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Text: These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them.
We refer you to B&G Foods' most recent Annual Report on Form 10-K and subsequent SEC filings for a more detailed discussion of the risks that could impact our company's future operating results and financial condition.
Bruce will then discuss our financial results for the third quarter, as well as expectations for 2021.
The company's performance in the third quarter was strong.
Base business net sales, which excludes Crisco, grew at plus 9.2% versus the same period two years ago, accelerating from plus 7% in Q2.
With the addition of Crisco, our Q3 2021 net sales are ahead of last year's COVID period.
Bruce will talk categories and brands later, but we are generally seeing strength across the portfolio.
Most of our key categories performed well when compared to 2019's pre-pandemic third quarter results.
Net sales of Green Giant and spices & seasonings were up double digits compared to 2019.
Net sales of Ortega and Las Palmas are two leading Mexican food brands, were up high single digits compared to 2019.
Our baking brands also had a strong performance for the quarter compared to 2019, led by Crisco, Clabber Girl, Baker's Joy, etcetera.
While demand was strong, resulting in elevated sales.
We are also managing through many of the same challenges to supply chain and costs that have plagued the industry.
Inflation in full year 2021 is in the mid single digits, with the second half increasing to a double digit increase across the portfolio.
As discussed last call, inflation on Crisco is significantly higher than the base portfolio, given the major increases in soybean and canola oil.
We have responded with significant price increases, where appropriate raising list prices and or optimizing trade to directly offset higher input costs.
While we did accurately to identify and address inflationary pressures, the majority of our price increases are effective in the second half, with the largest increase on Crisco effective at the end of September.
We project continued inflationary pressure into first half 2022 and we'll price to recover year-over-year cost increases.
Additionally, we're driving aggressive cost optimization efforts to offset continued inflation.
From a supply standpoint, we continue to deal with shortages in packaging materials, freight delays and contract manufacturing capacity.
However, overall customer service levels are improving in recent weeks, aided by lifting allocations on Green Giant SKU with the new crop pack.
Our goal is to manage our business to stable steady margins.
For the current portfolio, the goal is roughly an 18% adjusted EBITDA margin, with pricing and productivity actions recovering cost pressures on margins.
Longer term, our goal is to improve to a 20% adjusted EBITDA margin with a creative M&A, efficiencies and some base business organic growth.
In the near term, inflation will make that more challenging, but we believe that is the right target for this business.
During the third quarter, we successfully completed the integration of Crisco.
And I want to congratulate our team for a smooth transition.
Crisco is our second largest acquisition, and we are happy with the performance year to date under our ownership, despite some volatility in commodity prices.
In August, we also announced that we reached an agreement to sell our Portland, Maine manufacturing facility.
We expect the sale to close during Q1 2022.
While shutting a factory is never an easy decision, it became clear the 100 year old Portland facility had reached the end of its useful life and was no longer cost competitive.
The site will become the future home of the Roux Institute at Northeastern University, which is a great outcome for the Portland community.
We also continue to make investments in our existing facilities, including a new high tech automated line in the Ankeny, Iowa spices and seasonings facility, as well as new lines that are Hurlock, Maryland and Yadkinville North Carolina facilities to increase our capacity for Ortega Taco Sauces and Taco Shells respectively.
So finally, after four months in the business, I wanted to share the key priorities and choices that we -- the B&G team are laser focused on.
First, managing B&G Foods effectively through the current inflationary and pricing environment; second, improving organic growth performance beyond COVID recovery; third, focusing on brands and categories where we have the capabilities, scale and right to win in terms of both resources and structure; fourth, making disciplined acquisitions that are creative to our portfolio; and with our core expertise in centre store dry distribution;, and fifth, accelerating cost savings and productivity efforts to eliminate non value added costs and strengthen margins, so more to come on those in future calls and discussions, including specific plans and updates.
As Casey mentioned, we had a strong financial performance during our third quarter, despite a very challenging operating environment.
Net sales continue to be elevated and are tracking closely to the initial set of assumptions that we used to create our annual budget for fiscal 2021.
Similar to our plan for the year, we are showing an acceleration in net sales growth, as we go through the year when compared to last year, and our pre pandemic 2019 numbers.
As we continue to work our way through the balance of the year, we are approaching a period that we expect to be more similar to last year still not quite normal, with more Americans eating at home more frequently than they did pre-pandemic, but also no longer laughing the height of the pantry loading that coincided with the early days of the pandemic.
The result is that, after adjusting for the impact of Crisco, and the impact of an extra week in last year's third quarter, we not only have a net sales increase compared to 2018.
But we also have sales trends that are much more similar to those during last year's COVID-19 enhanced third quarter.
Separately, but not entirely unrelated industrywide supply chain challenges, and input cost inflation has served to catch some of the upside that we would otherwise be seeing as a result of this robust demand.
For some of our brands, this means that sales could be higher, absent out of stocks for certain items.
For many of our brands, we have the sales, but margins are challenged relative to what we typically expect from a portfolio.
Input cost across our portfolio generally continue to be up mid-single digits for most products with extreme cases for certain products like soybean, and canola oils, transportation, and napkins which are all up double digits.
And like virtually everybody in the food manufacturing industry, we are aggressively increasing price where appropriate, plus cutting costs were possible to protect profitability and ensure the long term viability of our margin structure.
Now, for the third quarter 2021 highlights.
We reported net sales of $515 million adjusted EBITDA before COVID-19 expenses of $96.4 million.
Adjusted EBITDA of $96.2 million, and adjusted diluted earnings per share $0.55.
Adjusted EBITDA both before and after COVID-19 expenses, as a percentage of net sales was 18.7%.
Net sales of $550 million was up $19.2 million, or 3.9% from Q3 2020, up $108.7 million, or 26.7% from pre-pandemic 2019.
Crisco which we acquired in December 2020 generated $71.2 million of net sales in Q3 2021 ahead of our forecast for the quarter, and well ahead of our understanding of 2018 net sales for the same time period under prior ownership.
Based business net sales, which primarily excludes Crisco decreased by $52.1 million, or 10.5%, in the third quarter of 2021, when compared to the third quarter of 2020.
As a reminder, when comparing to our previous performance in our base portfolio Q3 2020 not only included COVID-19 enhanced sales, but also the benefit of an extra week due the timing of our 53rd week in 2020, which we estimate benefited net sales for the third quarter of 2020 by approximately $35 million.
The negative comparisons to 2020 are driven by a decline of $68.5 million in unit volume, which is offset in part by $14.5 million benefit from an increase net pricing, inclusive of list price increases trade spend optimization, and a little bit of mix.
Foreign exchange added $1.9 million of benefit.
On a year-to-date basis, the cumulative benefit of net pricing index is approximately $27.3 million.
Base business net sales, which primarily excludes Crisco were up 9.2% compared to 2019, representing a two-year compound annual growth rate of 4.5% over our pre-pandemic net sales.
Our base business net sales growth in the third quarter of this year represents continued sequential acceleration in growth versus 2019, relative to our performance in this year's first and second quarters.
We generated adjusted EBITDA of $96.2 million in the third quarter, a decrease of $8.4 million or 8.1% when compared to the prior year period, but an increase of $10 million, or 11.5% compared to 2019.
The decrease in adjusted EBITDA versus Q3 2020 was largely driven by the reduction in base business volumes coupled with increases in input costs, including materially higher costs for raw materials, factory labor and other costs, transportation and warehouse spending, and one fewer reporting week.
These costs were offset in part by locking in prices through short term supply chain contracts, advanced commodities purchase agreements, implementing cost savings initiatives, coupled with lowest price increases, trade spend optimization and the addition of Crisco to the portfolio.
Adjusted diluted per share was $0.55 in Q3 2021 compared to $0.74 per share in Q3, 2020 and $0.54 per share in Q3 2019.
The majority of our key brands had declined the net sales when comparing Q3 2021 to Q3 2020.
However, approximately two-thirds of the decline resulted from one fewer recording week of net sales in Q3 2021 versus Q3 2020.
The majority of our brands had substantial increases in net sales when comparing Q3 2021 to Q3 2019.
In some cases, for brands like Ortega, and our spices and seasonings business, which were up compared to 2019 the upside was kept by limitations on production.
In other cases, for brands like back to nature and New York style, supply chain constraints resulted in declines in net sales when compared to prior years.
Net sales of Ortega were $37.6 million in the third quarter of 2021 represent an increase of $1.6 million or 4.2% compared to the third quarter of 2020 and an increase of $2.6 million or 7.3% when compared to the third quarter of 2019.
If we had unlimited manufacturing capacity, net sales growth for Ortega would have been even higher.
Demand for Ortego taco sauce, taco shells, taco seasonings and salsa remain very strong.
And as Casey said previously, this is a category and a brand that we will continue to invest in and where we believe that our recently added capacity for sauce, Shells and seasonings will lead to increased performance in 2022.
Net sales of Las Palmas were $9.1 million in the third quarter of 2021, representing an increase of $2.5 million or 37.1%, when compared to the third quarter of 2020, and an increase of point $6 million, or 7.3%, when compared to the third quarter of 2019.
Last year Las Palmas was an early harbinger of the industry wide supply chain lows that we continue to see today.
And as you may recall, that last year at this time, we were unable to fully meet demand for a tomato sauces.
Our Las Palmas issues have fortunately been resolved this year, which helps to account for the large increase versus Q3 2020.
Spices & Seasonings continues to be one of the leading drivers of our portfolio.
Net sales of our spices and seasonings including our legacy brands such as accent and Dash, and the brands that we acquired in 2016, such as Tones and Weber were approximately $92.9 million, a little bit less than 20% of our total company net sales for the quarter.
Net sales of spices & seasonings were down by approximately $14 million or 13.1% compared to Q3 2020.
The shortfall is driven primarily by capacity constraints, as demand outran our supply and manufacturing capacity.
While this phenomenon is getting better, and we expect will be alleviated in part by some additional capacity that we have coming on in the fourth quarter of this year or in early 2022, we are also lapping a massive quarter for spices & seasonings in last year's third quarter.
When comparing Q3 2019, net sales of spices & seasonings were quite strong and increased by approximately $10.3 million or 12.5%.
We are now largely through the 2021 pack season, and fully caught off on supply for Green Giant.
The result is an acceleration of performance beginning in the second half of the third quarter and continuing today.
Green Giant generated net sales of $141.2 million in the third quarter of 2021, which well down $17 million or 10.7% when compared to Q3 2020 is up $20.9 million or 17.4% when compared to Q3 2019.
Assuming a healthy holiday season in November and December, we expect continued strength for Green Giant net sales through the fourth quarter of this year.
Among our other large brands, Maple Grove Farms, which generated $20.2 million in net sales for the quarter was down $0.5 million or 2.4% compared to Q3 2020 and up $2.7 million or 15.3% compared to Q3 2019.
Similarly, Cream of Wheat, which generated $15.2 million in net sales for the quarter was down $1.2 million or 7.4% from Q3 2020, but up $1.2 million or 8.5% compared to Q3 2019.
We generated $105.7 million in gross profit for the third quarter of 2021 or 20.5% of net sales.
Excluding the negative impact of a $14.1 million accrual for the estimated present value of a multi-employer pension plan withdrawal liability that we expect to incur upon the closing of our Portland manufacturing facility and $2.8 million of acquisition, divestiture related in non-recurring expenses, including cost of goods sold during the third quarter of 2021, gross profit would have been $122.6 million or 23.8% of net sales.
Gross profit was $136 million for the third quarter of 2020 or 27.4% of net sales, excluding the impact of $0.1 million of acquisition divestiture-related and non-recurring expenses, included in cost of goods sold during the third quarter of 2020, gross profit would have been $136.1 million or 27.5% of net sales.
During the third quarter of 2021, gross profit was negatively impacted by higher than expected input cost inflation, including materially increased costs for raw materials, factory expenses and transportation.
We have attempted to mitigate the impact of inflation on gross profits by locking in prices for short-term supply contracts and advanced commodities purchases agreements, and by implementing cost savings measures.
As discussed earlier on the call, we also executed list price increases and reduced trade promotions for certain products.
The short term result is that margins have been pressed -- impressed relative.
So we expect business to generate in the short-term.
And while this trend may continue into our fourth quarter and early 2022, we do expect our efforts to return to business to its historic margin profile over time.
Selling general and administrative expenses were $46.4 million for the quarter or 9% of net sales.
This compares to $43.4 million, or 8.8% for the prior year, and $38.1 million or 9.4% in the third quarter of 2019.
The dollar increase in SG&A compared to a year ago levels is almost entirely driven by a $3.5 million increase in warehousing costs coupled with $3.3 million incremental acquisition related and non-recurring expenses, which primarily relate to the acquisition and integration of the Crisco brand and the sale of our Portland facility.
The increase in warehousing costs was primarily driven by the Crisco acquisition and customer finds relative to COVID-19 shortages and delays.
As I mentioned earlier, we generated $96.4 million in adjusted EBIT DA before COVID-19 expenses, and $96.2 million in adjusted EBITDA in the third quarter of 2021.
This compared to adjusted EBITDA of $104.6 million in Q3, 2020, and $86.2 million in Q3 2018.
Interest expense for the quarter was $26.6 million, compared to $26.4 million in the third quarter last year.
The primary driver of the increase in interest expense was the acquisition of Crisco, which, as you may recall, was financed in its entirety with a combination of revolver draw and incremental term loans.
The revolver currently costs us a little less than 2% in interest, and the term loans a little less than two or three quarters percent.
Depreciation and amortization are also up year-over-year driven primarily by Crisco.
Depreciation expense was $15.3 million in the third quarter of 2021, compared to $10.9 million in last year's third quarter.
Amortization expense was $5.4 million in the third quarter of 2021 compared to $4.7 million in last year's third quarter.
We are tracking to an effective tax rate of approximately 26% to 26.5% for the year, with taxes a little higher and this year's third quarter, due to some discrete tax items at an effective rate of 26.8% for the quarter compared to 24.7% in last year's third quarter.
We generated $0.55 in adjusted diluted earnings per share in the third quarter of 2021 compared to $0.74 per share in Q3, 2020 and $0.54 per share in Q3 2018.
We remain encouraged by these trends.
And while adjusted EBITDA margins will remain challenge this year due to higher than expected input cost inflation, including increased cost of raw materials, factory costs, transportation and warehouse costs, we also expect to generate adjusted EBITDA of $358 million to $365 million for the year.
Also similar to what we discussed last quarter, we expect the following for full year 2021.
Interest expense of $105 million to $110 million, including cash interest of $100 million to $105 million, depreciation expense of $60 million to $65 million, amortization expense of $21 million to $22 million, and an effective tax rate of approximately 26% to 26.5%.
As I said at the beginning of the call, we had a fairly strong quarter despite lapping elevated COVID-19 demand and an extra week in Q3 2020.
We remain on track to deliver the mid to high single digit growth against 2019 that we set as a target for the year, and we continue to implement pricing actions to offset inflation in the portfolio.
This concludes our remarks.
And now we would like to begin the Q&A portion of our call.

user
q3 adjusted earnings per share $0.55.
q3 sales $515 million.

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