B&G Foods Inc (BGS) 2017 Q1 法說會逐字稿

Good day, and welcome to the B&G Foods First Quarter 2017 Earnings 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 ir.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 measurements, 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 measurements are provided in today's earnings release.

Amy Chiovari, the company's interim Chief Financial Officer, will start the call by discussing the company's financial results for the quarter. After that, Bob Cantwell, the company's Chief Executive Officer, will discuss various factors that affected the company's results, selected business highlights and his thoughts concerning the remainder of 2017.

I would now like to turn the call over to Ms. Amy Chiovari. Amy, please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us today.

Net sales for the first quarter of 2017 increased 18.4% to $417.9 million compared to $353 million in the first quarter of 2016.

Net sales of the spices & seasonings business acquired on November 21, 2016, and net sales of Victoria, acquired on December 2, 2016, contributed $63.2 million and $10.7 million, respectively, to our total net sales for the quarter.

Base business net sales decreased 2.4% or $8.6 million. The decrease was attributable to a decrease in unit volume of $9.8 million, partially offset by an increase in pricing of $0.6 million and a favorable impact of foreign exchange fluctuation on our net sales of approximately $0.6 million.

A little more than half or $4.7 million of our overall decline in base business net sales for the quarter was attributable to Green Giant.

Gross profit increased 9.4% to $126.8 million in the first quarter as compared to $115.9 million for the first quarter of 2016. Gross profit expressed as a percentage of net sales decreased 250 basis points to 30.3% for the first quarter of 2017 from 32.8% for the first quarter of 2016.

The decrease in gross profit percentage was caused largely by the newly acquired spices & seasonings business and Victoria brand. These products generated lower gross profit percentage than the rest of our business and our decision to accelerate into the third quarter approximately $6.6 million of trade spending and slotting that last year has been spent in the fourth quarter.

Gross profit percentage was also negatively impacted by $1.6 million of noncash amortization of the step up of inventory acquired in the spices & seasonings acquisition.

Selling, general and administrative expenses increased 35.3% to $53.6 million for the first quarter as compared to $39.6 million for the first quarter of 2016, primarily as a result of the Green Giant acquisition. The overall increase consisted of increases in acquisition-related expenses and distribution restructuring expenses of $4.7 million, warehousing expenses of $4.3 million, consumer marketing of $3.3 million and selling expenses of $1.7 million.

Expressed as a percentage of net sales, our selling, general and administrative expenses increased 150 basis points to 12.8% for the first quarter of 2017 from 11.2% for the first quarter of 2016.

Net interest expense for the first quarter increased 10.7% to $19.6 million in the first quarter of 2017 from $19.1 million for the first quarter of 2016, which was primarily attributable to additional indebtedness outstanding during the first quarter of 2017 as compared to the first quarter of 2016 as a result of the spices & seasonings and Victoria acquisition.

The company reported net income under U.S. generally accepted accounting principles of $32.8 million or $0.49 per diluted share for the first quarter of 2017 as compared to reported net income of $33.2 million or $0.56 per diluted share for the first quarter of 2016.

The company's adjusted net income for the first quarter of 2017, which excludes the after-tax impact of loss on extinguishment of debt, the amortization of acquisition-related inventory step up, other acquisition-related expenses and the loss from sale of assets, was $38.5 million or $0.58 per adjusted diluted share.

The company's adjusted net income for the first quarter of 2016, which excludes the after-tax impact of the loss on extinguishment of debt, the amortization of acquisition-related inventory step up and other acquisition-related expenses and distribution restructuring expenses was $38.6 million or $0.65 per adjusted diluted share.

For the first quarter of 2017, our adjusted EBITDA, which excludes the impact of the amortization of acquisition-related inventory step up, other acquisition-related expenses and loss on sale of assets, increased 2.7% to $92 million from $89.6 million for the first quarter of 2016.

Our adjusted EBITDA for the first quarter of 2017 was positively impacted by $2.1 million of foreign currency translation gain.

Moving on to the balance sheet. We finished the first quarter with approximately $1.76 billion in net debt and our current dividend rate is $1.86 per share per annum or approximately $123.6 million in the aggregate based on our current share count.

On March 30, we completed the refinancing of our senior secured credit facility, reducing the spread over LIBOR by 75 basis points on approximately 640 million of tranche B term loan.

At the beginning of April, we issued $500 million aggregate principal amount of 5.25% senior notes and used the net proceeds of the offering to repay all of the outstanding borrowing, an amount due under our revolving credit facility, in tranche term A loan.

Now on to our guidance for fiscal 2017. We are reaffirming the guidance we issued during our last earnings call. We continue to expect our net sales to be in the range of $1.64 billion to $1.68 billion, our adjusted EBITDA to be in the range of $360 million to $375 million and our adjusted diluted earnings per share to be in the range of $2.13 to $2.27.

We expect that our interest expense for the final 9 months of 2017 will be approximately $67 million, including cash interest expense of $62.5 million and interest amortization of $4.5 million.

We project that our depreciation expense for the final 9 months of 2017 will be approximately $25 million and that our amortization expense will be approximately $13 million.

Finally, we expect that our effective tax rate for the final 9 months of 2017 will be approximately 37.3%.

Now I'd like to turn the call over to Bob for more details on the quarter and his thoughts on the remainder of 2017. Bob?

Thank you, Amy, and good afternoon, everyone. We are pleased with our results for the first quarter despite the net sales effect from the shift in Easter as well as the year-over-year comparison for our Green Giant business.

Net sales for our base business, excluding Green Giant, decreased 1.7% for the quarter. However, we continue to expect our base business to recover throughout 2017 and come in flat to down 1% for the year.

Net sales for the Green Giant business decreased $4.7 million, which was in line with our expectations.

Now moving on to brand performance for a few of our brands during the quarter. First for Green Giant. We continue to get very positive customer feedback from the launch of our new products and the acceptance and sell-through of these products has continued to surpass our expectations.

We experienced an overall decline in Green Giant net sales of $4.7 million, which was expected. This included a decrease in club sales of $3.9 million due the loss distribution as well as a $2.4 million decline on our bulk IQF rice business, which we expect to be down $7 million for the full year. And a shortfall of $2.2 million on our retail can business, due in part to the shift in timing of the Easter holiday.

We continue to see positive turnaround for our Green Giant frozen products with net sales growing by $3.8 million.

Frozen share at grocery gained 1.7% in the quarter. This growth trend in Frozen continued into April, and we were up year-to-date 2.6% at retail through Easter. We expect continued year-over-year improvement throughout the final 9 months of 2017.

We have been increasing production capacity to support the better-than-expected demand for the new Green Giant innovation products that we launched in 2016 and to support our new innovation launch in the frozen category during the second half of 2017.

I am also pleased to report that our new product innovation efforts for Green Giant have not been limited to the frozen category. We are currently launching a new line of Green Giant brick oven baked beans to bring giant flavor to the baked beans category and summer barbecues.

For 2017, we continue to expect that Green Giant will generate approximately $530 million to $540 million in net sales versus $506.7 million in net sales in 2016.

Moving on to Ortega whose net sales increased 1.9% for the quarter. We have seen growth in our core items as well as strong acceptance at retail for our new Ortega good grain taco shells, which include on-trend ingredients and grains baked into and clearly visible within each shell, including blue corn, white corn with chia seeds, yellow corn and ancient grains and whole grain and lentil. We believe Ortega good grain taco shells will bring new users to the category and the brand.

In addition, we plan to launch a line of crispy taco toppers available in jalapeno and onion variety in June.

Pirate Brands had a strong first quarter with net sales increasing 7.5%, which follow a very strong 2016. We continue to gain distribution for our core Pirate's Booty products and plan to launch new line extension in the second quarter with different flavor profile that will be focused on young adults. We've already received a good deal of acceptance for this product from customers.

Moving on to Bear Creek. We believe the mild winter in many places across the country negatively impacted our Bear Creek business and was a key contributor to the brand's 10.1% net sales decline for the quarter.

Timing impacted the Las Palmas and TrueNorth brands during the quarter. Las Palmas, a very popular family brand, was impacted by the late timing of Easter. We expect this negative impact will reverse itself in the second quarter.

TrueNorth has a large club business and most of the club programs in Q1 2016 moved to Q2 in 2017. Despite a tough first quarter, we expect to continue to see net sales for the TrueNorth brand to be flat to slightly up for the full year of 2017.

Net sales of the Mama Mary's brand decreased by $0.7 million due primarily to the timing of promotional programs for the first quarter. We expect net sales for the brand to be flat for the full year 2017.

Net sales of our maple syrup brands decreased $0.9 million for the quarter. We walked away from low-priced competition and therefore, expect net sales for our maple syrup brands to decline approximately $7 million for the full year 2017.

Our recently acquired spices & seasonings business is performing above expectations. We are seeing continued support at clubs and key retailers and expect this performance to continue throughout the year.

We are also pleased with the first quarter performance of our legacy seasonings brands. In 2017, we are putting additional media dollars into Mrs. Dash to ensure we continue to maintain and grow our 80-plus percent market share of salt-free seasonings.

In the first quarter, we grew our Mrs. Dash market share 3.7%.

Now shifting to cost. As Amy mentioned previously, the mix effect of adding the new spices & seasonings business and Victoria has decreased our overall gross profit margin by 110 basis points and the onetime amortization of the inventory step-up accounted for 40 basis points of our gross profit decrease.

In addition, planned incremental trade and slotting expenses also impacted our overall year-over-year gross profit margin.

At the midpoint of our guidance for both net sales and adjusted EBITDA, we are projecting an annualized adjusted EBITDA margin of approximately 22%. We expect to see adjusted EBITDA margins for each quarter of 2017 to remain at that level.

As for our CFO search, we are actively working with a recruiter in interviewing potential candidates. We are very lucky to have Amy Chiovari, currently our Corporate Controller, as interim Chief Financial Officer. Amy has been an invaluable member of the B&G Foods family since joining the company in 1996. Amy played a key role in our 2004 initial public offering and in numerous acquisitions and capital market transactions over the past 2 decades.

She has also had responsibility over the years for many finance and accounting functions. Having someone as capable as Amy to temporary fill the vacancy allows us to be careful and deliberate in our search for a permanent CFO.

One of my biggest goals as CEO has been to ensure that the company remains capable and ready to continue our acquisition growth strategy. The recent refinancing of our long-term debt has enhanced our ability to continue this strategy.

In closing, we are pleased with our overall performance during the first quarter of 2017. We are very excited about the future growth potential of Green Giant through both innovation and distribution gains on our core items.

We are also pleased with the results of our 2 most recent acquisitions, spices & seasonings and Victoria Fine Foods.

We are encouraged by the solid sales performance of some of our key brands during the first quarter. And we are also very excited about a number of launches -- new product launches throughout our portfolio, led by Green Giant and key brands such as Pirate Brands, Ortega and Mrs. Dash, we believe that we are on the correct path to stabilizing our base business. As a result, as Amy mentioned earlier, we have reaffirmed our full year guidance for 2017.

With that, I would like to open up the call for questions. Operator?

(Operator Instructions) We'll take our first question from Farha Aslam of Stephens Inc.

A question about Green Giant. You've now completed that initial November to February increased marketing program. Did you get what you wanted out of that marketing program? And how should we think about next fall? To be different or the same compared to this fall's program?

Well, certainly we moved more money -- just because we weren't ready last year, we moved more money into the first quarter of this year. When we first took over the brand, we didn't have the marketing programs set to roll that out in the third quarter of 2016. We are very pleased with the success of the marketing programs. Most of it has been aimed at the innovation, both Veggie Tots and Riced Veggies. We have seen tremendous growth in both of those. We're certainly -- we're the only Veggie Tots guy, and we're outselling in the Riced Veggies category. So we see a lot of upside to it, and we think the campaign really worked. The campaign will continue here through the second quarter, and we -- and then depending on where our sales are coming in and the growth year-over-year will depend on the level of spend we spend in the second half of the year. We plan on spending not quite at the same level in the second half, but a lot of the spend last year was due to developing commercials. So a lot of it was marketing development and less to the consumer. Now all the money is going against the consumer, which we're seeing really make a difference. And the brand is growing. The frozen piece of this business has huge upside as we roll over against all -- the loss distribution in prior years is -- we're really closed to rolling over against all of it, and most of them, we rolled over here against in the second quarter, and we won't have those negative comparisons and all the innovation and all the upside will just be positive to Green Giant as we head toward the rest of the year.

That's very helpful. And just as a follow-up on the new ACH acquisition. In IRI, those numbers look really weak. Could you just clarify if IRI is capturing the correct numbers for you? And what the trends are in that business.

Trends are very, very positive. What happened before we bought the business, a big chunk of business that sold through a specific customer was moved to their brand and also a combo brand using both -- depending on the product using both names on the label, and that changed the UPC number. The business is actually up in that customer, so it's all been positive. So all the trends on spices is positive. You're just seeing the old UPC and not seeing the new UPC in those results, and that's kind of what's skewing the information. And it's -- but the product -- same products are being sold at the same customer. That didn't change. Actually, the volume is up very nicely.

Our next question comes from Andrew Lazar with Barclays.

First off, just on the underlying, I guess, the core of the Green Giant frozen business, that's the piece that I know have been declining, and you wanted to really get that core piece stabilized such that the innovation can then add on top of that. The data very recently has looked, I think, quite a bit better on that core piece. So do you feel like you're closer to a trough right on that, I guess, the core base part of the Green Giant frozen business at this point?

Yes. So pretty much any kind of serious loss distribution that was meaningful, we really on frozen roll over against it here in April. So we're really looking forward to kind of month-over-month results as we go forward because the innovation is really growing at a rapid pace for us. So we believe we flattened out that core on a go-forward basis. And the only challenge we're having on Green Giant sales today is a little bit more on the can business and us just not wanting to compete at some of the lower, lower prices that some of the competition has put out into the marketplace. And we're not seeing that kind of competition in frozen, but we are seeing them in the can side. So we're really excited about where the frozen business will go the rest of the year.

Okay. And then what would you anticipate, I guess, maybe gross margin could look like for the full year? That was down quite a bit more, at least in the quarter, than anticipated. And I realize a chunk of that was the change in timing on the trade spend. Just trying to get a sense of what you think maybe the annual number looks like. And I may have missed this, but the trade spend piece of that, what was the impact on gross margin from that in the quarter?

Well, the trade spend and slotting was $6.6 million. Amy, you have the -- we'll check on that while I explain the rest. The deferred dollar was $6.6 million, so it's a big number on margin, on that percent on sales. So -- but our gross margin, as we look at full year, will be just a little over 30% on the business with the ACH spices & seasonings and Victoria all rolled up into the total.

Got it, okay. And then, I guess, lastly, maybe -- I may have missed it. What was -- I guess what was the change in marketing year-over-year in the quarter, I guess? Where are you with respect to the incremental marketing that you plan to spend against Green Giant? I guess what was the marketing change in the quarter?

Okay, so we look at those in really 2 pieces, but they're one and the same. So the $6.6 million you talked about is part of that change. And then also, we spent just on pure consumer marketing of right around $3.5 million more. So the total is basically about $10 million more year-over-year spend than we experienced in first quarter last year on Green Giant in our base business. But most of that spend all relates to Green Giant.

We'll take our next question from David Palmer with RBC Capital Markets.

How should we think about the 2 acquisitions, Victoria and the ACH acquisitions in terms of sales in EBITDA versus what your -- when you acquired them? It looks like the acquired business contribution was rather large in the first quarter. So perhaps you can put that in the context of what you expect from them for the year now.

So Victoria that we put -- when we announced the Victoria acquisition, we said sale is a little over $40 million, $41 million, $42 million with EBITDA of around 9, and we're really tracking -- on Victoria today, that's where we're tracking to. So no real change there. The real surprise and benefit, not so much a surprise, but a lot of benefit has happened on the spices & seasonings business. What I mentioned earlier about a major customer shipping to joint labels with our brand and their brand and then eventually moving to their brand, they are supporting that line of spices in a big way, and we're way up at that customer, along with other large retailers, too. So the business that we said was around $220 million, $38 million in EBITDA, certainly, we did over $63 million in the first quarter. We're going to be well over the $220 million in sales on that business. And the EBITDA -- lower EBITDA margin than the rest of our business is around 17% to 18%, but that's 17%, 18% on the incremental sales will flow to the bottom line for us. So we'll be in the low to mid-40s on EBITDA on that business versus 38.

Great. And cash flow was low this quarter. It looks like working capital was up. Could you talk about the dynamics driving that?

Sure. More than anything, it's just timing. There's a big inventory push and inventory build here. Specifically, we are in a transition service, co-packing arrangement with the seller of Green Giant. That ends in October. We're moving that production, the majority, to our own facility, some to co-packers. But we're building a very large inventory so that transition we have no issues with inventory shortages in the busiest time of the year, the fourth quarter. So inventory by itself, the pure inventory on the Green Giant business was up about $37 million, $38 million quarter -- year-over-year, quarter-over-quarter. It will actually build a little furthermore than that through the second quarter and into early part of the third quarter just to be ready for the large season. And also part of it is the expectation of just larger sales volumes in addition to just having enough in the transition. All the innovation is really growing, and that's also causing that inventory build. Anything else on the cash flow, plus or minus from receivables, to payables will look very similar to last year and by the time we get to year-end. So the inventory is the big factor, and it's really just a big build to that transition. So at the end of the year, we'll probably have more inventory than we would have had last year just because we won't sell that all through by the end of December. But by the end of the first quarter of 2018, it should look closer to normal and everything kind of status quo. But most of it is just because of this inventory build at this time.

Just one last one. I think Pinnacle talked that -- about themselves gaining share in frozen this quarter. You made comments about yourselves gaining share. Maybe not apples-to-apples comparison in terms of timing, but where do you think your share is coming from? Is it private label?

Well, we certainly know that our competitor at the street from us here has grown share through the Easter timeframe, too. And we're growing share, too. It's coming from other right now, which is good for both of us, it's really coming from other lower-end competition and category growth. So part of -- both of us supporting the category and both of us driving innovation, getting more foot traffic to the category. I think it's a win for everybody. Certainly, we want to be the guy growing share faster than our competitor, but they're doing a great job, too. And it's all good for the whole category.

Our next question comes from Rob Moskow of Crédit Suisse.

Bob, I just want to make sure I understand the media spending plan. I thought the plan was for $35 million of media this year with 40% in first quarter. I think the numbers you gave -- well, I guess, you said consumer marketing was up $3.5 million. Can you help me understand what the total consumer marketing was in the quarter? And did you have to push anything out?

No, we didn't push anything out. It's just a mix of -- so we've spent in total -- so yes, we spent in total on consumer marketing about $22 million and that includes coupons, advertising, marketing and in-store programs. In addition, we spent a lot of money on slotting. So yes, that's all part of the marketing budget. So we're up substantially on slotting. We're up another $1.5 million on slotting year-over-year. We spent a little over $2 million on the slotting in the quarter. So when we think of $35 million -- and that's just Green Giant. So yes, I just gave you our total marketing spend. So Green Giant is about $35 million in total. The rest of what we do is about $27 million. So that's -- our total is that total we spent between our marketing programs and slotting, around $24 million, $25 million in the first quarter.

Okay. So nothing got pushed out?

No.

All right, sounds good. I guess any other questions -- just -- I've heard concerns about the base business. I think you've addressed many of them here. Are there any other, like, just issues with customers that you're seeing? Any threat from private label or just general consumer trends that would make you think maybe we should be at the low end of your flat to down kind of guidance for sales for the year? Like what are the circumstances that would get you more to the low end of that range?

Well, we're hoping we're not at the low end, and we're hoping some of the things that are driving us and will drive us the rest of the year, Green Giant and spices & seasonings, among others, will cover. Personally, it was a very difficult first quarter and just in general, not just our categories we play in. General stores, grocery was very difficult in January and February, came back a little bit in March. A large east coast retailer reported yesterday, I think it was yesterday, their whole business was down a little over 2% in the first quarter. So we're not having issues with private label coming after us or customers not supporting us. It was just, in general, a lot less foot traffic in the early part of the quarter. It suddenly came back as you got closer to Easter timing and made us feel a lot better and it probably made a lot of our peers feel a lot better. But yes, it was -- January and February were generally weak across most categories at supermarket level. Don't really have a great explanation besides warm weather and other explanations you probably heard. So we're getting full support from our customers. That's not an issue. We're not getting pushed by private label anywhere. So all that's fine. It was really a matter of the foot traffic itself. And I think warm weather is a real effect to all of this. I think there's other things that also affect it. Hopefully, that doesn't continue throughout the year as the month -- March and April were very good for us with -- on most brands. We'll see as each month go on here. It's hard to figure out today's consumer in total. But just general consensus across the industry, certainly from other people reporting and talking and just -- January and February were just, in general, very weak.

Last question. I think the guidance implied 22% EBITDA margin per quarter, second quarter, third and fourth. Is that right?

Yes.

Does that kind of get us to EBITDA being down in second quarter compared to first? And if so, is that just a seasonal thing between second quarter down compared to first?

Yes. I think part of it is -- we took on a major acquisition last year and the spending against that acquisition in Green Giant, among other things. We had some very good EBITDA margins coming out of the box. I think last year, the second quarter was over 26% EBITDA margin. We finished the year more in that 22% range margin. And what that really happened is a lot of the spending that wasn't spent in the first 9 months really got spent heavily in the fourth quarter. We haven't really been spending less in the fourth quarter and more spread out in the first, second and third quarter. So we're going to manage this business. It's a little less seasonality and more of how we're spending it, kind of to a -- around a 22% EBITDA margin by quarter. So you won't see big fluctuations. One quarter, you can see 22.5% and one, you can see 21.5%. But it's going to be in that range of 22% as opposed to the very low EBITDA margin we had in the fourth quarter 2016, where I think we came in -- I don't have that in front of me, but it was in the mid-teens, which brought our overall EBITDA margin down substantially for the year. So that spending is really now being spread out across the board. So last year, we finished at a 23% EBITDA margin. The Green Giant and base business will continue to generate that kind of annual margin. And then when you kind of take the ACH business, spices & seasonings and Victoria, which hit us for about 110 basis points in the first quarter, it kind of does that pretty equally each quarter and gets us down to about 22% margin for the year. And we'll see that -- you'll see -- and yes, the other answer is, we will end up coming in based on a 22% EBITDA margin at lower numbers than we showed in the second and into the third quarter of 2016. But over the full year, we're very confident in delivering our guidance here.

Right. So fourth quarter is when you have enormous EBITDA growth year-over-year, but second and third, it looks like absolute EBITDA might actually be down year-over-year in second and third based on that guidance.

Yes.

Our next question comes from Cornell Burnette with Citi.

Just wanted to start off here with a little bit of color on the top line. I was wondering kind of best guess is -- to your knowledge, what was the impact of maybe the Easter shift on organic sales for the business in total during the quarter?

It would be just a gut guess. I mean there's really 2 brands -- I mean it affects a number of brands, but 2 brands, in particular, that it would absolutely affect because it's about truly the family large eating experience and at the dinner table, and that's Green Giant and Las Palmas on the West Coast. Well, Las Palmas sales because that is a large family ingredient, enchilada sauce for large family dinners, very much oriented to holidays, too. Probably, Green Giant by itself, $4 million to $5 million; and Las Palmas, $1 million, $1.2 million. So $6-ish million in total. And then there's a little bit of other brands that get affected by switch. I mean, Polaner jams and jellies actually does and other things, but all much smaller. Maybe all that adds up to another 500,000 to 750,000 for that switch.

Okay. So just thinking about the top line off of that alone, maybe with -- maybe seeing some sale slip maybe related to this out of the first quarter and then to the second quarter. It would sound like just based off of that, you would expect maybe some sequential improvement on the top line in the second quarter. Is that kind of the right way to look at it?

Well, yes. That's part of us believing our base business, if your just excluding Green Giant, was down 1.7%. I mean we think that, that number will trend closer to flat, hopefully not down much more than 1% for the full year. So some of that gain is coming in the second quarter, absolutely.

Got you. And then just one question here looking at some of the Nielsen takeaway data that are filled in the quarter that kind of on the base business, so excluding the acquisitions that kind of retail sales and you mentioned channels are down 5%, but you did a little bit better there looking at the numbers. So just wondering if you could talk a little bit about maybe some of the growth, I guess, that you're seeing in unmeasured channels and what that's bringing to maybe the Nielsen data?

Well, we certainly have a lot more growth in some of the unmeasured channels today. Some of that Nielsen data is skewed for everybody, specifically the movement in the Easter holiday until the middle of April. So there is -- so when you actually look at Nielsen data through the end of April, it starts -- still not great but looking better than those numbers. Not totally offsetting the pure really bad weaknesses in January and February that most categories experienced. So we're getting -- yes, we become a bigger food service player with our spices & seasonings acquisitions. We're getting more play there. We're getting play in some other channels. So for a lot of our brands, small wins and other small channels make a real difference. So we're seeing some benefits there. A lot of our innovation -- we've been very aggressive on innovating against the base business in a number of product lines and launching those. Those are all helping us, so that's all have been positive, too. So yes, we're still not there because we're still down almost 2% on the -- on our base business, excluding Green Giant. And our goal coming into this year was to flatten that out even in some -- even where the categories are declining in total because of the size of our business and most of our businesses not being totally national in our portfolio, some are. We have a lot of opportunities to just win some distribution points at customers and expand distribution in uncertain customers and be able to beat the category dynamics just because we have that ability today because we're not fully distributed on most of our products across the country.

Our next question comes from Ken Zaslow with Bank of Montréal.

Just a quick question on the ACH business. Can you talk about what your expectations were, if I recall correctly? And then where do you deliver on that? Because it seems like you outperformed your expectations on that. Is that a fair assessment?

Well, we certainly did. So we basically -- the business itself is not very seasonal. Spices has a little bit of seasonality, maybe during like the Thanksgiving holiday, but it's not huge. So it spreads out across 12 months relatively equally. We thought we'd be $220 million in sales, that's about $55 million a quarter. We came in at a little over $63 million. So certainly, our outlook when we bought the business and announced that was more toward a $55 million, mid-50s range. As the days went on even in December and into January and February, we started seeing some of those wins at existing customers with just better programs and some new distribution at some of those existing customers and some pricing. Part of spices is it gets -- it's commodity-driven here so you're pricing based on cost. So the cost of garlic is way up, so you will offset that, you're able to pass pricing through on shelf because your competitor is doing it, everybody is basically paying the same price for the garlic, so we're getting some benefit on price, too. Doesn't affect our bottom line because our cost went up pretty much identical. But overall, this business and this transition, there's been no negative. Everything that's news has been positive. So it's either more distribution, locking the customer up longer term, really a customer supporting this brand -- the brands that we sell in a big way. So far so good, and we don't see anything that's going to stop that trend that we saw in the first quarter and not continue throughout the rest of the year.

Did it also translate to higher EBITDA or was it passed through in the pricing? It sounds like it should have been higher on EBITDA because of the distribution. It sounds like there was a core increase rather than just a pure pass through.

Absolutely. So it's probably a little less than half pricing. So it's probably about 40% in the increase was pricing and 60% is just core growing the business, and that's dropping to the bottom line. That EBITDA margin of 17%, 18% is absolutely dropped into our bottom line.

And you mentioned a couple of times, in the press release as well as in the call, that you guys are more than ready to do another acquisition. It seems like -- we've heard from different players out there that the acquisition pipeline actually -- particularly for a guy like you guys is actually probably accelerating, not decelerating. That's why the large cap guys keep on segmenting their portfolio. Are you being shown more assets, and do you feel like the pipeline is better than it's been or similar or less than, I guess?

I think in general, the pipeline -- I've been doing this for a long time, the pipeline comes and goes, but it's fairly similar. I mean that's certainly a lot of talk and there's been assets, but there's always a lot of talks and assets. And we are certainly ready. We're always looking. And when we find the asset that works for us that we can win the price and get, we're going to actively pursue it in a big way. So -- and part of, I think, what we've proven in the last few years, whether people would say pipeline is good or pipeline is slow is we've done a number of acquisitions here, and we expect that to continue.

And remind me, how big of an acquisition would you do? Is there -- what would you raise your debt levels to? How do you think about that? Just remind us.

I think part of our model is I truly believe it's very important to keep our leverage below 5x, not that we couldn't afford more because interest is still very low. And we would go above 5x to do the acquisition but most likely come back to the equity markets to raise capital to pay that debt down. And I don't think there's a size restriction for us. We can pretty much finance as big as you can think. But it has to work in our model, it has to end -- at the end of the day, it's not about acquisitions size, it's about whether it could -- it sells through our same sale system, it goes on our trucks, it's more line items on our invoice, and we generate cash that's 50-plus percent of the EBITDA that we bought day 1. So if that works, we can buy another Victoria, we can buy something that's twice the size of Green Giant. I mean it's so -- it's really about the model has to work and it has to fit in our -- so -- because we're buying brands and typically, we're looking at brands not large companies. So the brand can be as big as the brand can be. Now the challenge is as brands get bigger, competition gets greater and prices have seen over the years to go up and that doesn't work in our model. So our model is what drives us first. And certainly, the brand that we're buying is also driving that decision. It's got to be high margin, it's got to be a brand we want and the math has to work in the cash flow. And if all that works, and we can buy it at a multiple lower than we're trading at and is nicely accretive to shareholders, size doesn't totally matter for us at this point.

Our next question comes from Jon Andersen with William Blair.

Bob, on Green Giant, I know early in the year -- earlier in the year, you talked a little bit about maybe some inventory tightness and capacity constraints. Could you just update us on where you are with respect to that now? And talk about kind of your service levels, I guess, into the retail trade.

Well, we're in very good shape now. We have a couple of minor -- not minor but good selling items that we need some extra work. We filled some inventory voids. But we're in the 90-plus percent range and certainly having, close to $40 million more in inventory from same time last year in Green Giant says we're pretty well stocked across the board in inventory. And our service levels, because of that, have improved dramatically. So we're really out of that hole and really making sure we build enough inventory and a real kind of safety stock inventory as we go into the busy season, which is kind of October through December, but it kind of starts in September, we're ready and able to service all customers at much higher volumes.

Okay, great. Pricing, in aggregate, for the company was, I guess, modestly -- it was a modest positive in the quarter. It have been a bit of a headwind for you over the past 2 or 3 quarters. Is that a reflection of maybe you were anniversarying some of the maple syrup price pressure? Or -- and how do you think about just the general pricing tender in the market at the moment and your ability to kind of hold the line there?

Well, I think -- I mean in general, it might be a little bit -- maple syrup is not a big effect on our small pricing increase year-over-year, so we're not rolling over against some negatives last year that we didn't have to do this year in a big way. In the categories we play in, our competition is not doing anything extraordinary to drive volume right now, so we're not seeing real lower pricing. We're seeing pricing very consistent with what we really saw in 2015 and '16. Yes certainly, today, we don't have any real large commodity moves outside of the spice business with garlic within our brands that would require us to move pricing and give us the ability to move pricing at customer level. So as we look at the full year here, our plus or minus to pricing should be close to 0. We don't expect pricing to help us or hurt us through our P&L for the whole year.

That's helpful. If I can squeeze one more in. The full year budget or your full year view on brand support or marketing spending for Green Giant, is it -- I was a little confused, is it -- are you still looking at about $35 million for the full year? And does include the kind of the trade and slotting that you called out in the quarter, I think, which was about $6.5 million?

Well, it doesn't include the trade, but it does include the slotting. So slotting was up about $1.5 million in the quarter, that's all Green Giant-related. So that's certainly a part of that $35 million. But most of the $35 million is much more oriented to consumer marketing this year than even last year's spend of around $35 million. Last year was a lot of planning and set up and developing commercials, and filming commercials and all that adds up to a lot of money. Now we're just spending against the consumer. So we still plan because we still -- all we are seeing today is the potential for Green Giant over the next few years to grow dramatically. And we'll also be launching some new innovation here in the second half of the year, some of it very unique. And we're really excited about that on Green Giant, and we're going to support it with marketing behind us. So absolutely, we plan on continuing to spend.

Our next question is from David Kuck with Wells Fargo.

It's Dave on for Bryan. Quickly from us, could you provide some sort of indication on out of stocks or fulfillment rates on the Riced Veggies and the Veggie Tots?

Well, certainly they've gotten tremendously better as we headed through the first quarter. Both of those items, the demand grew faster than our production capacity. So today, our production capacity can service both of those items. And the out of stock situations have gone away the number of customers and will be like fully in stock at all customers here as we head through the month of May. So we're very comfortable at the level of inventories and our level of production on those. My only hesitation is it continues to grow. So we're seeing demand grow pretty rapidly on that, and we have plans to make sure we continue to build production. But the numbers, it's a great problem to have, and we're certainly outselling everybody else. We have a terrific product, and we're really building a real consumer demand for it, and we got more things to come because we really see this as the new kind of wave of frozen vegetables and really formatting basically vegetables in different formats the way consumers would like to try and eat them today.

Okay. And then based on some of more recent Nielsen data we've seen, it looks like Del Monte is struggling quite a bit in canned vegetables. Just curious if you see an opportunity to gain share in that can business?

Well, part of our incremental spending on trade in the first quarter was more oriented to can versus frozen. So we do see some opportunity. Our biggest challenge, I said earlier in kind of the beginning of the call, is one of our challenges on cans, and we have a very large business on can, and we would -- and we just got to make the right decisions on it because the competitors, like the one you mentioned, are willing to sell sometimes because of their challenges they may have at some relatively low prices. And we just don't want to match those prices. So yes, we got to work with the right customers, with the right understanding. We're putting a lot of money behind the Green Giant name as we market the brand, and you don't always need to -- everything doesn't need to be sold below cost. So we ought to make -- we make -- and what we sell is we make very good margin. We do a very good job with the business today and our -- the prior seller did a very good job, and we just got to be careful because it's a lot of "stack them up and sell them at low prices" kind of business. We just got to pick our spots.

Our next question comes from Karru Martinson with Jefferies.

Just following up on the cans. With the Easter shift, is that $2.2 million you feel that will come back here in the next quarter?

Oh, yes, very much so. Certainly, frozen sells well during those kind of holidays, but can business picks up huge volumes Thanksgiving, Christmas and Easter. Easter being probably less than the other 2, but it's still a very important holiday. And in our portfolio, it's the real meaningful move of sales because of this brand -- because of our brand, Green Giant.

Okay. And you guys have been consistent in adhering to your metrics when pursuing M&A. But I was wondering, when you look at the brands that are out there, how do you guys think about them as categories? Are there ones that are more attractive to that you would pursue over others or how should we think about where B&G can grow in the future?

Well, certainly, our metric for cash flow and cash flow generation and most of all, in purchase price is extremely important. But the brand and the category has to work for us, too. So we look at a lot of things, and believe me, we pass on a lot of things very quickly that just doesn't make sense even if we can make the math work, that doesn't make sense for B&G's portfolio. So we were looking -- at the end of the day, if it's high-margin category that has sustainability that's not just going to decline off the map, we're interested. And if it's, certainly, centers for grocery or frozen now, we -- we're interested and we would look. But it's -- our model has to work, the brand has the work, and it has to be in a category we want to be in.

This does conclude today's question-and-answer session. Mr. Cantwell, at this time, I would like to turn the conference back to you for any additional or closing remarks.

Okay. Thank you, everyone, for joining us this evening, and thank you for your long-term support in B&G. And we look forward to continue the positive results as we head through the rest of the year. Thank you.

This does conclude today's conference. Thank you for your participation. You may now disconnect.