result of the benefit in net sales Ortega received in the first quarter of last year as customers restocked their shelves following Ortega's fourth quarter 2014 recall. Despite this anomaly, the Ortega brand is doing very well, as evidenced by the fact that consumer consumption increased for the quarter, and we expect Ortega to continue the trend for the remainder of the year.

Despite being down $1.6 million for the first quarter, we are excited about our TrueNorth business going forward. Nut prices have declined, which has allowed us to reduce pricing since quarter end. We anticipate an immediate volume increase in response and expect that trend to continue as we move through 2016. Pirate Brands net sales increased 4.5% in the first quarter, which was in line with our expectations. Our sales teams have been focused on increasing distribution of our core products, and that focus has been paying off.

Sales of our colder weather products, for example, Cream of Wheat and Bear Creek, were softer than we expected this quarter likely due to the unseasonably warm winter we experienced. Cream of Wheat sales were flat year-over-year, but we are still pleased with the customer-consumer response to our To-Go products, and expect to roll out new products with that line later this year.

Bear Creek net sales were down approximately 3% during the quarter, but we saw positive responses to both our new products and our social and digital marketing campaign. Accent and B&M had very strong quarters, up 13% and 27% in net sales, respectively. The jump in net sales for Accent was due to new distribution at club stores, and the increase in B&M net sales were due to the timing of this year's Can Can Sale at ShopRite. As for the competitive environment, we have not seen any signs of a pickup in aggressive pricing or promotional spending by our peers so far this year, and have no reason to expect that to change in the second half of the year.

Switching now to Green Giant. Green Giant volume came in as expected this quarter while profitability exceeded our initial expectations. We are extremely excited about what this brand is going to mean to us when we head into the second half of the year. The Green Giant will awaken in the summer of 2016 with phase one of our marketing campaign, with a complete relaunch of this iconic brand and this iconic figure planned for 2017. On the product development side, we have been presenting a variety of innovative and unique products to key customers and have been getting very positive feedback. Overall, the Green Giant transition is going well. We anticipate assuming responsibility for US sales at the beginning of May and the Canadian business at the end of June. We anticipate that all of the transition services with the exception of Belvedere, Illinois manufacturing will be complete by the end of September.

And, finally, this quarter we completed an equity offering of 4.6 million shares of stock at a public offering price of $33.55. We used the net proceeds of the offering to repay $150 million of our tranche A and tranche B term loans. During the quarter we also paid down $40 million of revolver borrowings and increased our cash on our balance sheet by $60 million as compared to year-end. So, all in we reduced net debt by approximately $250 million and reduced our leverage to 4.8 times pro forma adjusted EBITDA versus 5.8 times at January 2, 2016.

At the moment we are focused on the Green Giant transition and restoring this iconic brand, but this reduction in leverage, as well as our recent hiring efforts, position us well to take advantage of acquisition opportunities if and when they arise. We remain committed to our acquisition strategy which goes hand-in-hand with our dividend policy. For example, we have already begun sharing the accretive cash flow being generated by the Green Giant acquisition with our stockholders, as evidenced by the 20% dividend increase we announced during the first quarter.

So, in closing, I am very pleased with the strong start to the year. Based on the results to date, we expect the Green Giant brand to deliver an adjusted EBITDA margin significantly higher than originally anticipated. We also expect our base business will see stronger year-over-year sales comparisons, because we believe that our Ortega and TrueNorth brands will see a return to growth in the second half of the year. Again, as Tom mentioned, we are changing our full year guidance on net sales to $1.39 billion to $1.42 billion, and increasing our full year adjusted EBITDA guidance by over 5% to $310 million to $320 million, and our adjusted diluted earnings per share guidance to $2.05 to $2.15 per share. Our excitement about the Green Giant acquisition continues to grow, and we look forward to sharing more of our thoughts around new products, as well as our new marketing campaign throughout the year. With that, I would like to open up the call for questions. Thank you. Operator?

Yes, thank you. (Operator Instructions) And we'll take our first question from Andrew Lazar with Barclays.

Just a couple of questions from me, if I could. First off, just at least relative to how we model the quarter. I guess sales for both Green Giant and the base business were, I guess, a bit below what we had modeled, and yet you were raising the low end of the sales range for the full year. So, first off, just trying to get a sense of what gives you the visibility to go ahead and do that at this stage?

Well, from the Green Giant perspective, Green Giant sales actually fell right in line to where we expected for the first quarter. So, internally it's kind of hitting the numbers on a kind of base core business. We do see a lot of opportunities in the second half of the year as we expect to get some distribution and have gotten some new distribution on existing core items going in in kind of third quarter. But we think some real positives are to come on some of the new innovation that we hope to get accepted here and start shipping in August and September. So, we're really comfortable on where the sales are headed, and we're really comfortable that we can flatten out the base business, if not be up a little bit for the year, even after the small shortfall in the first quarter.

Got it, that's helpful. And then in terms of, I think you mentioned in the release and in your remarks as well, a bit less on the trade spend part on Green Giant than you had thought. I think last quarter perhaps there was a mention of having to ramp that up a bit just to kind of halt some of the distribution losses in the near term until you could get some of the innovation in the marketplace and things like that. Was that determined, that trade spend, to be less necessary as you're starting to gain some distribution on the core, or I'm trying to get a sense of what led to the less than anticipated trade spend?

I think as we looked at trade spend and, you know, we're newbies to this brand, five months into it now of ownership, but we -- the distribution that's been lost has been lost. We're fighting to get some of it back, so we're not seeing further distribution losses as we speak heading further into the year. And we basically looked at some of the trade promotions (inaudible) that really just weren't moving the needle and did pull some of those back and got some of the benefits of that. That doesn't mean that we're actually looking in total to kind of reduced trade spending on this brand. And as we see fit and what makes sense, we actually might get potentially a little aggressive with some accounts in the later part of the year and offer some more money to drive some more volume and kind of build this brand back. But the EBITDA margins and the margins on this brand, and the brand is just way more profitable to us than kind of we modeled when we bought the business. So, we have room to put money back to support this brand as the year goes on.

And that's a great segue to my final question, which is the move around your thoughts, thinking around the ultimate profitability of this brand clearly seems to be quite a bit higher than you initially expected. And I guess my initial perspective wasn't that the cost synergy was necessarily a very big part of the story; it's more of getting the revenue synergies than marketing and advertising back behind some of the innovation and things. So, what is it that's driving this increased profitability so soon in the integration process? What is it that you're seeing that's allowing you to sort of feel that way and obviously be comfortable enough at this stage to flow that through the full year?

And, again, we've gotten very comfortable with our feeling on this profitability and where it's going. We're looking at a business now -- you know, when we modeled it, the belief coming out of the box is the EBITDA margins are going to be in the high teens, you know, 18%, 19%. As we've gotten into it and have run this -- for example, run this plant in Mexico, we're seeing much lower cost coming out of that facility on what we're doing versus what was kind of been historic General Mills kind of allocations to that facility. And just overall in our plan, we're just making a lot more money coming out of that plant, and we are seeing synergies. So, one of the other things is, we're actually seeing some very positive synergies. We've actually been able to reduce cost on packaging on this brand because we've been able to add to that brand all the packaging that B&G has with certain suppliers. And have gotten cost reductions across-the-board, including lower cost on the Green Giant business as we head through -- as we head into the new seasonal pack that kind of kicks in June and July here. So, we're seeing that, and we're just seeing overall lower operating cost across-the-board.

We're really looking at a business with spending kind of in the low 30s of marketing that will generate EBITDA percentages very close to historic B&G margins in the kind of 22%, 23% range. So, very consistent with our existing base business, and we're very pleased with that outcome.

Thanks for your help. Thank you.

And we'll now take our next question from Brian Hunt with Wells Fargo Securities.

I guess my first question is, kind of figures to the base business. You said you felt after a slow start to the year in Q1 that the base business could finish the year flat and possibly positive. Could you talk about the drivers behind that? Is it increased shelf? New customers? Or is there some innovation driving kind of same-shelf sales here for you?

Well, there is always some innovation within the brands, but what we're really seeing is, when we get -- you know, you strip out everything that happened in the first quarter, there is always going to be plus or minuses to our brands. And we're hoping that the net effect that will drive kind of zero, 2% kind of volume increase on the brands. And really the shortfall here was very specific overall to two brands. Ortega we knew was going to happen because we had a load in of somewhere between $3 million and $4 million on sales last year. It's hard to be precise on the load in, and we were down $3.5 million in sales in this first quarter. Consumption trends, consumer consumption trends are up about 4% on Ortega. It was up all year last year. We're seeing it in the first quarter. Ortega is going to have a very strong finish to this year, so we're not going to see those declines as the quarters go by here.

And TrueNorth was a real big drag on our business. It was a very positive little brand for us, that we bought a brand that was about $15 million in sales. We grew it to around $22 million, and it was growing for us every year. And then the cost of almonds and -- specifically almonds, but the cans, too, went kind of crazy coming out of California, and cost really doubled on us and we increased prices dramatically. And our volume really kind of shut down in a big way and we were down another $1.6 million in the first quarter. Almond prices have dropped back to historical lows, which is great news, and we've been able to roll back prices here as we begin the second quarter. We're working through all of that with all our customers to get our selling prices back to where they were two years ago, and we expect that volume to just come back. So, we expect -- you know, we might have a little issue here in the second quarter as we are getting prices reset with customers, but it won't be that large on TrueNorth. And then once the third quarter starts, we shouldn't see any of those declines that will drag our base business down anymore.

And we have innovation. We certainly have more innovation coming on Bear Creek and Cream of Wheat, and certainly Ortega, among others. We expect to be able to keep all those pluses and minuses now that we eliminate those drags on the first quarter and hopefully be up for the year, but certainly it will at least be flat in total.

Okay. And help me with the calisthenics just real quick on TrueNorth. Is this a promotional spin-driven price reduction or is this a list price reduction for you all?

No, this is a list price. We're going back to customers to lower list price. You know, we had to raise it substantially. Put it in perspective. You know, the main part of the product is almonds. Almonds went from kind of two years ago, $2.30, $2.40 a pound to $4.80 a pound was our last purchase. Today almond pricing is about $2.10, $2.20 a pound, so it's back to where it was historically, actually a little lower, and we're rolling prices back. And, you know, we had to take major price increases to cover those cost increases, and we weren't covering it in total, but we put retail price points at certain key customers so high that consumer pull off the shelf really dropped off. And we were no different than anybody else who was selling nuts. I mean, nuts, you know, almond prices went crazy, everybody raised price, but now we're able to -- we're just rolling the list price back.

Gotcha. And my last question is, and I'll hand it off -- when you look at -- you know, you talked about getting the balance sheet back in the correct kind of shape that you wanted it in, like 4.8 times pro forma leverage. I guess the question is, and you said you felt like getting back into acquisitions, or you could. How big of an acquisition would you all feel comfortable sinking your teeth into considering that there is still some integration and there is execution left on a Green Giant?

Well, there is certainly integration and execution left. From the integration point of view, by the end of June here, we're 80% on our way to be fully integrated with the Green Giant piece. We've got a lot of execution work to do, and there is a lot of still fixing on some of the poor results that we took on from the seller here, but we are seeing one opportunity after another.

Financially, we are set to go and organizationally we're set to do an acquisition. When you look at our balance sheet, we have a $500 million revolver with nothing drawn on it. We're sitting with today $65 million in cash, and we certainly have access to the capital markets. And we've got leverage below 5 times at 4.8 times. And we're also a business today that is generating cash flow of approximately -- you know, EBITDA less interest, CapEx, cash taxes, we're generating approximately $180 million and only paying out a little over $100 million in dividends. So, that leverage just naturally is going to come down, also, with the cash generation. So, we're smart buyers. Hopefully, we continue to be smart buyers, and we're going to look for deals, and deals can be as big as Green Giant or it could be as small as Mama Mary's. Things where we can buy things that are accretive to shareholders day one because we're buying them for a substantial amount lower than where we trade, and then increasing the dividend because we're a cash flow buyer, and that cash flow will just allow us to increase the dividend.

So, it's always hard to say. We're going to look at what's available. We'd buy another Mama Mary's tomorrow if it was available, because it's been a little homerun for us, and we'd buy another Green Giant if it was available. So, it's really about what comes to market that we can get at our disciplined price range that fits us either in grocery, snacks or now frozen. We can be in each piece of that store today.

Thank you for your answers. I appreciate it. Thank you.

And we'll now take our next question from Sean Naughton with Piper Jaffray.

Good afternoon. On the base business, obviously down a couple points. Can you talk a little bit about the improvement, a little bit more detail on what drove the gross margin improvement? And then should we still be thinking about some potential benefits with your agreement with the DSC Logistics as we get into the back half of the year?

Well, we're seeing -- as we mentioned, we're seeing a number of gross margin improvements. One is a little bit more one-time. I mean, we did generate $1.9 million in the first quarter, not so much margin but EBITDA on the exchange rate that we made in Canada and having money up there and the exchange rate moving in our favor. So, that's not really gross margin. We're really starting to see the DSC savings, so that's absolute. We are completely done with that transition and starting -- and we've been seeing the DSC savings. As each month goes on we expect that to pick up. We're seeing a lot of synergies across-the-board in purchasing. We've been able to lock in in the last couple of months kind of a number of deals that has created -- and we're locked in at over $7 million of cost savings on purchasing now on the base business for this year. We saw some of that benefit in the first quarter and we're going to see that through the rest of the year as we make those buys. Those are the two biggest pieces from the base business that is driving the upside.

And then we have a much better margin profile on Green Giant, and we're just seeing that in the input costs. And we're seeing that in some lower cost than what our original expectations were from logistics to kind of just some G&A costs. And also some of those expectation costs were us also being a little conservative. I mean, this certainly was our largest acquisition ever, and you want to make sure you're right. And I'm feeling really comfortable we were more than right on this acquisition, because the margin profile is better than we announced when we bought it. And we're really seeing -- we've still got months to go here, but we're really seeing some real opportunities on the sales side, and really excited about really supporting it with a real marketing campaign, not just this year but for future years to come to really drive this business.

I'm really proud of what this team has done here in this transition, and the amount of innovation that we've been able to bring to the table, to customers when we bought a business that had nothing in the pipeline that we were taking on to kind of finish. We had to start from scratch. The amount of different platform innovations on the frozen side that we've been able to bring to customers has been just very impressive here. And very exciting, because we've got some really, what I think are very unique ideas which some of our customers are real excited about.

We're still scrambling to the finish line, to make sure all of those are done, because we don't want to miss the fall opportunity. Because frozen is all about fall and early winter, and then you kind of got to wait almost to next fall to get stuff in. So, we're working hard to get this stuff through and get it into distribution in late summer.

And then I guess just to follow-up on the base, and then I do have a question on Green Giant as well. Very consistently between 2010 and 2013, for about four years you guys kind of rammed the gross margin between about 33% and 35%. Is there anything structurally on the base business, assuming that it's a relatively down 1 to plus 1, that would prevent you from getting back to those levels of profitability based on the mix of the business that you have today?

No, I think as we look at the base now with some of the savings and some of the absolute synergies that are kind of crossing over from Green Giant, I think as we look at our internal projections, we're getting back to those kind of numbers again.

Okay, that's helpful. And then I guess just on the Green Giant business, can you talk about some of the performance in the business relative between cans and the frozen business? And then a follow-up there is just what have you built into the plan for Green Giant in the back half of the year for any of the innovation that you've talked about?

Well, any kind of our -- so, kind of take it in a couple pieces. So, as we look at the marketplace on Green Giant, the can business is solidified -- it was never as bad as the frozen, but it seems to be solidifying faster than the frozen. When you look at Nielsen kind of numbers on frozen, for the first quarter year-over-year it's down about 10-ish, a little over 10%. We kind of knew that coming into -- we certainly knew that when we bought the business. There was certainly a lot of lost distribution of key customers and we weren't going to be able to fix that overnight. So, the frozen piece is what we've really been more active on. Now, the can piece is more about, at the end of the day, what you can see on promotion during the holiday season and just making sure you have your fair share, and we're working hard to do that. And part of who we are is we're grocery center store guys and that's a little bit of a natural for us. The challenge on can, very honestly, though, is some of the competitors get priced -- take price points down way lower than we want to play in. So, we're being very careful there, but we're feeling relatively solid that that business is solid. Our larger emphasis has been on frozen, and really it's about getting some of that distribution loss back, and we've been very aggressive on doing that. And we know a lot of that distribution loss needs to come from the core items back, but it needs to come from innovation, and that's why we were very aggressive on the innovation piece.

So, we are not building -- as we look at kind of our sales modeling of kind of $1.39 billion to $1.42 billion, we're not modeling large incremental growth from new innovation at all. It is more of a status quo Green Giant of where we are today and where we think the business is. Without any further distribution losses and without any real distribution gains, there kind of just -- if it just runs lockstep for the rest of the year, we kind of know where it's going to kind of finish out. So, new distribution opportunities this year and next year, and certainly bigger gains with some of the innovation if they work, and we think some of them have real opportunities to be big ideas only add to the top line of Green Giant. But I think this year on Green Giant, we're still -- we know the profit is there, we know the profit is much bigger than we thought when we bought the business for a lot of the reasons I talked about. But we're being very conservative on where the sales is and the run rate, and really not building on top of that for this year.

That's helpful. Thank you.

And we'll now take our next question from Jon Andersen with William Blair.

Hi, Bob, it's Tom. Thanks for the questions. What are you modeling for Green Giant this year in terms of sales? Obviously, you've bumped the revenue guidance for the full year. It sounds like that's driven more by Green Giant than it is the base business. Can you help us understand maybe kind of the current thinking on the revenue this year for that business?

Well, again, I think when we announced the transaction, we said Green Giant could deliver about $550 million for us. Green Giant in the first two months of our ownership, November, December of our last year-end, really had a very difficult time kind of volume-wise, kind of worse than kind of we thought it would get to, and worse than where seller guided us to a little bit. So, we've internally taken our goal on Green Giant down. And I mentioned it in the last conference call without kind of giving a number, but we're at a number of Green Giant of about $510 million to $520 million, okay? That's pretty rock solid based on where -- we know where distribution has gone, we know we haven't really lost any distribution since, pretty rock solid in that number. So, we're very comfortable in this sales range of the $1.39 billion to $1.42 billion.

Okay, that's helpful. You mentioned earlier in your prepared comments that you've only implemented a small portion of the marketing spending that you planned for the year. Can I just clarify, do you still expect to spend $30 million on Green Giant in 2016, and how should we think about the cadence of that spending from Q1 through Q4?

So, basically, in Q1 we spent about $4 million. Q2 we'll spend give or take $4 million or $5 million, and the rest is third and fourth quarter. Pretty equally shared in the third and fourth quarter. And, yes, we will spend $30 million, if not a few million dollars more, because with the profitability levels on Green Giant, we built in a buffer here that if we want to spend some more. And believe it, when you work with a large advertising agency you can easily spend $30 million very quickly. But the exciting part of what we're going to launch here in the summer as a start launch is just their work, and what they're putting together is just really exciting as we build this brand. But we're going to put a lot of effort into -- not just spending it because we have it in the plan, but really spend this money to drive this business and really incrementally increase this money as we drive this business in the years to come. Because we just think this is just a huge opportunity because of the Green Giant iconic figure to really move the needle in a big way over the next few years on this brand.

I wasn't quite sure I followed. You commented on organizational hiring, and I think in the past you've talked about maybe adding 45, maybe to 50 people. Where are you with respect to that hiring and what kind of total cost burden are you looking at adding, and how far along are you in that process?

So, we look at kind of the estimate, and it's actually -- I think it's 58 people that we're actually adding, plus some more office space, some more -- we opened a corporate office in Canada now, because we have a full-blown business. That number was about $10 million in total. Today we're about a little over 60% of our way there on people, and as the weeks go on here, by the end of the second quarter we'll probably be 90%. I think what happened, though, is probably coming into this year, the end of December we might have been 20% toward to where we were, and then in the next quarter we added the other 40 to get to basically 60. But the 40 didn't come day one, so we didn't experience the level of cost. So, if you just look at a quarter-to-quarter cadence, that $10 million, we should be spending about $2.5 million a quarter. We probably spent a third of that in the first quarter. So, second quarter we'll probably spend -- well, we will be spending about, probably a little over 60% of that $2.5 million quarterly charge, and then by the third quarter I would expect we're kind of pretty much fully there. But it's about a $10 million spend, and we get a little benefit. But still when you kind of put the -- you know, spending $30 million on marketing and a little bit more of this, you're still getting Green Giant kind of EBITDA percentage, kind of 22%, 23%, not 18% or 19%. And that's where we're looking at today going forward.

Okay. Last one for me. On the other income line, I think what you said was currency related, the Canadian dollar. Is that an income that you expect to persist as you move through the year, or is that just a one-quarter thing?

It's really a one-time thing. We spent, give or take, $40 million buying maple syrup in Quebec. Maple syrup all gets bought kind of April, May, June, and a little bit into July. We saw the opportunity earlier this year when the exchange rate was ranging between $0.68 to kind of $0.71-ish, to move the $40 million up there and just kind of lock in. You know, last year, you know, we moved money at an average exchange, give or take, $0.77, so it was an immediate savings to us by doing that. And what's happened is the exchange rate in Canada today is over $0.79 on $1.00, so it's really kind of more than anything else just kind of a one-time we were either very smart or very lucky here, and we made about $2 million just putting money up in Canada in January versus putting it up here in April.

That's helpful. Can I ask one more? I think you've touched on it and talked about it already, but just for my clarification. You owned Green Giant for two months in the December quarter and obviously for a full quarter in March. The gross margin rate in the business in aggregate was up 600 basis points sequentially, and I know in the base business probably there was some growth there on a year-over-year basis, but 40 BPS or so. So, the drive of that changed sequentially from Q4 to Q1, you know, I'm assuming it's Green Giant driven. What was so dramatic, what changed there that really allowed that kind of change in the profile of the business?

Well, the biggest change reason is not so much what we did, and we've done a whole bunch of things, is the nature of this business is very heavy trade spending October, November, December for Thanksgiving. Really, it's a Thanksgiving-driven business, plus some Christmas, and then to a lesser extent Easter. But really it's about Thanksgiving, and the volume that goes out the door October, November. So, margins naturally on this business are a lot lower in the fourth quarter. So, it's not just that we did so much better; we bought a business at the worst margin comparative, which is really November, December. But then subsequent we've done some really good things. We're seeing some synergies, we're seeing some positives, and we're seeing the benefits of us getting in and managing this business, where you had a former seller who wasn't strategically important to them, where it's very important to us.

So, when you think about the fourth quarter of 2016, you're going to see those kind of margins on Green Giant and actually a little less than what was experienced last year, because we'll be spending more marketing money than was certainly spent last year, which was pretty much nothing in November and December.

Great. Thanks for the color. Really helpful.

And we'll take our next question from Farha Aslam from Stephens Inc.

A question on the base business. I believe you said that procurement savings were $7 million, and I think the DSC savings are expected to be $8 million this year. So, just to be sure, we can count on sort of $15 million or $0.07 in EPS on that basis as coming to us in the way of cost savings for 2016. Is that the right way to think about it?

Well, two things. One is, yes, we locked in on the $7 million, we know that's there, and hopefully it ends up being a little more as we do some further locks. And a lot of that $7 million is -- there are some real synergies we're getting on packaging consolidated buying, just because we're bigger. But also in general across-the-board, almost all commodities have kind of retrenched even further. So, we're not the only ones who should be seeing some commodity benefits.

We're learning every day what that DSC savings is. And I don't want to say it's a total of $8 million for the year. We were also saving some of that money in the fourth quarter of last year, so it's not a pure year-over-year we got another $8 million. We are certainly seeing the total piece from the delivery side of what our expectation was. We're still working through with them the warehouse part of the savings. What we're getting from them is wonderful efficiencies and way better customer service and inventory management, and very happy that we're actually adding a fourth warehouse under them as we speak to handle the Green Giant can volume. But I don't think we're there today saying that's an $8 million number; it's probably a little less than that for this year.

That's helpful. And then just a final question on that $30 million. What is included in that number? Could you break that down for us? Does that include trade spend?

No, no.

What's included in that.

It would include couponing. Historically, there has been almost no couponing done on this brand, well, at least certainly for the last, I want to say four years. I don't want to say longer term, historically; I'd have to look back. Couponing on this brand hasn't been much more than $1 million a year. It does not include trade, it does not include slotting, so it's real consumer marketing, which would include couponing and really advertising and marketing, and the people running the brand from a marketing point of view. So, there is a little bit of salaries in there, but most of this is consumer marketing and it's going to be in the form of social media, TV, the whole gamut. We're building a full-blown campaign that we're real excited about.

And usually trade and slotting, etc., it's about 25% to 30% of sales for a standard consumer brand. Is that for Green Giant we can assume as well?

Yes. I mean, Green Giant historically runs, I want to say in the high 20s, when you look at those pieces.

You'll start to see it really peak in November and December.

Right. So, it's higher in the fourth quarter than it is in the second quarter just by the nature of -- frozen and canned vegetables sell on promotion basically Thanksgiving, Christmas and into Easter, and a lot less in kind of the spring and summer.

Okay, that's helpful. Thank you very much.

And we'll now take our next question from Kenneth Zaslow with BMO Capital Markets.

I just have two quick questions. One is, you have a Green Giant business that's $100 million EBITDA. If you think out two to three years, what do you think that will be?

Well, hopefully, we've grown sales a whole bunch, and as we think about it, if we grow sales $100 million, just a number, EBITDA on $100 million is in the low 20s. So, you're looking at another $20 million plus for every $100 million that sells.

Okay. And just to understand. You said that the underlying profitability was significantly higher than what you expected. Is it like $100 million, $500 million, $10 million, or is it just order of magnitude what you -- because you used the word significant. I just wanted to make sure I understood what you're talking about.

Well, certainly when you're looking at just using street consensus of where EBITDA was at $74 million, $75 million versus us coming in just right around $90 million, our base business EBITDA is up a little bit because of some of the synergistic savings. And whether it's purchasing and just pure synergies, most of that growth came from Green Giant, so Green Giant is higher than -- certainly for us to be at $310 million to $320 million, Green Giant is the bigger driver of that to get to that number.

And my last question is, again, I think somebody asked, but I just want to be clear. You didn't start thinking that this was a synergy, a cost synergy opportunity. Does this mean that you can open up a new door and that you can start saying, hey, look, maybe we weren't really on the ball in terms of the cost savings, but maybe there is a lot more to do that we could actually explore here. Are there new avenues that you're going to take a look at?

No, I think from the synergy point of view, what we're seeing is purely lower costs that are not totally synergistic from Green Giant. I mean, that's a piece of the input cost, and certainly the facility in Mexico is running at a much lower cost than kind of was represented to us by the seller, so we're reaping the benefits of that. But from a synergy point of view, we are truly seeing synergies is the power of us just being a $1.4 billion company when we call on a glass guy or a can guy or a film guy, any kind of packaging, we're a lot more meaningful to them across-the-board. And it goes all the way down the line. So, we're seeing the benefits of being that much bigger. So, that's a nice to have.

I don't think there is -- today, as we think about what we own, there is a huge amount more synergies that we're going to extract. We're going to get better and better every day. But the one thing that shows is being a little bigger really makes a difference and it kind of took us to the next level with our vendors and with our customers. Being bigger, we're more meaningful. We doubled our business at Walmart, for example. This business at Walmart is $150 million. We were $150 million at Walmart prior to that. We're a more meaningful supplier to Walmart. We're a meaningful supplier to a number of our other customers, and it's getting us better customer calls. You know, we were always good at that, we're now bigger and more meaningful, and they are very willing to talk to us about this brand, Green Giant, and we've been able to parlay that in talking about some of our other brands, too. So, it's only been a benefit to B&G as we've added this. A lot of work, a lot of transition and a lot of integration, but an exciting evolution to B&G to make us bigger and better to go forward. And I think organizationally we've come a long way here in the last five months.

Great. I appreciate it. Thank you very much.

And we'll now take our next question from Rob Moskow with Credit Suisse.

This might sound a little bit oddball, but you say the plants are running less expensive than you expected, but the pack doesn't really start until harvest; is that right? So, like, what element of the plant costs are you seeing that make you comfortable, or are they operating at full capacity right now or are they getting ready for the full capacity period that's coming?

A fair question. A different business. So, the can piece of the business is as vegetables come, are harvested, they go right into the cans and they can sit in cans for years to come, basically. Frozen business is different. Some of the vegetables are in frozen in our inventory but not in package. So, it's frozen in bulk and it has to be packaged. Our facility in Mexico, there is some of that in some of our mixes but they are packing fresh every day as we speak. So, the area in Mexico that we play in is a big broccoli, cauliflower area, among other things, and they basically get seven crops a year, and that's why the plant sits there. So, the plant is active pretty much all year long. It doesn't go into semi-shutdown mode, and we're seeing the benefits coming out of that facility in a big way.

Okay. And a follow-up was on the platforms, innovation platforms that you talked about, Bob. You've barely gotten control of the business and you're talking about new innovation platforms already. It seems like it's on an accelerated kind of time frame. Maybe that's a function of your firm you're working with is moving faster than you thought, but does it feel a little compressed to say that you can get something out in the fall like that? Like, I would have thought in the fall you would have maybe new varieties of things, but to say you get a new platform sounds a little more ambitious.

It sounds ambitious to me, but I can tell you we're there on the new platforms, specifically, a couple as we speak. And as part of when we kind of signed the contract to own, before we closed, we knew how important it was not to just come out with a, I don't know, chipotle corn that you can just flavor up some frozen corn and come out with that, which is relatively easy. And some of that kind of stuff is easy, which we're also doing. But we wanted to be able to walk into the key customers with new platforms that nobody else was selling in frozen today, and that was an important part of our strategy. What I'm coming into, as we bought this business, we thought we could get the platform. We were actually concerned with our ability to potentially get it in the fall, because a lot of those freezer cases get pretty locked down. But our customers have opened up the door to us and we've been into four or five large customers now with some of these new platforms and they are very excited about it. We expect to be in full production on those products here in July and August, and assuming we get acceptances, which we're really hoping and believe we will, we'll be able to start shipping that in September.

And that was a very important part of our story to the customers. Not only are we supporting -- we're going to support this brand consumer-wise, but we're going to be innovative, where the seller has really stopped because it wasn't strategically important to them anymore. And as part of that, we like to get some of those core items that we might have -- that seller had lost previously. So, the new platforms were extremely important to us. Like I said earlier, I'm really proud of how this organization has gotten as far as it has, and we've used -- so, one of the things is, we went outside to some very large guys who can help us with this. And we have some very strong partner relationships here who have made a difference in getting us to where we are today.

Those are co-packers?

No, not so much. I mean, we're using -- I mean, and we said it last time, we're using Kerry Foods really as our innovation partner in a big way, and they have really helped us. And we're using their full resources of their organization to really help drive this process as we have added internal capabilities. But using really them to help us drive the process, and they have certainly been a big leader in getting us where we are today. Now we've got to get the customers to take it in and we've got to get consumers to buy it, and we think both will happen. And we're really excited about what we're going to put in place.

All right. Thank you so much.

And, ladies and gentlemen, that concludes today's question-and-answer session. Mr. Cantwell, at this time I'd like to turn the conference back over to you for any additional or closing remarks.

Okay. I want to thank you for your support in our Company and being able to join the call today. We look forward to a very successful 2016, and are excited about sharing additional news on Green Giant as the year progresses. Thank you, everybody, and have a good evening.

And, ladies and gentlemen, that concludes today's conference call. We thank you for your participation.