B&G Foods - Earnings Call - Q3 2020
November 5, 2020
Transcript
Speaker 0
Good day, and welcome to the B and G Foods Third Quarter twenty twenty 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 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 ks and subsequent SEC filings for a more detailed discussion of the risks that could impact the company's future operating results and financial condition. The company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The company will also be making references on today's call to the non GAAP financial measures, adjusted EBITDA, adjusted 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. Ken Romanzi, the company's President and Chief Executive Officer, will begin the call with opening remarks and discuss various factors that affected the company's results and selected business highlights.
Then Bruce Wacha, the company's Chief Financial Officer, will discuss the financial results for the third quarter as well as expectations for the remainder of 2020. Ken will then wrap up with his thoughts regarding the priorities for the remainder of 2020 and beyond. I would now like to turn the call over to Ken.
Speaker 1
Thank you, operator. Good afternoon, everyone. Thank you for joining us today for our third quarter earnings call. With a portfolio of brands and products very well suited for the stay at home, work from home, cook from home, and eat at home world. Easy food delivered another strong quarter of sales and earnings.
Our portfolio of green giant vegetables, spices and seasonings, condiments, baking products, and other brands for all day parts, soon as needed to feed their families at home at a necessity at then out of their rediscovering of their love for cooking and baking. This resulted in another great quarter for our business with net sales increasing 22% and adjusted EBITDA growing 21.3% as compared to the third quarter of last year. These results drove the forward adjusted diluted earnings per share of $0.74 for the quarter, an increase of 37% compared to last year. We experienced tremendous strength in almost all of our brands with nearly 80% of our brands going net sales versus last year. And nearly 60% of those at a double digit pace.
Throughout this pandemic, we have remained focused on our three major priorities, protecting the health and safety of our employees, continuing to meet customer and consumer demand, and making the investments necessary to ensure their long term financial health and success are being increased. Our operations team continues to do an incredible job ensuring that our supply chain meets the unprecedented increase in demand for our products by keeping our manufacturing facilities operating efficiently while at the same time ensuring health and safety of all of our employees. I'm pleased to report you have been very successful keeping our employees safe. Keeping us safe is not only the right thing to do, but we believe that we've been a competitive advantage as it has allowed us to keep our supply chain on construction to meet this unprecedented surge in demand. Our supply chain has been a clear contributor to our growth among being the among the best in the industry.
And while we are seeing some supply shortages in about half a dozen of our product lines, we've maintained excellent customer service levels on the vast majority of our 50 plus brands throughout the pandemic. I cannot thank our frontline workers enough for working tirelessly around the clock for many months to meet our customer and consumer needs during this time. They continue to be our true heroes. Our impressive growth and net sales across our portfolio was driven by continuation of strong sustained consumption growth throughout the quarter. For the thirteen weeks ending October 3, as reported by Nielsen, the total B and G Foods portfolio consumption grew 18% versus last year.
This was nearly 50% greater than the total packaged food growth rate of 12.4% for the same time period, keeping B and G Foods consistently among the fastest growing publicly traded packaged food companies in The US, both for the quarter and the entire period since the beginning of the pandemic. In addition, we continue to gain or hold market share in nearly two thirds of our brand and categories. Our largest brand, the Giant, grew 31 and a half percent in net sales, driven by strong medicine consumption growth of 46.6% in shelf stable vegetables, where we gained 2.1 share points in the canned vegetable category and more than 13% consumption growth in frozen vegetables where we gained share in frozen vegetable category that grew 10.6%. Our spices and seasoning grew net sales 13% despite the material expenses to the food service channel. Strong retail consumption growth of 29% for the quarter drove strong net sales growth.
Many of our other brands also had a strong third quarter. For example, Metropolitan Victoria increased 55.9%, and Metropolitan Cream of Wheat increased 17.2%. And our baking products really believe the most of consumer newfound oil for baking, powered by our Clabber Girl line of baking products, which increased 23.2% versus last year. In speaking of baking, before turning the call over to Bruce, the most recent exciting announcement. As you all likely have seen, we recently entered into agreement to acquire the iconic Crisp brand of oils and chilting from the JM Smucker Company.
This acquisition is the largest in B and G Foods company history, And one of our which we are absolutely thrilled. Is an excellent complement to our existing portfolio of vision brands including Clabber Girl, Davis, Lemonfruit, Glamour's Molasses, and our pure maple syrup brands. The acquisition of Cristo is consistent with our long standing acquisition strategy of targeting well established brands with leading market positions and strong cash flow profiles at reasonable purchase price multiples. Sysco has a strong heritage as the original old vegetable shortening that transformed the way people baked and cooked over a hundred years ago. Sysco is the number one brand of shortening, the number one brand of vegetable oil, and also holds leadership positions in other cooking oils and sprays.
Consistent with our acquisition strategy, we expect the acquisition to be immediately accretive to our earnings per share and free cash flow. I'll come back later to share more about how we plan to continue to capture the many opportunities we have with Crystal and all of our brands after Bruce provides you with more details on our third quarter financial performance. Bruce?
Speaker 2
Thank you, Ken. Good afternoon, everyone. As Ken just outlined, we continue to see the same elevated business trends during the third quarter that we saw during the first two quarters of the year, largely as a result of the ongoing COVID-nineteen pandemic and its impact on consumers. Our Q3 twenty twenty results include net sales of $495,800,000 adjusted EBITDA of 104,600,000 and adjusted diluted earnings per share of $0.74 Adjusted EBITDA as a percentage of net sales was 21.1% for the quarter. Our net sales increased by $89,500,000 or 22% in the third quarter of twenty twenty when compared to last year's third quarter.
The increase in net sales was almost entirely driven by increased volumes. While the impact of M and A, pricing and foreign exchange were negligible. Similarly, base business net sales increased by 89,100,000 or 21.9%. Our volumes increased by $89,800,000 primarily driven by the elevated trends resulting from COVID-nineteen. In addition, the third quarter also benefited from an extra week.
Average weekly sales in the third quarter of twenty twenty were approximately $35,000,000 Third quarter net sales included strong performance across the majority of the brands in our portfolio, with nearly 60% of the brands in our portfolio generating double digit percentage growth in the third quarter of twenty twenty when compared to last year. Among our larger brands, net sales of Green Giant, including L'Assour increased by $37,900,000 or 31.5%. Net sales of our spices and seasonings increased by $24,300,000 or 29.5%. Net sales of Victoria increased by 6,300,000 or 55.9%. Net sales of Maple Grove Farms increased by $3,200,000 or 18.2%.
Net sales of Greenleaf Wheat increased by $2,400,000 or 17.2%. Net sales of Ortega increased by $1,000,000 or 3%. Net sales of all other brands in the aggregate increased by $14,000,000 or 11.1%. Gross profit was $136,000,000 for the third quarter of twenty twenty or 27.4% of net sales. Excluding the negative impact of $100,000 of acquisition divestiture related and non recurring expenses during the third quarter of twenty twenty, our gross profit would have been $136,100,000 or 27.5% of net sales.
Gross profit was $108,800,000 for the third quarter of twenty nineteen or 26.8% of net sales. Excluding the negative impact of $1,500,000 of acquisition divestiture related and non recurring charges during the third quarter of twenty nineteen, our gross profit would have been $110,300,000 or 27.2% of net sales. While we have continued to see significant operating leverage within our gross profit as a result of our increased sales, these benefits were offset in part during the third quarter by COVID-nineteen preventative costs, enhanced compensation during the pandemic for employees at our manufacturing facilities and approximately 100 basis points of freight rate inflation. Our COVID-nineteen costs, including the enhanced compensation for our manufacturing employees continue to run about $1,000,000 per month or approximately $4,500,000 in the third quarter. Meanwhile, on a rate basis, increased freight rates cost us about $5,500,000 in the quarter.
Selling, general and administrative expenses were $43,400,000 in the third quarter of twenty twenty, which was an increase in dollar terms, but favorable by about 60 basis points as a percentage of net sales. SG and A costs increased by $5,300,000 compared to the year ago third quarter. The dollar increase was composed of increases in consumer marketing, including investments in e commerce of $3,800,000 general and administrative expenses of $2,700,000 selling expenses of $1,800,000 and warehouse expenses of $300,000 partially offset by a decrease in acquisition divestiture related and non recurring expenses of $3,300,000 Expressed as a percentage of net sales, selling, general and administrative expenses were 8.8% for the third quarter of twenty twenty compared to 9.4% for the third quarter of twenty nineteen. We generated $104,600,000 in adjusted EBITDA in the third quarter of twenty twenty compared to $86,200,000 in the prior year quarter, which represents an increase of approximately $18,400,000 or 21.3%. The increase in adjusted EBITDA was primarily driven by an increase in net sales volume.
Adjusted EBITDA as a percentage of net sales was 21.1%, which was in line with adjusted EBITDA as a percentage of net sales in the prior year third quarter of 21.2%. Year to date, adjusted EBITDA as a percentage of net sales is now 19.8%, approximately 20 basis points higher than the prior year period. We generated adjusted net income of $47,900,000 or $0.74 per adjusted diluted share in the third quarter of twenty twenty compared to $34,900,000 or $0.54 per adjusted diluted share in the third quarter of twenty nineteen. Earlier this year, like many in our peer group, we suspended our annual guidance at the onset of the COVID-nineteen or coronavirus pandemic. While we noted that the world had changed, and that forecasting our business would be challenging due to the many factors outside of our control, we expressed our belief that we would materially exceed the financial forecasts that we had made earlier in the year of $1,660,000,000 to $1,680,000,000 in net sales and $302,500,000,000 to 312,500,000,000.0 of adjusted EBITDA, and we certainly have.
While life has not returned to normal yet, given where we are in the year, we believe we are in a position to provide guidance for the remainder of fiscal twenty twenty. And we certainly expect to see continued elevated performance throughout the remainder of the year. When factoring in our guidance, however, please keep in mind that while we are very excited about the announced acquisition of Crisco from Smucker, this transaction has not yet closed and therefore our guidance excludes the expected impact of the pending acquisition. So here it goes. Through the nine months of twenty twenty, we generated $1,458,000,000 in net sales compared to $1,190,000,000 in the year ago period, an increase of $267,500,000 or 22.5%.
Similarly, through the September of twenty twenty, we generated $287,900,000 in adjusted EBITDA compared to $233,000,000 in the year ago period, an increase of $54,900,000 or 23.5%. While we don't expect to remain at the same Toured plus 20% area growth rate into perpetuity, we do anticipate growth in the fourth quarter to remain elevated or up as much as 10% or more for net sales, which will drive the rest of our model. Based on our nine months of performance and our outlook for the fourth quarter, we expect this strong performance that we are seeing to continue throughout the remainder of the year, and we expect to generate between $1,950,000,000 and $1,970,000,000 in net sales for 2020. We expect to generate between $360,000,000 and $370,000,000 in adjusted EBITDA. We expect slight improvements in our adjusted EBITDA as a percentage of net sales as operating leverage from increased volume is expected to continue to boost margin.
However, similar to prior quarters, we expect some of these margin benefits to be offset by increased costs relating to the pandemic as well as a continued uptick in freight inflation. We are also providing adjusted diluted earnings per share guidance for the full year fiscal twenty twenty in the range of $2.3 to $2.4 We expect to spend approximately 40,000,000 to $45,000,000 for the year in CapEx. Based on our latest estimates and our continued debt pay down efforts, we are trending toward a net debt to adjusted EBITDA before share based compensation of approximately 4.5 times before the acquisition of Frisco. Pro form a for the pending acquisition of Frisco, we expect to remain well within our target net leverage ratio of 4.5 to 5.5 times. Based on our latest forecast and our estimates for the acquisition, we now expect to finish the year at approximately times to 5.1 times net debt to adjusted EBITDA pro form a for the acquisition.
Ken discussed some of the highlights earlier, explaining why we are so very excited about the acquisition. I would also like to provide some additional financial information. Similar to many other brands in our portfolio, Crisco has seen elevated performance throughout the pandemic boosted by strong double digit increases in consumption as Americans are re embracing their kitchens and rediscovering the joys of baking. As previously announced, we expect Crisco will generate approximately $270,000,000 of net sales and approximately $65,000,000 to $70,000,000 of adjusted EBITDA in 2021. We expect will be accretive to our adjusted diluted earnings per share by approximately $0.45 to $0.50 We also expect Frisco to add approximately $7,000,000 to our annual CapEx needs.
We are also very excited about the free cash flow generation profile of this business and expect it to help accelerate our deleveraging goal. We expect the acquisition to close during the fourth quarter and we expect to finance it initially through a combination of cash on hand and revolver draw. I would now like to turn the call back over to Ken to highlight our plans going forward. Ken?
Speaker 1
Thank you, Bruce. Our plans going forward follow the same blueprint we began implementing before the onset of the coronavirus pandemic. We call it our vision to grow, and it's anchored in three strategic priorities, drive organic growth, improve margins, and make accretive acquisitions. Keeping our base business healthy with modest organic growth and good cost management so we can keep our cash flow strong and balance sheet ready for accretive acquisitions for the purpose of returning a substantial portion of our excess cash to our shareholders in the form of dividend has always been the core of B and G's value proposition. The pandemic simply powered our vision for growth into overdrive.
With tremendous organic growth this year, combined with expanded margins delivering outside cash flow, we've been able to reduce our leverage from over six times at the end of last year to four and a half times projected this year. This has allowed us to get back on the acquisition hunt. And we and as we mentioned before, Crystal is a classic B and G Foods acquisition about which we couldn't be more excited. Furthermore, last week, our board of directors declared us 60 consecutive quarterly dividend since going public in 02/2004. So how do we keep all this going?
To drive organic growth, we will capitalize on the growth we're seeing driven by both existing users and the addition of new users. We believe much of the increased consumption of our brand is due to lasting changes in consumer behavior. We believe many more consumers will be working from home even after a vaccine is available. And we participate in great categories with well known leading brands that cater very well to the work from home crowd. Whether it's baking, meals, condiments, spices, and seasoning, or vegetables, we have high quality tasty products in our portfolio that really satisfy consumers' basic needs.
Our vast portfolio of branded products is driving growth in multiple ways from gaining new households, increased consumption in existing households, and both. In the latest twelve months ending in September 2020, 83% of US households purchased at least 1,000,000,000 rupees per day, and that increased from 79% last year. That equates to approximately 5,700,000.0 more households. The majority of our major brands have seen positive gains in household penetration including Green Giant, Ortega, Clavigirl, Cream of Wheat, Weber, and Victoria. And these new households love our products just like our existing consumers with a repeat rate of 53%.
Our broad portfolio of brand is driving growth in multiple ways as I mentioned before. Brands that are getting most of their growth from new buyers include Clavagirl, Mama Mary's, Victoria, and Spice Island. Brands that are getting most of their growth from existing buyers include Green Giant and Ortega. And we have brands that are seeing growth more evenly spread between new and existing buyers, including Cream Leap, Bear Creek, and Weber. We expect future growth to continue mostly from existing users as consumers have fundamentally changed their behavior and will continue to cook and eat more at home.
All one has to do is read the report about how many companies are planning to have their employees work at home more in the future regardless of whether or not there's a COVID to vaccine. And our brand portfolio will be for that board, meeting their needs with new recipe, usage ideas, and innovation as they have been throughout the pandemic. Regarding new households, I stand by my belief. I have shared in the past that they are like the fountain of use for any brand, particularly legacy brands like ours. So we expect they will add icing on the cake to our future growth opportunity.
To retain those new households and keep our strong base of existing households keep coming back, We've been increasing our marketing investment and shifting those investments to more usage oriented marketing with an emphasis on ecommerce. Examples of our recent efforts include partnering with leading media companies to promote our brands and recipes on high impact sites like delish.com and rrecipes.com. We've also launched an exclusive online interactive kitchen with a digital pantry and freezer stuffed with our brand and a host of recipes, tips, tricks to make eating at home with the family easier and more enjoyable. Additionally, we partnered with Catalina Marketing to strategically target the new incremental household we gained during the pandemic by delivering these new consumers' recipes and usage suggestions online at home, on their mobile device, and in store to help encourage consumption of our brands already found in their household and encourage repeat purchases thereafter. We've also partnered with a leading provider of household panel data to deliver enhanced consumer demographic, attitude, and purchase behavior insights.
These insights will not only aid in driving sales by better positioning ourselves to existing consumers and retail partners, but also among opportunity consumer segments that would be incremental to our business. And lastly, I'm pleased to report that the Jolly Green Giant did back on national television for the fall advertising campaign teaching consumers how to get more vegetables into their diet featuring much of our frozen innovation. Regarding ecommerce, we estimate that the portion of our sales through ecommerce has grown a 140% this year and represents approximately 7% of our consumption sales as reported by Nielsen. Now this remains only an estimate as retailers have not yet completely broken down our sales to them between traditional brick and mortar sales and click and collect and click and deliver. But we know it's growing very fast and becoming an increasingly important part of our business.
Our largest brand, Green Giant, is also our largest brand in the e commerce by far. And according to Nielsen reporting, our share of frozen vegetables in our e commerce is more than 50%, approximately four times that of our retail share. On this front, we've invested in much of the foundational work necessary to set ourselves up for success, internal and external search functionality, where to buy, assortment optimization, key images, keywords. In addition, we're partnering with ecommerce retail partners to test and learn what's most impactful for consumers of D and G food product. This foundation of work and testing is critical to our continued success in ecommerce in the near future and we've been and we believe will allow us to hit the ground running even faster in 2021.
And last but not least, product innovation will remain a major driver of our business going forward. While retailer reset delayed many new product introductions during the pandemic, we certainly didn't need the sales volume this year. We have focused our efforts on keeping the supply chain full of our best selling products. But this delay had a hidden benefit. The delayed reset gave us six to nine more months of lead time to develop new products.
This is a rare luxury in the world of new product development. As a result, our new innovation pipeline is even more robust. Some of the highlights of new product introductions late this year and early twenty twenty one include, we'll keep the innovation train rolling onto Green Giant by introducing additional products that deliver on Green Giant's mission to help people get more vegetables into their diet. Our focus will continue be to introduce new products made from vegetables that offer delicious carbohydrate replacement alternatives to large carbohydrate filled categories such as pasta, rice, and bread. This quarter, we will continue the rollout of Green Giant cauliflower knotting and cauliflower breadsticks.
In addition, we've begun the rollout of Green Giant cauliflower forward vegetable based veggie fries and veggie rings, our take on traditional onion rings. Early retail movement in these few retailers that launched these new items is very promising. And next year, we plan to introduce a line of outstanding cauliflower based pastas including ravioli, fettuccine, and mac and cheese. These are delicious. One would never know they're made from cauliflower and other vegetables and will be gluten free.
And we will not forget our core vegetable franchise, so we're introducing green giant vegetable seasoning with our DASH salt free seasoning, our cross brand product innovation. For our largest brand, OpTega, we're bringing the magic of our cauliflower to a category that really needs better food innovation. We're introducing Ortega cauliflower and corn taco shells in tortilla, one of the product formulation innovations in this category in quite some time. We will complement this launch with the introduction of our Tega Street taco sauces in three flavors in squeeze bottles to capitalize on the growing food truck craze. In spicing and seasoning, we are constantly innovating with new blends like our Dash Everything but the Salt blend, which allows people to enjoy the taste of an everything bagel without the salt.
In addition, we've launched new Weber grilling blends, including our Weber cowboy and savory steakhouse seasonings. Now the next one's very exciting. Under a licensing agreement, we just recently launched Cinnamon Toast Crunch, Cinna Dust seasoning blend, inspired by the best selling cereal cereal in America, cinnamon toast crunch. This product was introduced to much fanfare. Consumers on their social media pages and the media alike have been obsessed with the product, delivering over 2,700,000,000 media impressions since we announced it in late August.
And our initial sales results have not disappointed since it CinnaDust has quickly become the fastest selling spice blend within our entire seasoning portfolio at a major wholesale club partner, and we'll be expanding distribution of this terrific new product in early twenty twenty one. Our strategic imperative of our vision for growth is improving margin. At the core of this is better price management and our cost productivity program, which continues to bear fruit across our supply chain in the area of logistics, product and package initiatives, and manufacturing. We set a goal of driving $20,000,000 in annual cost savings and delivered that in 2019. In 2020, we expect to deliver 17,000,000 in cost savings from further optimizing our transportation cost, product weight outs, package cost reductions, and repatriating products from co packers into our manufacturing facility.
The $3,000,000 gap between our expected savings and our goal was a decision we made to delay several manufacturing projects due to our desire to not disrupt our facilities as they significantly ramped up production at the beginning of the pandemic and have not slowed down since. We will begin implementing our manufacturing cost reduction programs as we catch up with COVID demand, and we will share more on our plans in this area at our year end earnings call. Better price management is the driver of our margin improvement imperative, and COVID certainly helped in this area. Through the first three quarters of twenty twenty, we've garnered over $24,000,000 of improved pricing. And while we return to more normalized promotional levels in the third quarter, we expect most of our year to date pricing to stick this year.
Going forward, our new trade promotion management system will allow us to continue to optimize promotional price points for better efficiency and effectiveness. And our last strategic imperative of our vision for growth is of course making accretive acquisitions. As I mentioned before, this is why B and G Foods was built and we have a great track record of building value for our shareholders with this strategy. Plavagirl was a terrific addition to our portfolio and the Crisco brand is yet another perfect fit with our strategy. With strong cash flows from these acquisitions plus a healthy base business, we expect to continue to reduce our net leverage post acquisition to ensure our balance sheet is in shape to continue to add accretive businesses.
And lastly, before before I turn the call back over to the operator, I wanted to acknowledge and thank the entire B and C Foods organization of almost 3,000 people for their tireless efforts to produce the results we shared today. All while taking care of one another to stay safe and healthy yet remaining extremely productive as we do our part to keep our nation's food supply flowing. Our frontline employees are showing that they continue to be heroes throughout this pandemic, and I cannot thank them enough for their efforts. I would also like to take this opportunity to publicly welcome the Cincinnati based Crystal employees that we expect will join the B and G Foods family later this year subject to the closing of the pending acquisition. This concludes our remarks for today.
And now we'd like to begin the Q and A portion of our call. Operator?
Speaker 0
Thank you. You. And our question today comes from Brian Holland with D. A. Davidson.
Speaker 3
Yes, thanks. Good afternoon, and congratulations on the continued strong performance this year. Maybe question, shipments up, think, base business up low 20s, 21%, something like that. I believe I heard in the prepared remarks, consumption up 29 So can you help triangulate sort of going forward? Because it feels like you I think you talked about some supply issues that you were managing as well.
So as we kind of go forward here, are our inventories pretty tight with retailers? Are you going to are we going to see a setup there where you're going to have to grow shipments ahead of consumption in subsequent quarters to kind of catch up for that? And maybe help us understand maybe the progression of that over the next few quarters, like how quickly you can
Speaker 4
make that up, if you will?
Speaker 2
Yes. I mean, certainly, if you look at our inventory, it's is definitely the quarter where we increase inventory. So on on a broad basis, we are building our own inventory. On a specific basis, obviously, we're we're operating, you know, call it, seven, eight months into a pandemic, and there there is always on occasion certain brands and categories that are in in heightened demand, therefore, you know, really need to uptick our efforts from a supply standpoint. I think we're just gonna continue to watch it.
I think, you know, you you seen certainly distortion from time to time around holidays and other things where buying patterns look a little bit different. We're certainly in the holiday buying area today as we speak, you know, in November heading up towards Thanksgiving. But we also have seen periods like we talked about earlier in the year after the second quarter where you didn't see a big lift for fourth of July. So some of those are a little bit tougher to predict where they're gonna be. As Ken mentioned earlier in the call, we're we're doing really everything we can to maximize the buy and make sure that we've got product on the shelf throughout and continue to react to the needs of the retailers and ultimately the consumers.
Speaker 3
Okay. Fair enough. And then, you know, maybe just taking a step back here, know, obviously your portfolio effectively positioned within COVID, you know, where where the consumer is migrating to from a category standpoint, baking, frozen, etcetera. But your your your share in the aggregate has improved through this. So I'm wondering if you could kinda just take a step back here and and and maybe help us understand where you think your, you know consumption is improving across grocery, obviously.
But, you know, where are you guys taking share right now? Where is either the execution improving or where is, you know, kind of the connection with the consumer? Where is that most acute right now? Because, you know, I I I think it's worth noting that your share has improved in this dynamic. It hasn't worsened.
Speaker 2
Yeah. I appreciate your your your recognizing that and pointing out. Sorry, Ken. Do you wanna answer that?
Speaker 5
Well, I was gonna say some of
Speaker 1
our biggest share gains are baking powder, molasses, and frozen vegetables, and green and chef stable vegetables. I mean, you just go by category, some of those larger share gains. But, you know, two thirds of our brands have gained or held share, so it's kinda hard to pinpoint. But big big swings in baking powder, vegetable vegetables, even some late late games and some segments of our seasonings business, though.
Speaker 2
Yeah. One of the Brian, one of the key things to remember on that too is just what we've been saying for for some time is just the ability to execute and and owning as much or the right amounts of your supply chain and having good relationships with your co packers for the manufacturing that you don't own is just crucial at this point in time. And and our ability to execute and keep the factories running has has been a key factor in terms of keeping product on the shelf as it's moving in really heightened levels to the consumers.
Speaker 3
Okay. I'll give you a Give
Speaker 1
Certainly the supply chain. We have been getting, know, while we've had we've had our our issues as well, we have been getting great, great feedback from our customers that we're on on hold. We're executing well in in very important categories, keeping them in stock, which I think is a driver, you know, certainly a contributor, driving share gains.
Speaker 3
Appreciate the color, Ken and Bruce. Best of luck.
Speaker 4
Our
Speaker 0
next question comes from David Palmer of Evercore ISI.
Speaker 6
Hi. It's actually Kevin Lehman on for Dave. Thanks for the question.
Speaker 2
No worries. Thank you. Ken,
Speaker 6
in the past, you guys have talked about the opportunity to expand some of the smaller regional brands B and G has acquired over the years into more mainstream or national retailers. You mentioned just a few minutes ago, Victoria, for example, sales up, what was this, 55% in the quarter. If we look at the scanner data, ACV distribution for that brand is up almost 600 basis points. Labber Girl saw a similar ACV increase. So we're all wondering how sticky consumer trial will be, but is the pandemic demand also bringing forward some ACV gains that may have otherwise taken several years to actually achieve?
And if so, how sticky do you think those distribution wins will be, you know, in '21 and going forward? Thanks.
Speaker 1
Yes. It's a good point. It does help. I mean, you know, certainly, Impossible's also helped because, again, that's another one where we were doing very well on supply and some competitors were having some issue with supply, so it gained distribution. And then if the product do well, it can be very sticky.
I mean, distribution is only sticky if the product turns well. So so we expect that some of those distribution issues we've seen in in pasta sauce, in seasonings, in pop cereal, we've seen some gains. So we we you know, the canned vegetables, we've actually seen some gains. So so, you know, we were there ready to supply customers when we needed it and with the product performing well. You know, let's just say we're very focused on distribution, we don't wanna give any of it up.
So the COVID has helped out as well. Thank you.
Speaker 0
We'll go next to Michael Labrey of Piper Sandler.
Speaker 7
Thank you. Good evening.
Speaker 8
Hey, Michael. You mentioned how
Speaker 7
important the relationships are with your your co packers and and co manufacturers. But do you have a sense of how much, if even though growth is looking like it's continuing at elevated levels, it's showing some deceleration. It's moderating a bit certainly from the spring. Do you have a sense of how much you may be able to lessen your dependence on co packers next year and if there's a margin benefit we should expect that would come from that?
Speaker 2
Yeah. I'm
Speaker 1
not really sure the COVID situation is going to make a big difference in lessening our dependence. You have to remember that about half of our volume is done internally manufactured and half co pack. It's really the result of we're an amalgamation of the businesses we purchased. Some came with manufacturing, some didn't come with manufacturing. So and for the for the most part, our cofactors came through really well through COVID, and people continue with them.
There were there were a handful, less than a handful, that actually weren't able to keep up, And we've started to now either add more or actually repatriate repatriate the product in our own facility to expand our not necessarily give up the co packer, but expand the capacity because they were tapped out. And we don't, you know, we certainly don't want the fill rates to be continue to be low. So in some cases, we're we're actually making some product that were traditionally dedicated to to co packers. The the bigger driver of whether we produce or don't produce is gonna be based on cost. And, part of our cost savings initiatives will include, where it makes financial sense for us to move product from co packers to, to internal manufacturing.
And that is part of our cost savings going forward, But we're not gonna dramatically change the mix overnight. If we're fifty fifty today, you know, we'll be moving a few percentage points every now and again internally. It'll be a product line by product line decision. So I hope that answers your question.
Speaker 7
Yeah. That's helpful. And it sounds like it hasn't been a big shift in favor of co mans during the surge. You've you've handled it on on both internally and externally managing capacity up?
Speaker 1
Yes. For the most part, our co mans have come through. It's probably we have any issues. But if you look at the drivers of our lower fill rates, it was really two or three product lines, most of which was in our house, and there and there wasn't a lot of excess capacity to be to be had. So we're in the process of, you know, building more.
Speaker 7
That's great. And just a quick follow-up on canned corn. Any sense of how that supply looks like you'll be positioned for the next year and if you feel like there's any constraint that might come there?
Speaker 1
We believe that the entire canned vegetable category is gonna be tight because, you know, we have to make the decision on on how much volume we need. Well, in advance of the way the business works for everyone is you gotta let the farmers know early in the year what you need them to plant in the spring to be harvested in the summer and the early fall. So all of those demand plans were put together, kinda put to bed by January, and then COVID hit March. Now we went back out to look for more in May and got more, but didn't get nearly as much as we needed. And and then COVID demand was even stronger and longer than what we even thought back in May.
So and we're starting to see an uptick of of of some stockpiling in the fall on that on on that on that category. So it's gonna be it's gonna be a tight category for till the next pack season next summer.
Speaker 7
Okay. Thanks for the color.
Speaker 0
We'll go next to Karru Martinson of Jefferies.
Speaker 9
Good afternoon. Just a quick housekeeping. I thought I heard you say with Crisco pro form a, you're expecting five times to 5.1 leverage. Is that correct?
Speaker 2
Correct.
Speaker 9
Yes. Okay. And then in terms of the welcome delay giving you guys more time to formulate the product innovation pipeline here. Has that changed in terms of the cadence of where you're rolling out? You constantly hear the stories of we're focused on the core, we're not adding new stuff.
You know, how are you getting new stuff on the shelf, and when should we kind of expect that to flow through the the upcoming year here?
Speaker 1
It's a retailer by retailer decision whether or not they're gonna reset their shelves. So it's it's it's a very, very hard thing to generalize because it's and retailer by retailer. So some retailers, depending on the category, change from, you know, second to third quarter roll out of 2020 to fourth quarter, and some changed it to next year. And some said in some categories, they said we're not even gonna reset the category next year. So the good news is we've got the product developed, and we're ready to launch when the customer is ready to launch.
Speaker 10
And then when you look at
Speaker 9
the new product development, how are you tying that into the online shopping experience? Or can you formulate your product such that it can be more easily accessible to kind of a hearing a lot of grocery stores putting in kind of online shopping centers to the store. Are are you finding placement in those locations? Or are you participating in that?
Speaker 1
Not to a great extent. We do we do when we do launch something, we are making sure now that a lot of the requirements in online have certain package requirements, not necessarily product formulation. So we we are keeping in mind the the case pack and the ability, you know, to be able to be sold online. And we're certainly using some of the online retailers for early marketing because it's a great way to get out there and get some buzz behind the product.
Speaker 9
Thank you very much, guys. Appreciate it.
Speaker 0
We'll go next to William Reuter of Bank of America.
Speaker 3
Hi. I guess my question, I assume given the a relatively large acquisition that you're probably looking pause on share repurchases going forward. I guess, is that the case?
Speaker 2
I think obviously our focus right now is the acquisition and the integration and depending on where sales, EBITDA, cash flow, leverage all shake out over time, you know, share repurchase is one consideration, but but I think you're highlighting something appropriately that focus right now is on acquisition and integration.
Speaker 3
Okay. And then my other one, given some capacity constraints and challenges with regard to supply chain, I've I think you guys manufacture about half your product. Have you thought about changing that mixture of self manufacturing versus parties?
Speaker 2
I think the biggest driver on how that could change in a big way is just resulting to M and A. But certainly, Ken mentioned on the call earlier, we wanna be more efficient where it makes sense and where it makes sense for us to bring in manufacturing to do it in house. You know, that makes sense. And in some cases, the asset light model works well from a a co packer standpoint. Real big thing is to be important within our co packers as opposed to, you know, being a small player with a large co packer.
Speaker 3
Great. That's all for me. Thank you.
Speaker 4
Thanks.
Speaker 0
We'll go next to Karla Gosella of JPMorgan.
Speaker 5
Hi. Have one question on the capital structure and one on the business. With the big acquisition and you've got a callable debt in your structure, any thoughts of doing refinancing and potentially using longer term financing for the acquisition rather than your revolver?
Speaker 2
Yes. I think that's certainly something that we're going to look to evaluate over time and be opportunistic within the market context.
Speaker 5
Okay. And then when we look at the brands, I just have a couple on brand categories. Any of the strengths in this quarter, is any of it driven by timing where the shipments came in third quarter this year versus fourth quarter next year?
Speaker 1
No. In fact in fact, we we got off a good start in October. So we're you know, our shipments and consumption were pretty close in in in the third quarter, so it wasn't really it wasn't, you know, negatively affected at all.
Speaker 5
Okay. And as we go into holiday, where I'm assuming canned will be may may get some refocus, Is are you seeing pickup in promotional activity, or can you just talk about the canned category in general and what you're seeing competition there?
Speaker 1
I'm sorry. What category are you asking about?
Speaker 5
Green Giant shelf.
Speaker 1
Oh, canned vegetables.
Speaker 5
Called it canned. Yeah. Sorry.
Speaker 1
Oh, I'm sorry. Yeah. So, yeah, I mean, that just, you know, Thanksgiving and and Christmas and how Hanukkah holidays are are big, but it is it is day season for, you know, for canned vegetables. So I we expect, you know, kinda normal normal activity. We do expect, as as it has been all year long, we do expect elevated pricing in the category versus a year ago, but still it's still going to be promoted.
Speaker 5
Okay, great. Thanks.
Speaker 0
Our next question comes from Neil Holden at Barclays.
Speaker 11
Thanks for taking the question. I just had two quick ones. On the Crisco acquisition, when you guys bought Green Giant, it took probably about nine months or into the following fall before you got your own innovation into the brand. Is that something we should expect for Crisco, or is there an innovation pipeline that's coming faster than that with the brand?
Speaker 1
I would say that we don't see as much innovation with Sysco as we did in the frozen vegetable category, but there is some things that are on the book that are intriguing to us. But I don't you know, right now, we wanna focus on integrating the acquisition really well. It's a it's a big business, and we don't see it needing quite the level of innovation that Green Giant is. Having said that, I'm sure within, you know, within the year, we'll start to share with customers the the the most attractive pieces of innovation that Smucker Company has developed with. Are some some nice ideas in there that that that they they would have loved to launch if it was a higher priority for them.
But but this will certainly take a a a hard look at them given it's gonna be a very important brand in our portfolio.
Speaker 11
Sounds good. And then, Bruce, you gave two things. You gave a pricing increase year to date. I'm sorry. Heard around $2,324,000,000 dollars that you guys had realized through price increases.
And then also outlined a bunch of new tools to try to, I guess, go to consumer better and have better consumer insights. So I was wondering, when you combine those, what your confidence level on holding that pricing increase into a more normalized environment potentially in 2021 when demand becomes
Speaker 1
a little
Speaker 11
bit more flatter than what you're seeing right now?
Speaker 2
Yeah. I think the real thing to follow, there's a couple of things. So one, obviously, an organization, we're smarter today than we used to be. And that new tool was really part of the program that we started to put in place last year with pre COVID, a trade spend optimization program and how we were looking at things. So that definitely was a part of the gain and benefit that was truly in the business that we expect to hold onto, as was the list price increase that we took in the spring of twenty nineteen that we lapped in the beginning of this year.
And so that truly is. There certainly was in the March, April, May time period, even probably still into June, July, a good amount of trade spend programs being canceled, put on hold as the grocery stores were dealing with COVID and trying to just keep products on the shelf. I think we've probably started to see a little bit more of a normal environment or less abnormal environment in the third quarter, fourth quarter than we did earlier in the year. And so I think it's starting to settle a little bit. But a lot of the benefit that we took we have in place and we expect to continue to keep some of that in place.
Speaker 11
That sounds good. Thank you very much.
Speaker 0
Our next question comes from Eric Larson of Seaport Global Securities.
Speaker 8
Yes. Thank you for taking the question. Good afternoon, everyone. Just a couple of questions. Think, Ken, you alluded to and I think all the companies are talking about this.
And if you could maybe put some quantification on it. The total marketing spend, consumer you're trying to increase your spending at a time when your household penetration is up. You want to retain as many of those customers as possible. So can you give us a sense of either in a dollar number or a percentage of sales or in some measurement, how much your marketing spend is actually going up in total?
Speaker 1
Yeah. Year to date, Bruce. It's in our numbers. Hold on. So for the half of the year, our marketing spend actually went down because we were we were clamping down on spending until we were trying to get a hold of what was going what was gonna, you know, get a hold of what's going on with the consumer and and and catch her up with, with demand.
So year to date, our marketing spend was roughly was it was it was about about 10% higher than a year ago, but but down as a percentage of SaaS. Down. Right. And and half of the year, it was down in absolute, And it came back and as Bruce mentioned, we spent more in the the three plan there more in the third quarter than we did last year. We expect that to continue and spend even more in the fourth quarter versus a year ago.
So all in, our marketing spend this year will be it'll it'll be up, you know, it'll be up at least 15%.
Speaker 8
15% absolute?
Speaker 1
15%. Yeah. So Yeah.
Speaker 3
So and that's, you know, that's that's good for
Speaker 1
us to be you know, we're not we don't we're not the largest spenders in marketing, but that that's a a nice increase for us, and especially the way we're targeting it and and and using it for both online shopper marketing. And then getting getting Green Jack get getting Green Giant back on air again is critical given there's so much innovation we have with all the different things we're going after. It's it's critical that that that innovation got got some awareness and trial in an accelerated fashion.
Speaker 8
Got it. And then my follow-up question here is, obviously, we've got we've all known that there's some freight inflation, actually quite a bit. I mean, 5,500,000.0, I think, in your quarter is different. Obviously, your sales are a lot higher than they were a few years ago when it was plus 5,000,000 to plus $10,000,000 But is that is this because home delivery is this a sustainable I mean, is this is is this a situation that could get, you know, similar to what we had, you know, kind of a, you know, hyperinflationary period several years ago? Or how should we be looking at freight cost?
Speaker 2
Yeah. It's interesting because we were actually we we were looking for some freight increases this year throughout the year was was our model and what we were expecting. And probably the six months of the year, we just weren't seeing it. We actually had some favorability. So it it picked up a little bit in the third quarter.
We are continuing to watch it. Certainly because a lot of the moves that we made following that late two thousand seventeen, early two thousand eighteen increase that that you referenced, I think we're better able to deal with it today than we were back then. We're more efficient. We've taken a lot of miles out of the system. So feel a little bit more efficient, but certainly watching it.
It was something that we expected to happen this year. And then there were delays. Don't think it's hyperinflation from a freight standpoint, but certainly it's something that's ticked up a little bit and people will adjust to it if necessary.
Speaker 3
Okay. Yeah. I I would
Speaker 1
say that it's and I would say that it's basically a shortage of capacity. That's what's driving it. You even hear some of the, you know, online delivery companies saying, if you wanna order something for Christmas, you better order now. Don't don't wait till the last minute because it's not gonna arrive on time. So it's really a shortage of capacity.
And to Bruce's point, we're seeing similar 8% increases, but we're offsetting that because we've got long term logistics efficiency programs in place that, number one, are sending more from spot to contract. So spot rates have really spiked contract rates not a lot. So more from from spot to contract and a lot more in truckload versus less than truckload, and that's a huge driver on top of all the strategic moves we made to re relocate some of our warehouses to take, as Bruce mentioned, a ton of miles out. So so with those three things, we're implementing those. A rate increase, The same rate increase doesn't seem to have the same negative effect it had a few years ago.
Speaker 8
Got it. Yeah. I remember when you added your West Coast distribution center. I think that took out, you know, a huge number of miles, if I recall correctly.
Speaker 1
Huge number. And we're still saving money on that and on on a little East Coast move we did as well. So and and that's really helping out a lot as rates rise.
Speaker 2
Okay. Thank you.
Speaker 0
We'll go next to Ken Zaslow of Bank of Montreal.
Speaker 10
Hey, good afternoon, everyone.
Speaker 4
Hey, Ken.
Speaker 10
So I know it's early, but can you give us some puts and takes of how we think about 2021? Because as I see even in the fourth quarter, the rate of EBITDA growth obviously is slowing, but how do I how do we think about 2021 in terms of what you think are the biggest puts and takes and how we start framing it in our mind? I know it's early to give exact guidance, but if you could give us some puts and takes, that would be very helpful.
Speaker 1
Well, I think we're ready to do that for 2021. I'll let Bruce comment. But but I think the the one thing I would say, if you need to get your head wrapped around 2021, we'll do what we're doing. Look at 2021 versus 2019. Because that's the trend we know about.
And and trending versus 2020, you know, we're still, you know, still 2020 is still up in the air. So so there was such major changes to the business in twenty twenty one twenty twenty. Excuse me. We're trying to wrap our mind around how does how does 2021 look versus 2019? What's reasonable to assume of what's gonna carry over?
And and while we look at puts and takes versus 2021, we're really versus 2020, we're really looking to build it versus 2019, but it's you know, that's that's the trends we know of today. Very, very difficult to figure out what's gonna happen next March and April versus the last March and April where we saw just, you know, sudden unexpected huge increases in in in demand.
Speaker 2
Yeah. And and, obviously, the biggest wildcard is gonna be what happens with COVID, and are we still in a work from home, play from home, school from home type environment?
Speaker 10
Okay. And then also freight, it would obviously be be a factor as well. And then I'm assuming ad spending and and and and innovation and sliding fees. Is that also because it seems like you've actually amped up the the the new innovation. You know, if you if you kind of think about relative again to 02/2019, you know, in in a lot of respects, you're a whole new company in terms of your focus on innovation.
It seems like it's just a greater focus. Is that are those the keys that I would think of?
Speaker 2
Yeah. And the other ones that I'd add to that is is is obviously as we talked about over the last couple years, if there's inflation and it's sustained, people should expect, not just B and G, but other packaged food players to take price increases. And so probably nothing different there. Certainly, you know, you get COVID, you get massive demand. We've seen that all year.
And despite predictions of maybe it goes away, it's it's still here. And then, obviously, the the last thing is is Crisco. We've we've got an acquisition, and and that'll fit perfectly within our financials.
Speaker 10
I agree. And then just the last question I have is when I think about the innovation, again, I like it versus 02/2019. Think it's a really fair way to think about it. What do you think your success rate is and the incremental from that relative to the idea that, you know, we're all talking about, you know, you're getting new customers, new customers, but but part of it is the innovation of that. What percentage of your innovation or what percentage of your sales do you think is sticky?
Or what what percentage of your innovation is something that won't go to weigh? Do you think of that as a percentage of your sales going forward? Can you frame that for us? And and I'll leave it there, and I appreciate it.
Speaker 2
Ken, you wanna get that, Or do want me to get it?
Speaker 1
Yes, sorry. I'm sorry. I will. I think what you have to think about, we're not prepared to start to talk about percentage of business from innovation for 2021. That will all be in our guidance for next year.
We'll be able to lay out for you how much volume we believe we'll get from innovation, and how much of it is sticky and leftover. But but suffice it to say, we'll do we'll do more volume in innovation in 2021 than we'll be in 2019 because we've got a good success rate from what we've launched. Not everything has not every single SKU has been successful in the stay on shelf, but for the most part, you know, everything we launched is doing well. And then we're launching new products on top of that. So it's building, and in particular, our largest brand, Green Giant.
I mean, you we can lay it out for you, but the brand has steadily grown over the last few years, and that's basically driven by innovation.
Speaker 10
Great. I appreciate it. Be well, guys.
Speaker 2
Thanks, guys. And
Speaker 0
our final question today comes from Robert Moskow of Credit Suisse.
Speaker 1
Hi. Thank you. I
Speaker 4
had a question about
Speaker 1
this is my head again, I'm sorry.
Speaker 4
You mentioned that it was a rare luxury that retailers are kind of pushing back in terms of the merchandising reset. And can you elaborate a little bit more on that for me? Like, is it allowing you to get more distribution than than you otherwise would have expected? And if so, how are retailers making room for you? Are they are they expanding the overall category, or do you think there's other brands that are being reduced?
Speaker 1
Yeah. The rare the rare luxury comment comes from my many, years of being a marketer. What I meant the the rare luxury is really for our marketing and r and d and commercialization people because they basically got a six to nine month reprieve to get everything ready. So that's what I meant by the luxury. So going to the r and d and marketing people guess what?
You have now six to nine more months before you have to get everything to market. But just, you know, let's just say if I told them move everything you're working on up six to nine months, they'd bump and say, oh my god. How in the world are we gonna do that in a quality way? So so it's really a luxury of our marketing and r and d folks. So we didn't stop our innovation pipeline, but everything just shifted.
So we were working on 2020, '21, 2022 plan, and then and and we had great ideas. So everything just shifted, meaning we're gonna start the 2020 innovation later with the relaunch what was gonna be early twenty twenty one. We'll launch that in late twenty twenty one or early twenty twenty two. So it just it just made it it just made it more robust because we had a delay, and we certainly the the luxury was that we didn't need the new product volume, and likely so everybody focused on the base business. So, again, the comment was really to the to the folks that have to get this to get these products, you know, successfully developed and commercialized for shipment to customers.
Speaker 3
And do you think that this
Speaker 4
will give you a a a bigger, a bigger year in terms of innovation in 2021 than you than a normal year? Like, is it twice as much innovation, three times as much, and, you know, the area where it's
Speaker 1
Well, I I I would like to hope that, but I think that's more appropriate for our 2021 guidance because right now, we still don't know for every single customer and all the different categories when the reset they're going to be, because they still haven't because they haven't decided. That means, last week, COVID's not over. And, so there's still a lot of uncertainty. Okay. And we're ready to go when the customers are ready to go, but that hasn't been that hasn't been all decided yet.
Alright.
Speaker 4
I'm a big fan of stocky, so I'm looking forward to that. Alright. Thank you. Alright.
Speaker 2
Thanks, Rob.
Speaker 4
And
Speaker 0
with no further questions in queue, that will conclude today's call. We thank you for your participation, and you may now disconnect.