B&G Foods Inc (BGS) 2018 Q2 法說會逐字稿

Good day, and welcome to the B&G Foods Second Quarter 2018 Earnings Call. Today's call is being recorded. You can access detailed financial information on the quarter and the full year in the company's earnings release issued today, which is available at the Investor Relations section of 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 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 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.

Bruce Wacha, the Company's CFO, 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 outlook for 2018 and beyond and Ken Romanzi, the Company's Chief Operating Officer will make some remarks.

I would like to now turn the call over to Bruce.

Thank you for joining us for our second quarter 2018 earnings call.

Our second quarter results benefited from very strong net sales growth of 7.4%, including more than 3% growth for our base business — top line trends that are in excess of the growth rates implied by our full year guidance, despite what is considered a challenging operating environment. During the quarter we generated $388.4 million of net sales compared to $361.7 million for the second quarter of last year. Our base business net sales increased by approximately $11.0 million, including approximately $4.3 million from pricing and $6.7 million from increased volumes. Back to Nature, acquired on October 2, 2017, contributed approximately $17.6 million in net sales for the quarter.

We generated $74.4 million of adjusted EBITDA in the quarter, a shortfall of $3.8 million compared to the second quarter of last year, which was largely expected due primarily to industry wide increases in freight costs, and the timing of our price increases, which were not fully implemented until late in the quarter. Supportive of our updated full year guidance, we expect to see the full benefit from our price increases and cost savings programs in the second half of the year. In addition, the pace of increases in freight costs has already begun to moderate.

For the first six months of the year, we generated approximately $164 million in adjusted EBITDA and generated adjusted EBITDA as a percentage of net sales of approximately 20.0%. This includes $17.5 million of increased freight costs, compared to the first six months of 2017 and the timing of increased spend of approximately $5.5 million for slotting and coupons primarily to support the roll out of Green Giant innovation products. These costs were offset in part by $5.5 million of pricing benefits, inclusive of trade spending.

And we had very strong conversion of our EBITDA into cash. We generated approximately $105 million in net cash provided by operating activities during the first six months of the year, compared to less than $20 million during the first six months of 2017.

We expect to generate $181 to $191 million in adjusted EBITDA during the back half of this year, compared to $163 million a year ago. Driving this growth will be an expected $12 to $15 million in pricing benefits from price increases that have now been implemented across the portfolio, as well as an expected $10 to $12 million resulting from increased volume primarily driven by our Green Giant frozen innovation products and one quarter of benefit from Back to Nature which we did not own in the third quarter of 2017.

We also expect $4 million to $5 million of benefit from our SG&A cost savings initiatives, including warehouse savings driven by our inventory reduction program, and lower coupons and slotting. Offsetting these benefits will be anticipated increased freight of about $5 million to $7 million in the second half of this year. We expect the majority of our other costs, based on our total basket of inputs, to be between flat and favorable for the remainder of the year.

We are fine-tuning our full year guidance, which is largely in-line with what we have communicated previously. We expect net sales of $1.73 billion to $1.75 billion, adjusted EBITDA of $345 million to $355 million and adjusted earnings per share of $2.05 to $2.15.

Now I would like to cover some of the key drivers of our net sales performance, before we move to the balance sheet: Green Giant frozen, driven by strong consumer demand for our newest innovation launch, Green Giant Veggie Spirals, as well as continued strong performance for our Green Giant Riced Veggies, Green Giant Veggie Tots and Green Giant Mashed Cauliflower, which were launched in 2016 and 2017, saw its fifth consecutive quarter of double digit growth, with net sales of Green Giant frozen up 19.7% for the quarter or nearly $14 million to $84.2 million.

Pirate's Booty also outperformed during the second quarter. Net sales of Pirate's Booty increased approximately $9 million, or nearly 55%, to $25.2 million for the quarter. Despite a slow start in the first quarter, net sales of Pirate's Booty are now up approximately 10% for the first six months of the year.

Looking at the rest of the portfolio, we had a mix of pluses and minuses. New York Style generated net sales of $9.0 million in the second quarter, up approximately 11% compared to the year ago period. Victoria had yet another strong quarter under our ownership and generated net sales of $9.9 million in the second quarter, up approximately 3.5% compared to the year ago period. Cream of Wheat generated net sales of $11.8 million and was down 3.5% in the quarter, but this comes on the heels of double digit growth during Q1 of this year. Ortega generated net sales of $34.1 million for the quarter, down 1.7% compared to the year ago quarter, but following a strong first quarter performance of over 4% growth in net sales.

Our spices and seasonings business, inclusive of the business that we acquired in 2016 and our legacy brands such as Mrs. Dash and Ac'cent, generated $85.1 million in net sales which is down 3.7% compared to last year. Back to Nature generated $17.6 million in net sales for the quarter and is tracking to our annual plan. Net sales of the rest of the brands in the portfolio were $91.1 million, compared to $94 million in the prior year quarter.

From a balance sheet perspective, I am happy to report that our inventory reduction program continues to track to schedule through the second quarter of 2018. During the first two quarters of 2018, we reduced inventory by more than $55 million to $446.3 million at the end of the second quarter compared to $501.8 million at the end of fiscal 2017.

As a reminder, we had increased inventory by nearly $65 million during the same time period last year. We expect to continue to reduce our inventory throughout the remainder of the year and expect to achieve the high end of our $75 million to $100 million inventory reduction target, reducing inventory by the end of the fiscal year to approximately $400 million to $425 million. Green Giant has been the primary beneficiary of our inventory reduction program, with a decrease of approximately $80 million already year to date.

We finished the quarter with $62.8 million in cash and net debt of $2.0 billion. We made voluntary prepayments on our term loan facility of $25 million during the quarter, reducing the balance to approximately $500 million compared to approximately $650 million at the end of fiscal 2017.

As you know, our Board of Directors authorized a share repurchase program of $50 million in March of this year, and we have repurchased $18.5 million or approximately 695,000 shares at an average price of $26.65 through the end of the second quarter. As a reminder, in May our Board of Directors increased our quarterly cash dividend rate by 2.2% from $0.465 per share of common stock to $0.475 per share of common stock.

And now for those of you who are doing some of your own modeling, in addition to what I mentioned earlier, here are some of the remaining drivers to our updated guidance. We expect net interest expense of $110.5 million to $115.5 million including cash interest expense of $105 to $110 million and interest amortization expense of $6 million; depreciation expense of approximately $36.0 million; amortization expense of approximately $18.5 million. We continue to expect an effective tax rate of approximately 25% in 2018 and we now expect our cash taxes to be less than $5 million for the year. We are also lowering our anticipated CapEx to approximately $50 million for the year.

Based on our adjusted EBITDA guidance, we expect that our Adjusted EBITDA less CapEx, cash taxes and cash interest, will be approximately $185 million to $195 million, an increase of $10 million when compared to our previous guidance. In addition, we expect our inventory reduction plan to positively impact cash by an additional $75 million to $100 million before dividends.

Also, based on the midpoint of our adjusted EBITDA guidance and inclusive of our acquisition of McCann's Irish Oatmeal which occurred after the quarter, we expect net debt to pro forma adjusted EBITDA of 5.5 to 5.6x at the end of the year.

And now I'd like to turn the call over to Bob. Bob?

Thank you Bruce. And thank you to the audience for joining our call today. As a reminder, when we laid out our vision for 2018 earlier this year, we suggested that the year would be a typical B&G Foods year, with modest topline growth, stable margins and the strong free cash flow generation that we have trained the investment community to expect since we became a public company in 2004 -- and we are on track to achieve these results.

Another "typical" for B&G Foods has been strategic acquisitions — and as you know we recently announced the acquisition of McCann's Irish Oatmeal, a leading, authentic, premium brand of Irish steel cut oatmeal. It is admittedly a relatively small brand, but we love the brand — what it stands for, and the category dynamics. With this transaction, we are adding our fifth straight business in a better for you category and I am very excited to walk you through some of the highlights

of this acquisition in a moment.

As Bruce mentioned at the start of the call, we had very strong top line growth — up nearly 7.5% versus last year's second quarter, including the benefit of M&A and equally important, our base business net sales were up more than 3%. This growth compares favorably to our full year target of 4% to 6.5% topline growth, which includes approximately 4 points of growth from the acquisition of Back to Nature and up to 2-plus points of growth in our base business between price and volume.

There are several drivers for this growth, including M&A -- Back to Nature continues to contribute to our net sales, adjusted EBITDA and cash flows, as expected. Also, our key brands like Green Giant, Pirate's Booty, Ortega, Cream of Wheat and Victoria are also performing well, as we expected. And we are also beginning to see the benefits of our pricing initiatives.

We benefited from approximately $4.3 million in pricing during the second quarter, inclusive of our list price increases as well as reductions in our promotional trade spending. And the cumulative benefit through six months is approximately $5.5 million.

As we mentioned previously, the benefits of our price increase will largely be a back half of the year event and we are expecting another $12 million to 15 million plus benefit during the next two quarters. I

will touch on costs later in the call, but as you know, the pricing strategy was designed to head off the impact of the cost increases and margin compression that we are seeing in the first half of this year, largely driven by increases in freight costs.

Now, back to our brands. I will begin with Green Giant — our largest brand. We have just reported our fifth consecutive quarter of double digit growth in net sales of Green Giant frozen, which increased by almost 20% to approximately $85 million in the second quarter. This growth is driven by strong demand for our innovation products, including our latest launch — Green Giant Veggie Spirals. While we are still in the early days of the launch, we are excited by our progress to date and we expect that this latest innovation product will be just as big as our Green Giant Riced Veggies and our Green Giant Veggie Tots. Green Giant Veggie Spirals have already achieved almost 75% distribution in our core food and mass channels and they are helping to drive growth and continued excitement about the brand.

Consumption trends are also strong for Green Giant frozen, up 17% for the latest 5 week period and these results very much support our optimism in achieving our targets through the remainder of the year. We are spending to support the brand -- Green Giant was the primary driver for a nearly $2.5 million increase in slotting and coupons during the second quarter as we rolled out our new Green Giant Veggie Spirals and we also

launched our Green Giant electronic billboard right in the heart of Times Square.

We are continually driving awareness for the brand and we also feel good about our efforts to get consumers to eat healthier and increase their vegetable consumption. In fact, we are continuing our innovation push and will be launching a number of new items in three new frozen categories later this fall, including a new line of organic vegetables.

Pirate's Booty also had a stellar quarter. As we mentioned on our last call, we were very confident in the outlook for Pirate's Booty despite the soft 1Q results which were driven by the timing of a promotional event at a key customer. Well, Pirate's Booty delivered in the second quarter, up 55% in net sales. We are very confident in our forecasts for Pirate's Booty for the remainder of the year and the long term upside for this brand. We think Pirate's Booty is truly a unique brand in the better-for-you snacking category, and given its growth profile and strong margin profile, we are convinced that Pirate's Booty is truly one of the most valuable snack brands in North America.

I would also like to talk about Ortega for a moment. As a reminder, Ortega is one of the largest Hispanic food brands sold in the United States and is the second largest brand in our portfolio. Net sales were off 1.7% for the second quarter, but are up 1.3% for the first six months of the year. Also, consumption data has been strong, up 3.2% for the thirteen weeks ended June 30th.

And now I will take a moment to discuss the newest addition to our portfolio. We were very excited to announce the acquisition of McCann's Irish Oatmeal late last month. McCann's is an authentic 150-year-old brand of premium, steel cut Irish oatmeal. McCann's is a perfect complement to Cream of Wheat and to our position in the hot cereal aisle. It is also another example, along with our acquisitions of Green Giant, Spice Islands and our other spices and seasonings brands, Victoria and Back to Nature, of our efforts in recent years to acquire better-for-you brands that taste great and resonate with today's consumer.

Within the hot breakfast cereal category, premium oatmeal has seen a lot of attention and innovation over the past couple of years, creating a tangible growth opportunity for smaller brands like McCann's. And separately, much like Cream of Wheat, McCann's is a great addition to the type of high margin brands in our portfolio that we expect to continue to support our free cash flow model for years to come.

Now, I would like to move from top line to the cost side of the business. As we have been discussing for some time now and as Bruce just mentioned, freight costs — which first began to escalate last fall — remain high. We have absorbed increases in freight costs of approximately $30 million over the past three quarters, the majority of which came during last year's fourth quarter and in this year's first quarter. Now our 2Q costs were also elevated, but as Bruce pointed out earlier, we are now beginning to lap the pace of these increases.

Outside of freight costs, we still expect to be somewhere between flat and favorable on our input costs this year. The net of these costs and our pricing initiatives are expected to set up a favorable comparison during the back half of 2018. But unfortunately we have been squeezed through the first two quarters of the year. We generated $74.4 million of adjusted EBITDA in 2Q, compared to $78.2 million a year ago.

We are encouraged by our progress on the top line and we are also very pleased with the successful implementation of our pricing strategy which we expect will really begin to benefit us during the second half of the year, while we also expect to begin to benefit from a moderating of the escalation of freight costs -- setting up a nice finish to the year. And we are also happy to announce the recent McCann's acquisition, exciting innovation led growth in Green Giant frozen and solid performance in other core brands.

Now I'd like to turn the call over to Ken who will provide additional detail on our cost-cutting initiatives. Ken?

Thank you, Bob. As Bob and Bruce have mentioned, we had a strong quarter of net sales growth led by our key brands and some early benefits of our pricing initiative. We expect our base business net sales growth in the back half of the year to be approximately 3%, which includes $12 million to $15 million of pricing benefit. On the cost side, Bob already walked you through some of the factors that were a drag on performance. So I would like to spend some time giving you an update on some of the things that we are doing to offset these costs.

First, on the freight side, while rates have increased, we are implementing efforts to be more efficient with a better mix of contract versus spot rates and increased use of intermodal service. We expect freight costs to remain elevated throughout the year, but we expect the impact will be less punitive in the back half of the year as we lap the late 2017 increases.

Beyond this year, we expect to further reduce our transportation expense with our new West Coast distribution center. We have secured a location in Southern California and expect to be operational by the end of September. We believe this new distribution center will save approximately $5 million on an annual basis once fully operational and after we close our Houston distribution center.

However, we do believe that we will begin seeing some cost benefits as soon as the fourth quarter of this year. Furthermore, this new distribution center is expected to not only reduce costs but also improve service levels to our West Coast customers with inventory several days closer to those customers than our Houston location.

On the warehousing front, we have reduced costs primarily driven by our inventory reduction program, saving approximately $1.5 million in warehousing costs year to date versus the same time last year and we expect to see full year benefits of approximately $3 million.

These initiatives are just the beginning of a comprehensive program we are undertaking to transform our supply chain to drive meaningful cost savings to maintain our margins in the face of inflationary pressures we cannot control, like freight rates.

As I mentioned last quarter, we have engaged a consultant to help us with our cost savings initiative and have been working collaboratively with them for the past two months. Last quarter, even before our study began, I shared with you that we quickly identified $25 million in anticipated annual cost savings opportunities over the next few years, or 2% of our cost of goods sold. And while we are still in the diagnostic phase of this project, we now believe there is an opportunity to possibly increase these cost savings opportunities to 4% of COGS or approximately $50 million on an annual basis. As part of our guidance to be provided at our year end conference call, we expect to have the total anticipated cost savings identified as well as their time-phasing over the next few years.

Now I'd like to turn the call back over to Bob.

Thanks, Ken, and thanks to the audience for joining us. We clearly have more work to do on the cost side, but it is a pleasure to report that our successful efforts on the topline, coupled with our inventory reduction program - are translating into significant cash generation. And we are using this cash to reduce debt, generate returns to our shareholders through our consistent dividend policy and now through our share repurchase program as well -- and finally, to be supportive of our ability to pursue accretive M&A opportunities.

With that, I would like to begin the Q&A portion of the call. Operator?

(Operator Instructions) We'll take our first question from Ken Zaslow from Bank of Montreal.

So just 2 questions. One is when I think about seeing the -- well, going [back through] the year, areas of benefit as well as (inaudible) 2019 and do you expect (inaudible) cost improvement in the 2019?

Could you just repeat the back-half of that question? It was actually very hard hearing.

Yes. The operator -- I don't know what it is. I apologize.

I apologize, too. It is...

So [would] the benefit of the pricing cost savings 2018 that translate into growth into 2019?

Well, [absolutely] , so again, this -- I think what I heard -- the pricing that [went] into effect here later in the second quarter in a big way, I mean, we certainly have a good 6 months of that pricing benefit again in the first half of 2019. But in addition, partly, trade program work that's been led by Ken and his team is in driving down (inaudible) programs is not just (inaudible) to us in the first half of 2019. We see that as a continued benefit as we look at where we can extract pricing through -- by reducing some inefficient trade. So we expect to be able to not only talk another 6 months of pricing in '19 just because of the timing of this year (inaudible) implementation. We expect as the list price (inaudible) over, the trade promotion work will continue to be done and drive pricing throughout 2019.

So you'll get EBITDA growth in 2019?

Absolutely.

And the second thing is what type of (inaudible) active (inaudible) ?

Well, I think when you saw -- and we're very pleased, so it's early in the game. But a lot of that pricing generation in the first half, and certainly through most of the second quarter, was pullback (inaudible) programs. And we have built (inaudible) actually seeing strong volume on top in a number of brands. I think it's really important to make sure everybody understood not only do we get nice (inaudible) in the second quarter and $5.5 million for the first half of the year, we've had strong volume growth too in our base business. And kind of finishing the second quarter with base business up over 3% for the quarter and close to 2% year-to-date and really strong expectation in the second half, has really changed the trajectory as we think about a number -- our (inaudible) business line. And certainly it's being led by Green Giant and, in the first half, Pirates, but we have a number of brands that actually increased during the first half of the year. So we're really expecting that to flow rate through the rest of this year and certainly, we believe will continue flow [as we head] into '19.

(Operator Instructions) Our next question comes from Cornell Burnette from Citi Research.

Just a couple of questions. In the quarter, your sales seemed to be a little bit better than where we were tracking, but EBITDA came in at about $6 million below. A lot of that was really due to gross margin; looked like gross margin [pressures] accelerated versus 1Q. And I was just curious kind of what drove that you did get some pricing in 2Q. So was the result kind of what you'd expected? Or were there some things that surprised you on the cost side during the quarter?

So actually less surprises on the cost side. So we expected to be short of what we did last year, $78 million in EBITDA. Certainly, liked to have comment a little bit better. So certainly, knew we still have freight cost increases heading through the second quarter. And we're going to see, as Bruce said and -- so we've experienced close (inaudible) remind closer to $20 million of freight cost this year in the first half. We're only looking at about $7 million in the second half. So meaning (inaudible) year-over-year, which really helps drive the EBITDA growth. Part of the second quarter is there's a little bit of a mix change from what you sell in the first quarter. You get into a lot of what I call our lower-margin Northeast brands for the barbecue summer season like B&G and B&M [as examples] , that do mix our margins down. So we didn't think from a kind of margin compression (inaudible) in the first quarter at all. So we're really (inaudible) as we look at out at the rest of the year, that our margins -- I mean, certainly improve because the freight dynamics shrinking and pricing increasing. And then some small benefits net in all of all there are kind of cost structure will actually see a small benefit here. And what we're seeing from Nielsen and we're certainly seeing from our internal results is we don't see a let up on the sales growth. I mean, the sales growth should be rock solid through the rest of this year. We know that pricing is in place. So we're going to see that pricing of $12 million to (inaudible) million pretty much split between the third and the fourth quarter. I mean, we're generating (inaudible) in the fourth quarter because just pure volume is higher so there's more price on the pure dollars sold. But other than that, it's a pretty equal split between the third and fourth quarter on pricing.

And then my second, on the back half in the full year guidance year guidance total. Just a quick question, curious why the top-end on the EBITDA guidance was (inaudible) ?

Well, I think we just wanted to -- certainly where we are today and when you are kind of what Bruce walked us through the (inaudible), the role gets us very comfortable in our guidance range. And we feel we're basically at the low-end of our guidance here. And just really felt uncomfortable to kind of have that extra $10 million, which I think was from (inaudible) the 365 on top. (inaudible) we achieve that and the only cost that we -- as we think about cost in our structure here, the only cost worry we have, what we think we know where we'll be, is freight. Because we know what those -- we know what the spot rates are, we know what our contract rates are, we believe we can mix better than we did last year and reduce the pain we saw in the fourth quarter of last year. So I think it was more of a conservative approach on both little bit on the top line on the high side on sales and the top line on the EBITDA side. And -- but we did also raise the bottom of the sales range because we're really comfortable and how well sales is performing for the year.

And what [visibility do you] have on that, kind of, freight going in the back-half? Is all of this locked in? Or (inaudible) number?

Well, nothing is ever locked in. So we are contract rates are locked in. The spot rate can move, but we kind of have good outside help understanding kind of know where that is. We don't expect unless there's major hurricanes again that changing dramatically. And we feel real comfortable. We were inefficient in the fourth quarter last year, that what we're doing this year, and because we're moving around a lot less inventory as our inventory is down that helps us whole bunch, too. So we're really lapping a terrible fourth quarter last year. [And that's] probably the biggest piece. Fourth quarter last year, one of the reasons we took the hit on EBITDA last year (inaudible) 13 -- little over [$13] on freight year-over-year that punished our EBITDA. So we know are going against a very high number. We know rates are up, but we know what we did we're improving on and with improved on as we've gone through the year. And as we look at what happened this year, with higher rates and rising rates, we saw freight hit us for about 13 -- almost 14 -- a little over $14 million in the first quarter. Year-over-year this year and really, around $5 million in the second quarter. You've seen the change happen here. We look at this -- on the rest of the year we're looking at that next 6 months to be closer to 5 to 7. So not even double the 5 we saw in the second quarter. So we have really...

I guess -- I'm going to say just the last one which is how much of your (inaudible) is basically contract (inaudible) remainder of the year?

So we're contracted. So it's just a matter of -- we are contracted. If trucks are fully available, they go out of contract rates. It's going to be -- it's a tough trucking environment. So we're hoping that the larger percentage goes out of the contractor rates. And for spot -- so we shift in the fourth quarter last year, Ken, give or take 25-ish percent spot?

Yes. Like 20 -- almost 27%.

27% spot.

We're going to bring that down like 20%. So we're still going to be in the spot market, but we're going to be down significantly. So less spot and more intermodal and that average freight rate will come down even though each individual rate is higher than it was a year ago.

Our next question comes from Karru Martinson of Jefferies.

Just in terms of -- can you remind us business where we are today on (inaudible) [business?] How much further does that have to decline?

So the good news is the decline on that business has actually been a lot less than expected. I mean, it is down in the first half, but it's really that (inaudible) to the loss of major customer, which happens to be Wal-Mart, which we lost in the basically, as we began the fourth quarter last year. We are [actually] up in the rest of the accounts [in total] year-over-year. So the loss factor is (inaudible) we really just have a third quarter hit again. So we had a major hit in the fourth quarter. And I forget the number last year, but it was our parts close to $1 million in the fourth quarter of last year. Roll over against that. We're not going to grow most likely in the fourth quarter, but we're not going to shrink any further in the fourth quarter. So it's just a third quarter hit. Third quarter is not a big canned of vegetable season. The hit last year, the big hit was the fourth quarter (inaudible) Christmas and we don't have that hit to go against. So we're very confident in kind of our internal forecast and expect Green Giant to have a very strong -- certainly a very strong first half. It's going to have a really strong second half.

Okay. And you guys mentioned the renew category launches in Green Giant frozen. We're trying to get sense of when will those rollout. Will that be all here in the second half or will that carry into the first half of next year?

Yes. This is Ken. (inaudible) well spread for both years. So we -- this is actually innovation that we have slotted as (inaudible) part of 2019, but several major (inaudible) and ourselves wanted to pull it forward. (inaudible) we work with several major customers on plans to launch this year with no [slotting] . So when you have hot innovation and people want more of it, let's just say those conversations have gotten easier and easier. And we expect to get roughly about 1/3 of the ACV will take all those items this year. And that rollout will (inaudible) throughout the first part of next year. All retailers have (inaudible) time frames. There's no common set time frame (inaudible) frozen category. So whenever the retailers will reset, we expect -- again, based on the initial read, we expect the same amount of retail distribution on these 3 new efforts as we have on our existing innovation between now and mid-next year.

Okay. And then lastly, if we look about the tuck-in acquisition on McCann's, are there additional opportunities on the horizon of that type? Of have you guys (inaudible) M&A environment?

Well, I think what we always say, we are always out looking. Certainly, opportune -- I mean, I think we've proven (inaudible) over many years but over the last 3 to 4 years that we (inaudible) acquirer and acquisitions become available. So I think the simple answer is we're going to (inaudible) for B&G in center of the store and into our frozen. And if the position is right, we're going to aggressively pursue it.

Our next question comes from Bryan Hunt from Wells Fargo Securities.

I'd like to dive into Green Giant frozen a little deeper. Can you talk about same-store growth for products away from innovation? And whether the innovation is creating a halo for growth for the whole brand?

So -- and Ken can jump in here. But so certainly the innovation has been the driving force in the frozen category for us. I think the halo effect on the rest of the frozen is we're getting tremendous support from all the key (inaudible). So Green Giant has now become meaningful. Certainly, super meaningful on the innovation, but meaningful on what we have, too. So I wouldn't say that's really moving the needle in a big way, but it's fundamentally stopped the declines on the rest of it in a big way. And we see opportunities. And we see opportunities and some of that core (inaudible) to say that halo rolls into cans. But the other thing I could say on that is outside of the distribution we lost, which happens to be a large retailer, we're seeing growth in a category that struggle. And the Green Giant canned business is growing; not a lot by a lot, but a couple of percent is meaningful outside of that one retailer. So hard to say how much of a halo that is from all the frozen innovation, but Green Giant is still a meaningful canned business. I mean, it's not where we're focusing our major efforts and all our innovation focus has been driven toward certainly the frozen. And as I said in my (inaudible) kind of the call, we're really excited about the launch we have here that's going to be happening. And as Ken said, we've had a lot of acceptance. And just exciting to enter 3 new categories. Part of our goal here is not only (inaudible) some of the powerful new innovation we have but to also to continue to spread vegetables and spread it outside of the traditional kind of vegetable category. And we're really excited about these launches and we think we're going to continue to see strong growth (inaudible) launches too. And really nice little pickup [from] kind of what we do here and kind of September through December time frame, and it certainly -- and we gained share. And the other thing is we keep gaining share in the frozen category, which is truly -- and the category is [growing] . So everybody is winning here.

(inaudible) So I was wondering if you [could] repeat] what the decline in the canned sales were in Q4 of last year.

About $20 million. From right around $20 million in the fourth quarter of last year.

So cash. And that's on the McCann's oatmeal. Can you talk about what retailers have said about your (inaudible) ? And then where you see opportunities to expand and in terms of (inaudible) as well as product line extension?

Well certainly, this is an oatmeal business. This is steel-cut Irish oatmeal. So the product line is cook on stove, instant formats, et cetera, but it's -- it is a steel-cut Irish oatmeal business. This has certainly spotty distribution. This is a business that was -- is a branded business and a private label company. We think the power of our sales and distribution network can move ACV in a big way over time. So again, this is a small brand today. Very profitable as a percentage of sales, which also excited (inaudible). We just sees this as the better-for-you [concept] opportunity; a great brand, great name. And certainly, in certain parts this country, in the Northeast, for example, people know this brand. So there's a lot of parts of the country that people don't know. And Ken and his team are looking at (inaudible) to really roll out distribution. It isn't about creating a bunch of new products here. This is about rolling out steel-cut Irish [oatmeal] under a great brand, and we think we can make a difference on this brand.

And then a last question is given where interest rates have gone and maybe your [relative] equity performance, have you changed your (inaudible) On leverage? Or do you still feel like you can go (inaudible) on an acquisition?

So our goal is to still bring leverage down to that 4.5, 5.5x net debt-to-EBITDA range that we've lived in for the past few years. And expect to continue to make progress to bring it down to those levels this year.

Our next question comes Farha Aslam from Stevens.

Given your seeing inflation in energy and the recent tariffs, do you anticipate a pickup in your packaging expenses going into next year? And are you pricing for that? Or should we [think] about margins into next year?

No. So we know today, based on to the best of our ability what tariffs have done to some of our packaging, specifically cans, for example. So between Green Giant [Canned] and a number of the brands we have that goes in cans, that increases upwards of a couple million dollars on our cost of capital. So we know where that is. There's some other smaller pluses or minuses across the board. But we also know we have other -- just purely procurement cost-savings that has nothing to do with tariffs that more than offset. So we know going into 2019, at least as of today, we are locking in some of those cost and (inaudible) cost as we speak, that we expect that procurement overall in '19 to most likely be positive to our P&L. But we're -- but certainly, tariffs have hurt. They certainly hurt (inaudible) Probably the biggest hurt we have is steel -- because of the steel component. Outside of that, everything on the tariff side is relatively small for us. So not a lot of big increases. And then as Ken mentioned (inaudible) in addition to procurement savings, we will have some nice other cost savings in this organization that [we'll] talk about much more -- a lot more detail on our year-end conference call. So we don't see margin compression at all in 2019. Hopefully, it's (inaudible). Assuming nothing goes crazy with freight further. If there's increases that are somewhat normal to deal with, that's okay, but if for some reason it ratchets up 15%, we got to find more savings to cover that, and/or price.

Understand. Clearly, the sales this quarter were very strong. But since post quarter as you've seen those reflected on shelves, how have you held out?

So are you asking about the quarter? Well, our consumption trends in general, across a number of our product lines, have been very strong. And we don't -- with what we have in place and anything can happen, but we (inaudible) change.

So we have forecasted on our list price increases -- again, we didn't (inaudible) know what would translate to be a $0.10 a unit (inaudible) to the retail level. While we have forecasted elasticity, we're not seeing a lot of elasticity on the base business. The place where we'll see elasticity in a big way is where we carve out inefficient trade promotions, where we will actually see -- we will eliminate volume that are not at satisfactory margin because the perhaps the pricing was (inaudible). So that and that's not necessarily elasticity; we're not going to trade promote as deeply in some areas as we have (inaudible) wasn't bright economically. So if there's any volume [softening] from carving out deep discount trade promotions. But those are all in our forecast for the rest of the year.

(Operator Instructions)

So the first question I have is just on is the visibility on pricing. And the confidence on the top line. And you've mentioned some of the margins (inaudible) where you have visibility. Where did you see (inaudible) risk versus volatility (inaudible)? Is it primarily the availability of the contracted freight versus having to shift spot rates or anything else we should watch?

So as Ken said before we've got very good pricing visibility on pricing. We put these expecting $12 million to $15 million of incremental benefit from our pricing initiatives. And the primary drag that we saw throughout the first few quarters of the year was freight, which, as we aid on the call, we expect an incremental of $5 million to $7 million (inaudible) over the back-half of the year.

And I think the important -- the other comment on freight is the close to $20 million we saw in the first half and a little over $14 million in the first quarter and around $5 million in the second quarter, was in our plan. We knew what that was going to look like and (inaudible) exactly to our plan. So we haven't been surprised on freight at all. So we feel pretty good what the second half of the year should look like.

That's all we have for e-mail questions. Operator, I think that means that were done, unless you have some more.

Our next question comes from Eric from Buckingham Research.

I think I missed 3/4 of call here. So I'm not even sure if I'm -- I'm sure I'm asking questions that you've already answered. But just one quick follow-up on the canned vegetable side. What would be your (inaudible) for total can sale vegetable sales this year, including the (inaudible) your customer?

Okay. So we expect -- because I have that -- we expect can sales to be somewhere between (inaudible) $135 million to $140 million this year. We expect canned sales to be down between $15 million and $20 million for the year.

Eric, just as a reminder that is canned U.S. and Canada (inaudible) as Green Giant and Le Sueur.

Right, right. Guys I can't (inaudible) hear anything. I'll have to follow-up with you later.

Our last question comes from Brian from Consumer Edge Research.

Yes. Given the issues (inaudible) I'll try to keep it very short. First question, can you just clarify whether Q2 was in line with your plan internally?

Well, yes, it was. So we knew [based on] 2 factors: pricing was getting settled mid- to later part of Q2. But in addition, we knew we were still getting hit by the freight pressures, so we knew kind of where numbers were. And we also knew that we (inaudible) launch of spiralized veggies in both the second quarter and the first quarter, there was going to be a lot more upfront slotting on Green Giant. So not more than in total for the year, but just more oriented in both couponing and launching that and slotting in the first half of the year. We're pretty comfortable that we're tracking exactly where we thought we'd be tracking for the year. We're actually performing a little better on top (inaudible) even we expected. So we actually thought some of the programs and pullbacks on trade [would] affect the volume as cans a little (inaudible), but we haven't seen that. Volume is very strong and certainly pricing has been -- is good. So we're very pleased on the top line. So that's actually been a little bit positive than expected. So certainly (inaudible) and heading into the second half of the year we were really excited about where sales can be for the whole year.

And it's going to be driven by our power brands: Green Giant and Pirate and few others, but we have a lot of our smaller brands up. We have a brand like TrueNorth that has been down and has struggled for the last couple of years. It was up over $1 million in the quarter. So there's just some really change in the dynamic and go to market that we've just really improved some of the go to market on some of the smaller brands, too. So I think everybody in general is probably showing better results because consumption trends in most of the categories that we [compete in] certainly are better than what were looking at last year same time.

Okay. And then last one for me. It sounds like in the cadence that you offered on freight. I guess [$13] million or so in Q1, $5 million in Q2, I think you said $6 million or something in the back half, which sounds like maybe that would all be Q3. Do you expect [being] flat for freight in Q4 when you lapse? I guess I'm asking because one of your (inaudible) this morning actually suggested that the inflation would be (inaudible) than for the full year than they fully -- than they anticipated. So curious if you can maybe clean that up for us.

Yes. So [what] you said initially is that $5 million to $7 million (inaudible) most of that will happen in the third quarter. So we expect flat to even some little benefit in the fourth quarter. And part of -- we're rolling up against a fourth quarter where we just were ratching up inventory in a big way last year; we're not doing that this year. And what that is (inaudible) a substantial more need for spot (inaudible) trucks than what we needed in contract. So just our demand needs now because we're bringing inventory down is that much less, which really changes our ability to mix spot and contracts. And we know rates are going up, so we're seeing kind of rates going up and we're seeing both in spot. And so that's not surprising us. I mean, it's been tracking based on what we thought all year long, but we know just what went on last [year] (inaudible) much higher inventory than we need because we're looking at (inaudible) upwards of $100 million this year. And a lot of that comes in the fourth quarter, which means a lot less trucking needs, which means a lot more contract rates for spot rates. And there's a huge difference in spot versus contract when we're out in the market, and a huge difference in spot versus (inaudible) on the frozen side of distribution, which every truck cost more to begin with. So when you multiply percentages, those numbers get bigger. And much -- a vast majority of our inventory decrease is coming out of Green Giant, which is being led by the frozen decrease in inventory. So we know it's going up; we don't (inaudible) freight at all to be higher on us in the [fourth] quarter versus last year because of all the issues we had last year.

And maybe there's even some positives, but we're kind of (inaudible) being conservative here, kind of thinking it's more flat than positive. If we got some positives that just helps the bottom (inaudible) .

At this time, there are no additional questions.

Okay. Great. Thank you.

Thank you, everyone, for joining the call.