Earnings Call: Q2 2021

Aug 5, 2021

Quarterly report

Good day, and welcome to the B&G Foods Second Quarter 2021 Earnings Call. Today's call, which is being recorded, is scheduled to last about 1 hour, including remarks by B&G Foods Management and the question and answer session. I would now like to turn the call over to Sarah Jerlam, Senior Director of Corporate Strategy and Business Development for B&G Foods. Sarah? Good afternoon, and thank you for joining us. With me today are Casey Keller, our Chief Executive Officer and Bruce Wacha, our Chief Financial Officer. You can access detailed financial information on the quarter in the earnings release we issued today, which is available at the Investor Relations section of bgfoods.com. Before we begin our 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 B&G Foods' most recent Annual Report on Form 10 ks and subsequent SEC filings for a more detailed discussion of the risks that could impact our company's future operating results and financial condition. B and G Foods undertakes have no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. We will also be making references on today's call to the non GAAP financial measures, adjusted EBITDA, adjusted EBITDA before COVID-nineteen expenses, will be 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. Stacey will begin the call with opening remarks and discuss various factors that affected our results, selected business highlights and his thoughts concerning the outlook for the remainder of fiscal 2021. Bruce will then discuss our financial results for the Q2 as well as expectations for 2021. I would now like to turn the call over to Casey. Good afternoon. Thank you, Sarah, and thank you all for joining us today for our Q2 earnings call. We are pleased with the company's performance in the 2nd quarter and our prospects for the remainder of the year. As we expected, the 2nd quarter was the most challenging to lap from a comparative perspective, given that Q2 2020 occurred at the height of pantry loading and stocking during the COVID-nineteen pandemic. However, performance remained elevated relative to 2019. As many of you know, this is my first earnings call at B&G Foods. I've now been in the role as CEO for about 6 weeks. So for the folks on the line that I haven't met yet, it is a pleasure to meet you today over the phone. I'm certainly looking forward to meeting many of you in person over the coming months as we get back into the cadence of in person investor conferences, industry events and trade shows. While I am mostly in listen mode for now, I will be happy to share some of my observations so far and then come back over the coming quarters with a more detailed discussion around strategy, the portfolio, as well as our opportunities and challenges at B&G Foods. Obviously, one of the biggest drivers of industry performance over the past year and a half has been the COVID-nineteen pandemic. In many cases, this is a matter of portfolio DNA. What are the brands? What are the categories? Coupled with management's effectiveness in keeping employees safe, mitigating business risk, maintaining supply and maximizing opportunity. Here at B&G Foods, we have done a pretty good job. At the height of the pandemic in Q2 last year, we generated some of the largest will be recorded. Today, COVID continues to be a concern in everyday life across the country and around the world. But with the passage of time and the increasing proportion of the population that has been vaccinated, we expect gradual, if uneven, recovery in normal economic will be recorded. We do have opportunities coming out of the pandemic though. When I look at the consumer trends that accelerated during the pandemic, E Commerce, Comfort Brands, baking, cooking, enhancers, flavorings and seasonings, there are lots of opportunities for the B and G portfolios at the center of these trends. We clearly aren't going to match 2020's net sales on our base business, but we are a larger business than we were in 2019, driven by continued growth and interest in cooking, baking and eating at home. B and G's base business is up 7% on a 2 year stack from 2019. Within the portfolio, our spices and seasonings, baking and meals brands are up 20% versus Q2 2019. And specifically on spices and seasonings, which is about 20% of our total company portfolio and aggregates to be the number 2 spices and seasonings business in the United States, net sales are up more than 20% from Q2 2019 and remains well positioned coming out of the pandemic as more consumers continue to cook more often at home. Also the spices and seasonings portfolio is about 15% to 20% foodservice. So we are also benefiting as restaurants and eating establishments reopen and more Americans are dining out again. Our baking portfolio is also seeing positive trends in the post pandemic world. Recent studies show that even in spring 2021, approximately 65% of consumers were baking at home at least once per week, lifting the prospects of our growing list of baking brands that includes B&G Foods stalwarts such as Brer Rabbit and Grandma's Molasses, as well as more recent additions such as Clabber Girl and Crisco. We will spend more time talking about Crisco, but so far after 8 months of ownership, we are very encouraged by the category trends and the top line performance of this business. Another significant impact coming out of the pandemic is inflation and at unprecedented levels. We are seeing inflation on key cost inputs across the portfolio, particularly in many tradable commodities, packaging material and freight. The impact on our base portfolio is approximately 3% to 4%, but much higher on the Crisco business, where soybean oil costs have doubled from last year. At B&G Foods, we identified the risks of inflation early and acted to raise prices to recover higher input costs. We will see more impact from both inflationary costs and pricing moving into the P and L through Q3 and Q4 with some lag effect on the timing of pricing and implementation with customers. Finally, I wanted to give you my perspective on B&G Foods overall and some thoughts on how we move forward. This company has grown net sales and adjusted EBITDA at a greater than 10% compound annual growth rate over the last 17 years since its IPO in 2004. The company was built upon a successful track record of acquisition related growth. We have successfully acquired and integrated more than 50 brands into our company since it was established in 1996. For sure, some of the brands are a little old and stodgy, but many of these generate significant cash. Many other brands and businesses that we have acquired, including spices, baking and meals, still have incredible opportunities in front of them. Our goals are to continue to increase sales, profitability and cash flows through organic growth and disciplined acquisitions are complementary branded businesses. Going forward, what you should expect from me is stronger focus within the portfolio on where we will grow, invest, acquire and create value. Much more to come on that in future meetings and calls. Thank you for joining us today. I will now turn the call over to Bruce for a more detailed discussion of the quarter. Bruce? Thank you, Casey. Good afternoon, everyone. As Casey mentioned, we had a strong financial performance during our Q2 despite some very challenging comparables. A year ago at this time, we were still, for the most part, sheltering at home, had little hope of an effective vaccine in the near future, and saw the majority of the away from home eating industry shutdown, other than a budding recovery of takeout dining that began midsummer last year. April, May June of 2020 were the peak months of COVID-nineteen and Americans were still eating the majority of their meals at home, creating unprecedented demand for shelf stable and frozen packaged food products, the types of products that we sell. In fact, when we reported our Q2 results last year at this time, we were discussing net sales growth that was up nearly 40% and adjusted EBITDA growth that was up nearly 45% from the prior year. Margins were also up significantly. This year, as we lap those pandemic enhanced results, I think it is also important to view the 2nd quarter in the context of its comparisons to Q2 2019. While sales were lower than March, April and May months of last year, net sales finished nicely ahead of pre pandemic levels for the quarter and we continue to track to the mid single digit increases is over 2019 levels that we have been talking to for some time. We are seeing many of the consumer behaviors that we witnessed last year persist, driving a sustained increase in the numbers of Americans preparing their meals at home and eating at home on a daily basis. As Casey said earlier, we are seeing consumers cooking, baking and eating at home more frequently than they had pre pandemic. Another factor worth mentioning before we get deeper into our results is inflation. At the beginning of this year, when we were delivering our Q4 results and outlook for the year, we raised our concerns about inflation as the broader economy restarted and began to more fully adapt will be subject to the impact of COVID-nineteen. I hate to use the word unprecedented too loosely, but we are certainly seeing inflation with little recent precedent. While our conversations about inflation may have seemed early at the time, it is now hard to read, watch or listen to the news without hearing about inflation. Inflation is here and it appears that it will likely be here for some time. In some cases, that means costs were up marginally. And in other cases, particularly for tradable commodities, costs may be up as much as double digits from last year's pandemic depressed levels. At B&G Foods, we acted quickly to take price across large parts of our portfolio to help offset inflation and preserve our margin structure. We have now executed list price increases in approximately 80% of the brands in our portfolio. While we were covered with many forward purchases, in many cases throughout portions of the year, this mitigates the damage, but the cost increases still hurt. And while we are taking price, it largely comes with a lag effect, setting up a fairly common phenomenon where the margins may be compressed a little bit more than we would like to see them in the short term, but are expected to remain fairly stable in the long term. We expect these inflationary pressures to persist and that conversations about inflation and price increases will continue well into 2022. And now for the 2021 Q2 highlights. We reported net sales of $464,400,000 adjusted EBITDA before COVID-nineteen expenses of $85,000,000 adjusted EBITDA of $83,800,000 and adjusted diluted earnings per share of $0.41 adjusted EBITDA before COVID-nineteen expenses as a percentage of net sales was 18.3%. Adjusted EBITDA as a percentage of net sales, was 18%. Net sales of $464,400,000 were down $48,100,000 or 9.4 percent from the peak of COVID Q2 2020, was up $93,200,000 or 25.1 percent from pre COVID Q2 2019. Frisco, which we acquired in December 2020, generated $58,400,000 of net sales in Q2, 2021. Base business net sales, which primarily exclude Kriska and approximately 1.5 months of Clabergirl net sales, were up $26,400,000 or 7.1 percent compared to 2019. As a reminder, we acquired Calabrio in May 2019. We continue to believe that we will see a material lift, say mid single digits in net sales over the levels that we experienced in 2019. Comparisons to 2020 are obviously driven by a decline in volumes, but we are also seeing a benefit from price, which includes list price increases, trade spend optimization and a little bit of mix. For the recent quarter, price mix was a benefit of approximately $6,200,000 bringing us to approximately $12,800,000 of benefit for the 1st 2 quarters combined. We generated adjusted EBITDA before COVID-nineteen expenses of $85,000,000 in the Q2 of 2021, a decrease of $21,900,000 or 20.5 percent. During the Q2 of 2021, we incurred approximately $1,200,000 in incremental COVID-nineteen costs at our manufacturing facilities, which primarily included temporary enhanced compensation for our manufacturing employees, compensation we continue to pay manufacturing employees while in quarantine and expenses related to other precautionary health and safety measures. We expect to see continued reduction in these costs, which averaged about $1,500,000 per month during the height of the pandemic and have averaged a little less than $500,000 per month in the Q2 of 2021. Inclusive of these costs, we reported adjusted EBITDA of $83,800,000 which is a decrease of $18,800,000 or 18.3 percent compared to last year's Q2. Adjusted EBITDA as a percentage of net sales was 18% in the Q2 of 2021 compared to 20% in the Q2 of 2020. Adjusted EBITDA as a percentage of net sales was 19.1% in the Q2 of 2019. Adjusted diluted earnings per share was $0.41 compared to $0.71 in Q2 2020 and $0.38 in Q2 twenty nineteen. Spices and seasonings continues to be one of the key drivers in the portfolio. Net sales of our spices and seasonings, including our legacy brands such as Accent and Dash, and the brands we acquired in 2016, such as Tones and Weber, were approximately $99,300,000 a little bit more than 21% of our total company net sales for the quarter. Net sales of spices and seasonings were up by approximately $700,000 or 0.7% compared to Q2 2020. Net sales of spices and seasonings were up approximately $18,100,000 or 22.2% compared to Q2 2019. Spices and seasoning sales remain elevated across all of our brands and channels, and we are seeing a real benefit as consumers will demonstrate their interest in trying new recipes while cooking and eating at home. Among our other large brands, Maple Grove Farms, which generated $20,200,000 in net sales for the quarter, was up $2,200,000 or 11.7 percent compared to Q2 2020 and up $2,400,000 or 13.4% compared to Q2 2019. Maple Grove Farms benefited from both strong retail demand as long as a recovery in its foodservice business. Workdaya generated net sales of $40,900,000 and was down $5,900,000 or 12.7 percent compared to Q2 2020, but was up $6,900,000 or 20% from Q2 2019. Ortega is a call out brand that is still benefiting from COVID like demand, but we are selling products as fast as we can make them, particularly taco shells, is being recorded. And unfortunately due to internal and external supply chain constraints, we are still not able to capitalize fully on the demand opportunity. Ortega is a brand that we are very much leaning into and our operations team is working hard to expand capacity and maximize this opportunity. We have a similar story with Las Palmas. Las Palmas generated net sales of $8,800,000 was down $3,400,000 or was up 27.7% compared to Q2 2020, but was up $1,200,000 or 15.2% compared to Q2 2019. Similar to Ortega, Los Palmas was not able to fully capture the continued demand opportunity with supply constraints in Chili's due to crop issues. Cream of Wheat, which has been one of our largest beneficiaries of the consumer patterns emerging from the pandemic, generated $14,200,000 in net sales for the quarter, and while down $3,800,000 or 20.8 percent from Q2 2020, Cream of Wheat was up $2,500,000 or 21.9 percent from its pre pandemic Q2 twenty nineteen levels. Green Giant had a tough quarter that combine the most challenging COVID comparison in our portfolio with the most challenging supply chain constraints as we wait for the new vegetable pack. Green Giant generated $105,700,000 in net sales, down $58,400,000 or down 35.6% compared to in Q2 2020 and down $7,200,000 or 6.4 percent compared to Q2 2019. Green Giant will continue to face tough comparisons and supply chain constraints until we largely get through the pack season in the Q3 of this year. However, we do expect a strong Q4 once we are fully loaded on inventory. We generated $111,600,000 in gross profit for the Q2 of 2021 or 24% of net sales. Gross profit was down when compared to Q2 2020 gross profit of $134,100,000 or 26.2 percent of net sales, the margins were up almost 100 basis points sequentially when compared to Q1 2021 gross profit, which was 23.3 percent of net sales. As we discussed earlier, we are seeing low to mid single digit input cost increases in our base business, coupled with double digit increases for Crisco. These increases also include low to mid single digit increases in factory wages, will be low single digit increases in packaging and double digit increases in freight. These costs were largely offset in part by our pricing initiatives as well as an aggressive forward purchasing strategy by various cost savings initiatives in our manufacturing facilities. Gross margin was also negatively impacted by the inclusion of Crisco in our results. Crisco comes with a higher depreciation rate than the base business, thus margin us down nearly 100 basis points for the quarter, although this impact is netted out for adjusted EBITDA and adjusted EBITDA margin purposes. These pressures were offset in part from a lapping of COVID-nineteen expenses, which were just $1,200,000 for the quarter compared to $4,300,000 during Q2 2020. Selling, general and administrative expenses were recorded $47,100,000 for the quarter or 10.1 percent of net sales. This compares to $44,300,000 or 8.7 is 10.7% in the Q2 of 2019. The dollar increase in SG and A compared to last year ago levels, is almost entirely driven by a $4,600,000 increase in warehousing costs, coupled with $1,900,000 in incremental acquisition related and non recurring expenses, which primarily relate for the acquisition and integration of the Crisco brand, as well as $300,000 in increased advertising and marketing spend. The increase in warehousing costs was primarily driven by the Crisco acquisition and customer fines related to COVID-nineteen shortages and delays. These costs were partially offset by decreases in selling of $2,500,000 and decreases of general and administrative expenses of $1,500,000 As I mentioned earlier, we generated $85,000,000 in adjusted EBITDA before COVID-nineteen costs and $83,800,000 in adjusted EBITDA in the Q2 of 2021. This compares to adjusted EBITDA of $102,600,000 in Q2 2020 $71,000,000 in Q2 2019. Interest expense was $26,700,000 compared to $24,800,000 in the Q2 last year. The primary driver of the increase in interest expense was the acquisition of Crisco. As a reminder, we financed the entire $550,000,000 acquisition price with debt, a combination of revolver draw and new term loan. The revolver currently costs us a little less than 2% in interest and the term loan a little bit less than 2.75% in interest. Depreciation and amortization are also up year over year, driven primarily by Kriska. Depreciation expense was $14,800,000 in the Q2 of 2021 compared to $10,600,000 in last year's Q2. Amortization expense was $5,400,000 in the Q2 of 2021, compared to $4,700,000 in last year's Q2. We are still expecting an expected tax rate of approximately 26 is being recorded for the year, but taxes were a little higher than that in this year's Q2 due to some discrete tax events at an effective rate of 26.8 percent for the quarter compared to 26.2% in last year's 2nd quarter. We generated $0.41 in adjusted diluted earnings per share in the Q2 of 2021 compared to $0.71 per share in Q2 2020 and $0.38 per share in Q1 2019. We remain encouraged by these trends. Despite the tough comparisons against 2020 and the continuing challenges of COVID, we still expect to achieve company record net sales for the year, reflecting a mid to high single digit increase in the base business will be recorded for the Q1 of 2019 and coupled with the addition of Crisco, in line with the $2,050,000,000 to $2,100,000,000 net sales guidance that we provided in March. And despite the continued inflationary pressures that we face, we are continuing to target the 18% plus adjusted EBITDA margins that we have generated in recent years. However, because we are not fully able to estimate the impact of COVID-nineteen, will have on our results for the remainder of fiscal 2021. We are unable at this time to provide more detailed earnings guidance for the full year of fiscal 2021. Couple of quick call outs from a modeling perspective. As I mentioned earlier, interest expense, depreciation and amortization are is continuing to trend higher than last year as a result of the Crisco acquisition. We expect full year interest expense of $105,000,000 to $110,000,000 including cash interest expense of $100,000,000 to $105,000,000 depreciation expense of $60,000,000 to 62,000,000 amortization expense of $21,000,000 to $22,000,000 and an effective tax rate of approximately 26% for the full year. Finally, as a reminder, last year's Q3 included an extra week as a result of our 53rd week during the fiscal calendar of 2020. At the time, we estimated that the extra week was worth approximately $35,000,000 in extra net sales. Now I'll turn the call back over to Casey for further remarks. Thank you, Bruce. As I said at the beginning of the call, we had a fairly strong quarter despite lapping Q2 2020, which benefited from peak COVID-nineteen demand. The quarter played out pretty much as management expected and the company remains on track to deliver the mid to high single digit growth ahead of 2019 that is set as a target for this year. I am digging in and enjoying my early days at B&G Foods and I look forward to sharing more of my perspectives on the company's performance, strategy and portfolio in the time ahead. This concludes our remarks. And now we would like to begin the Q and A portion of our call. Operator? Thank And we'll take the first question from the line of Karru Martinson with Jefferies. Please go ahead. Hi. This is Oliver Grossman on for Karru. What products would you say you have been better able to take price in and which are you having more trouble with and why would you think that's I think you mentioned that 80% of the portfolio has seen price increases. So any color there would be helpful. Yes, I can start and then Bruce can talk a little bit. I think we disclosed that we've taken pricing on 80% of the portfolio I'm at this stage because we've seen the inflation and input costs, this pressure has been pretty broad across the portfolio. We I would say the increases on our core portfolio before Crisco are probably smaller, but depending on the item. So we've been pretty successful at being able to implement those with customers and we have very strong I mean Crisco is significant when your primary component is soybean oil and that goes up by 2x, which is what it has happened since we acquired the business, those are obviously some tougher discussions, but we are getting through those because all of our customers in the industry see that those soybean ale requests are up that much. So I would say, look, overall, I think, at this pricing environment, Customers feel it. We obviously have very tough but productive discussions about it, but we've been able to largely have successful discussions around pricing and get it implemented and some of it is still yet to come. We just announced it, but it hasn't been will be implemented fully until probably a couple of months. Great. Thank you. And then just lastly, how much Top line, do you think that you guys have left on the table due to the capacity constraints that are not letting you fully meet demand? I think that's a hard one to give at this time. I think it definitely depends on the category, I mean, certainly Green Giant, our sales would be significantly higher in canned and in frozen corn on the cob where we're relying on Mother Nature and we'll get the product and so will our competitors when Mother Nature comes in throughout the crop season. So that's one where we certainly heard. Spices and seasons, up something like 20% compared to 2019, actually up versus last year. If we had unlimited supply, we have a lot more sales. I think you go down the portfolio piece by piece and you see that. Ortega, we had taco shells and taco sauce. We've been kind of struggling to keep up with demand on those 2 and have plans to get additional capacity in place, but it's not there yet. Static Guard, if we had unlimited supply, our sales would probably be kind of close to the same until people are out and about and Using static guard on their clothes when they go to work. And that's an availability of the spray cans that's been the issue. Great. Thank you very much. We'll take the next question from the line of Andrew Lazar with Barclays. Please go ahead. Good afternoon and welcome, Casey. Thank you, Andrew. Maybe I want to start off Casey. I know you're not ready to sort of lay out sort of the go forward strategy in a whole lot of detail yet. But maybe just want to get a sense, historically, right, the company has had a very successful strategy of sort of keeping the core relatively stable to growing very modestly and then kind of supplementing growth with capital allocation around dividend policy and then accretive deals. And maybe it seems that B and G may have strayed a little bit from that strategy maybe the past few years looking for a little more growth out of the core. Just trying to get a sense of if it's your intention just sort of take B and G back to its roots, so to speak, or move in an entirely different direction? And then I've just got a follow-up. Yes. I'd say, and Andrew, I do want to say that this 6 weeks in, I think I'd be crazy to say I understand everything about I know everything about where we need to go. But look, I am digging in. I'm starting to form some ideas about what we need to do and working those with the team. I would say, my approach is to say we need to keep we need to do what has been working at B&G well, which is stabilizing the shelf stable portfolio and getting or even getting modest growth out of it and then making sure that we're bringing in Accretive acquisitions that are complementary to the things that we do well that we can build in and bolt in pretty successfully. And the company has done a remarkable job of that. I would say the one piece that I'm going to probably build on top of that is, we've gotten to a stage where we compete in lots of categories with lots of brands, I don't think they're all created equal. I think there are some categories and brands and segments that we will we are better equipped to add value, create value by bringing them in here either through organic growth or synergies or other things. So so you'll probably hear me talk about places that we really want to play and where we believe we can win and where we believe we'll be more successful adding significant value creation beyond just sort of bringing them in house one time. So I'm a little it's a little early for me to talk about that, but That's a little that's kind of how I see it. So I don't want to walk away from what P and G has done well, and I will honor that and make sure that we do those things well. But I think we do need a little bit of focus on the places that we want to invest, grow, acquire, where we would prioritize going forward in the future, but still maintain the principles of buying smart and doing the right things for the business. Yes. Thanks for that. And then, Bruce, I think I heard you say that you're sticking with the 18% plus EBITDA margin. I wasn't sure and I may have just missed it. Was that also for this year or just kind of over time? Because I know you also talked about the typical lag that we have in timing between pricing and inflation and all of that. Yes, fair enough. I mean, look, I think in this quarter, you certainly saw the compression on margins, we were a little bit less than we were, 2019. Certainly, no expectation on our side that we would have hit 20% for this quarter, we're still targeting an 18% EBITDA margin because we think that's the right thing for the business and what we should be able to produce. And probably at the lower end of that 18%, 18.5% that we talked about earlier in the year, but that's still our goal. Great. And I guess just on that then, what is because there are a bunch of food companies, obviously, that aren't able to reach their, let's call it, normal EBITDA run rate from a margin perspective this year, just because of, again, the timing lags and the things that are typical with how this works in a rising input cost environment. I guess what's is it that you were faster to get pricing implemented? You've got additional productivity. Trying to get a sense of what sort of making up that or making up for that gap or that timing lag to still allow you to get to that type of margin for the year. Sure. I mean, look, not saying it's going to be easy. There's certainly going to be challenges and there's always risks, but as we highlighted when we gave our Q4 results and our outlook for the year in the beginning, part 1, we weren't giving formal guidance this year because we thought that there would be many challenges coming out of COVID, both from a sales standpoint, but also thinking through the cost side, and we have that. In theory, we should have a margin benefit from Crisco this year because it is a higher margin business. But as we said, that's an area where we've seen input costs, an area where we've taken pricing. And kind of the same to a lesser on the portfolio, we acted quick in terms of taking pricing, but we're still seeing cost increases. And so I wouldn't go too crazy with building an EBITDA margin upside opportunity for this year, because I think like everybody else in the space, we're going to see challenges, but we still think that's the right margin for the business. Yes. I would say, Andrew, just very quickly, I believe just looking from the outside coming in here that B and G did call out inflation earlier and acted on pricing earlier than A lot of the rest of the industry, which has now followed pretty aggressively. The second thing I would say is that we did a good job on certain commodities of protecting ourselves. So having coverage fairly long, We did that with soybean oil. So in the first half, we haven't seen a huge impact. We'll see more impact coming through Q3, Q4 because we were hedged are protected longer on some of the things that have gone up dramatically. And then the last thing is just sort of will focus on costs and cost savings and making sure that from spending to supply chain costs that we were doing everything possible to get productivity. And I think it's a combination of all those that's going to enable us to stay around that 18% number. Great. Thank you. We'll take the next question from the line of Michael Lavery with Piper Sandler. Please go ahead. Thank you. Good evening. I wanted to get a little bit more specific. You said you've got some good coverage on commodities, but I know when you were calling out inflation pressures or concerns earlier in the year. The Q4 was a big wildcard there. How covered is that now? Is there still a good amount of exposure. And can you give us any sense of how you may be positioned for 2022? Not in a position right now to give our 2022 guidance. We typically would do that. Yes, no, sorry, I don't mean guidance. Just do you have are you 20% covered on Not something that we would disclose at this point. I think it's fair to say that we are pretty well covered through and I'm talking about against the increases. So we're actually is fairly covered through this year, but we were covered against the larger increases through the first half of the year. The second half of the year, we will have pricing rolling through to help us offset the increasing costs that are going to be flowing through our inventory and P and L. So that's kind of what's happening. So we will have pricing coming into more in a larger effect as we see more of the cost flow in the P and L in Q3 and Q4. And I also think that's something that's going to remain fluid. I mean, we're seeing what seems like inflation across the board. 4 months ago, no one was talking inflation when we had our call. Now everybody's talking about it and you are hearing how even the retailers talking about taking price. If we continue to be in an inflationary environment in 2022, there's probably more price increases. If we end up not being in an inflationary environment Some of these cost increases go away, we'll have to watch that as well. Okay, that's helpful. And just to maybe follow-up on the pricing side. You correctly note that you were kind of a leader here talking about this is earlier as an issue than your peers. But I guess then you're also now saying that you've got the lag between the pricing and coming into effect and the inflation pressure, is it just that the inflations moved so quickly, is it just that you were trying to be careful to take pricing to not take pricing too soon and then you've got a gap? Can you help us understand some of the mechanics around the timing? Yes. I mean, there's certainly a conversation you can have with customers is around price when you have input cost increases. And you have to see that materialize so you can verify and validate those cost increases and then put them in place. And so it still takes time. And I think our point was we are aware of it. We suspect a lot of people were aware of it and seeing it. And like I said, we prepared ourselves and we are ready to act quickly, but there still is a lag effect. And that's basically That's basically when do we see the costs really going up, which by the way, they have been like increasing over the last 6 months. And when do we take pricing as well as the timeline for getting it implemented with customers. I mean, most customers are going to insist that we have a 90 day lead time on price increases. So It's just those timing factors, but we try and get it in line as much as possible, but usually there's some lag effect. Okay. Thanks so much. We'll take the next question from the line of William Reuter with Bank of America. Please go ahead. Hi. I was wondering, often some retailers reset their shelf space during the middle parts of the year, it didn't happen a lot during COVID. I was wondering if there were any changes in shelf space that you expect kind of over the next month or 2 for any of your key products? People are trying to get back to the normal cadence as much as they can. I mean, we don't honestly, we're just now getting indications from most of the The retailers that they're doing category reviews and beginning to do new shelving sets and planograms. So we don't have a lot of information yet because that process is really just is getting going. We're in initial discussions around some of our new innovation items they are going to be coming to market now and over the next several months. But I think it's a little early to understand what's happening with category reviews and even some Now we are shifting some of the timing of those around. So we don't have any information to say one way or another what's going to happen. Plus, I don't suspect that we will have a lot of vulnerabilities. It will be more about how do we optimize our SKU assortment and how do we bring new innovation into the market. Okay. And then just one follow-up, if I can. On the supply chain disruption in Green Giant, you were on allocation, with certain products. I guess, where do we stand on that now? And are you continuing to have a shortage of certain inputs such that some of your customers are not able to fully provide them all the products they'd like. Certainly on the can side for Green Giant, we're still just now getting into the pack season and that begins basically now weeks ago and continues through just past the end of Q3. And so that's a position that's Steadily improving and trying to get back to normal. Great. That's all for me. Thank you. Thanks, Bill. Your next question comes from the line of Jenna Giannelli with Goldman Sachs. Please go ahead. Hi. Thanks for taking my question. You talked about obviously your desire and interest to continue opportunistic M and A. But I guess given there are some expect it near term to maybe be, on pause in terms of the pipeline. And then just remind us again potentially how high you're willing to take leverage and just commentary on valuation. Thank you. Yes. So, great question. I think we're always looking. I mean, at B and G, it's hard to go more than a year or 2 here and there without seeing a couple of acquisitions. Don't know what the next is, we're less than a year removed from Crisco, but we are always looking, I think, certainly as Casey develops his strategy for the company. There's going to be areas that we're going to focus on where we see more or less opportunity. There's an opportunistic aspect of willing seller in order to find willing buyer. And so that will continue to evolve. As far as leverage, we've got a target ratio of 4.5 to 5.5 times. And so we're a little bit above that, but not too far above. But that's certainly a consideration that has to make the math work, both from a valuation and how we're paying for things. And so, always willing to look, always willing to do the math on how to fund something and we'll see where the next one comes. That makes sense. And then I guess I have to ask, you have some callable debt. How are you thinking about addressing that potentially coming to market, taking Great question, similar answers to the M and A, which is I wish there was an opportunity to get out in the high yield market. It's very, very attractive rates. We're happy with our capital structure today, but we are getting a little bit closer to the maturity on the 2025, although it's still a ways off. I think we got to look and evaluate and if there's something to do structurally, that's great. But right now, we're very happy with our capital structure, both on the floating side and the bonds. Thank you so much. We'll now take the next question from the line of Rob Dickerson with Jefferies. Please go ahead. Great. Thanks so much. Hey, how's it going? Hey, how's it going? Good. Bruce, just a direct question. I know there's no guidance outside of revenue provided for the year development in parts, but just kind of given the commentary here, right, in the Q and A around you're trying to hold this 18% EBITDA margin for the year and then giving revenue guidance, I'm not going to ask you what your EBITDA guidance is, but first, haven't you kind of implied what that EBITDA guide is? I just want to make sure there's not something else in there that would prevent the rest of us on this call, myself included, to kind of go that way. I'll start with that. Thanks. Yes. I think just for us, there's a recognition that there has been all this year and really beginning last year that we're in is unprecedented times and it's just harder to put a fine number out there, knowing all the risks and in some cases opportunities question of what COVID has brought for us and what happens in the coming months ahead in terms of what are restrictions in ability to eat in restaurants or not. And so there's a lot of unknowns out there. Our guidance or lack of guidance this year is a reflection on that. All right. Fair enough. And then, secular A lot of volatility. I would say, on top of that, Not only volatility in the COVID environment and expectations, what's happening, I mean, you can look at the delta variant now and say, it's hard to figure out what's going to really go there. But There's also a lot of volatility in the inflationary environment, which is I think makes giving earnings guidance hard when you can't see exactly what's going to happen and what's going forward. So I think, look, we are targeting the 18% earnings Margin, we just think there's too much volatility in the costs and the external environment to really be able to pinpoint it. And certainly, part of the thought process behind how and where we gave guidance this year was there isn't a lot of are unknowns and we didn't want to be in a situation where we're in an earnings call, whether it's the Q2 or the Q3 debating. You're a tenth above or a 10th below an EBITDA margin number. There's we're going to do our best, There's risks and like you guys said, a lot of other companies are seeing a lot more margin compression than we have. We'll continue to do this. Yes. It all makes sense. And then I guess I don't I'm not sure you're calling out as much or maybe it isn't there. I'm just not reading it the right way. It's just kind of supply chain. I know you still call out some of the capacity constraint on Green Giant, what's happening there. I know part of your network is Comand. Was there anything in Q2 or you kind of foresee back half that gives you some kind of pause on just overall supply chain complexity, inclusive waiver, capacity, what have you, top side of things. Yes. It's all very much there for us like it is for a lot of people who are doing manufacturing or relying on co packers. I think last year at this time, there was concerns could you get your factory staffed and We were pretty lucky in terms of not having the massive shutdowns like some of the folks on the protein side had. I think now it's there's risks to different brands and different products that we have and it's kind of plus or minus, but for the most part, reasonably healthy, but sure, I mean, we could sell a lot more as we called out Ortega. If we had unlimited taco shelves, we could sell a heck of a lot more, you go into most stores, you see shelves not fully stocked. With that said, we're still putting up decent sales numbers relative to 2019. So it's less about the product to sell and more about you have enough to sell to maximize the demand opportunity. Certainly, certain brands and certain products, we have that. Sorry. And then With spices and seasonings, we're it's a Kind of a good problem to have. We're running that factory full out and we're trying to hire new people. And in this environment, it's tough. So there are some areas of our business where we're trying to add capacity. It's just it's not terribly easy right now, but we're going to get it done. In some places, it's about new lines, Some places about bringing on additional labor. So we're trying to work through all this to maximize the opportunities from our portfolio. All right, great. And then just last thing quickly, I know you said upfront kind of the conversations with retailers will be somewhat ongoing, but as you get through the year, obviously, there's some complexity in kind of where those costs go as we move forward. But if we sit here today, when you go and talk to that retailer, I'm assuming like you're saying on Crisco, I'm assuming some hedges roll off on a kind of go forward rolling basis. My assumption here is you're trying to kind of price to those rolled off hedges later, right, as you think through into 2022 versus getting what you can now and then Trying to go back at the end of the year, just trying to figure out that how you think about that pricing dynamic relative to what's your visibility is just off the spot today? Yes. I mean, I think, ultimately, we have to price the business off of what the long term input costs are going to be. And so, look, at the end of the day, we need to price so we're not margin compressed over the long term. And as we've kind of said repeatedly on this call, There may be some margin compression in the short term. Our goal is to maintain our margins over the long term. Got it. All right. Thank you so much. Really appreciate it, guys. Thanks, Rob. Your next question comes from the line of Carla Casella with JPMorgan. Please go ahead. Hi. Most of my questions have been answered. But on the new capacity front, you're talking about building capacity. Is that something that could come on in 3rd quarter? That's something that's more Q4 next year in Ortega and the others where you're talking about constraint? Yes. I mean, It's probably more Q4 and Q1 of next year, to be honest. Just there might be some slight impact in Q3, but It's really a Q4 on the taco sauce and the shell line won't come on for another 6 months. I think you could count on and then on the supply constraints on Green Giant, that's really about the pack, the seasonal pack as Bruce talked about. Okay, great. And then could you just talk about whether you're starting to see as we come further out away from COVID and lockdown, And whether you're seeing any changes in promotional environment or cadence in among the different product lines like Frozen versus shelf, anything you can call out? Yes. I think what we have seen during The COVID pandemic, last fall and even this spring is promotions, there is less put traffic in the store during kind of promotional time for traditional promotional timeframes, call it Easter or whatever. And so the lift off promotion is a little bit less, but we expect as things begin to normalize that, that will improve. So we're kind of we're not pulling back on promotion necessarily in the fall period, we are expecting that there will be some promotion events and that promotion will be a little bit better than it was last fall in the middle of pandemic, but it's kind of it's gradually returning, and we're just trying to follow that and make sure that we're moving in line with what we see from promotion activity at retailers. Okay, great. Thank you. Thank you. We'll take the next question from the line of Ken Zaslow with Bank of Montreal. Please go ahead. Hey, good evening, everyone. Hey, Ken. Casey, as you kind of look at the business, a lot of CEOs come out and say, hey, look, I have a 100 day plan, a year plan, a 3 year plan. I know you're not in a position to tell us about what the plan is, but do you have a plan in which you're going to set up your plan, I guess, and like how you're going about it and what is your philosophy in going through that? And how when will we know more and what's the schedule to which you're going to reveal what your plans are on a longer Yes. I have a plan and a timeline that I'm working against and it typically it's at least 100 days before I'm at a point where I'm really willing to talk about it. And that's because I'll spend my 1st weeks months in the company just trying to understand Where do I see value? Where do I see value creation happening? Where do I see the capabilities? Where do I see what businesses are working and not working? How do we want to think about resource allocation within the company across these things, what has been where we've been successful in the past, what we need to change to maybe be successful in the future. So, I think you can expect that I'll begin to lay some of this out, Call it 3 to 6 month timeframe, probably when we have this call again in November, I'll be able to provide some more detail about where do I see us going and where will we focus and what kinds of initiatives and priorities we will put in place. And this is all I've done this a few times now. So to me, it's all about figuring out what's working, what's not, working with the team to align on a strategy to drive higher value creation and then putting the plan in place and communicating what we're doing to you all and investors, etcetera. So I'm on track with that. It's just 6 weeks is probably a little premature to say more than that, just because I think I want to do my due diligence. I want to work with the team. I want to make sure that we're aligned and I want to make sure that I'm coming out with from a real knowledge base in in terms of where we want to go, but I will tell you that I do see very clear opportunities about what we can do to improve value creation, drive value creation. Like I said before, building off, I think, what B&G has done well in the past and maybe enhancing that with more focus within the complexity of the portfolio that we have in terms of where we can drive value and where we can create value for shareholders and for the business. Fair enough. I'm not sure who to say this question to, but as you look at the Crisco business, can you assess the business case given the situation that you're in with the renewable diesel side of it? And I'm assuming obviously the profitability is pushed out, but how do you see that business case playing out? And should we think about it in a different perspective? Again, not this year, but I'm talking about in the next 2 to 3 years, that would be where I'd leave that question. Thank you. Yes. We feel very good about Crisco relative to where we built our model and we built the M and A case. Input costs are up. This is an area where they are higher than some of the other categories, but pricing is also up, and also higher than where it is in some of the other categories. We feel very good about where the top line trends are going, really like the category, feel really good about just the overall consumer trends for things involved in baking. It's very strategic for us and complements things like the molasses businesses and the Clabbergirl that we bought back in 2019. So happy with the acquisition. Would have preferred input costs to become favorable to us rather than go up, but it's also a category We're asking our competitors, kind of like most of the things across the board are taking place to reflect the change in input costs. My last question is, if you assume that the hedges roll off, have your business will your margins be restored to the 18% to 15% 18% to 18.5% margins with all the pricing and actions you're doing and then the capacity coming online and thinking about obviously the capacity constraints, the vegetable crop coming in. So if you kind of fast forward and say, hey, everything stays still from here, but time just goes by, would you say that 18% to 18.5% margin is doable after the year. Yes, you'd have to tell me what input costs are going to be a year from now and then what price is going to be Everything just stopped. Yes. Time is stopped. So the price inflation stopped, your hedges rolled off and you got the capacity restored from the vegetable crop and you just kind of went forward from here. Would you have restored all the actions and everything, would you have been Again, if prices stay permanently up at the levels where they are, I think you'll see people take price take list price up Yes, more. But I look at philosophically, our philosophy is that we will price to recover higher costs with the help of some productivity efforts to help us maintain margins and profitability, that is our philosophy and that's what we'll drive. And it's a matter of what time period you want to talk about and the lag effect of being able to implement those things. But Yes, we are going to price and cost save to make sure that we maintain margins, if that's what you're asking. Yes, I appreciate it. Thank you guys very much. Your next question will come from the line of Eric Larson with Seaport Research Group. Please go ahead. Yes. Thank you, everyone. And I also pass on my welcome to you, Casey, and good luck. Thank you. So I know that we've this whole thing has been beaten already to death. But given on the last call, I think one of the very few last comments that Dave Wenner made was that the cost inflation was rampant and it was getting worse. That's kind of how he left it. And are you have you seen your costs have you seen the Cost side kind of starting to flatten out or is it still rising? And does that mean that you have to go back to your customers and take another bite at the apple at pricing. I'm curious as to the what the second and third derivative is on your input costs of price increases or cost increases. Yes, I'd say, look, we've taken pricing actions this here, including some recent pricing actions to make sure that we're pricing against the environment that we see for the next 6 months. I would tell you that we are now in really analyzing what do we think costs will look like on certain key commodities next year and do we need to be prepared for additional pricing and watching that. So this it's a moving game. In some categories, you've seen it gone up, it's gone up a lot, but it's starting to stabilize in other categories. I'm still seeing we're still seeing some increases that are being projected into in the early part of next year, but we watch this pretty carefully and we will plan. And I think we'll have to make some decisions about where our costs our input cost inflation are relative to the pricing we have out there and do we need additional pricing actions given What we see is justifiable input cost increases. And that's a and as Bruce said, that's a it's kind of a moving target. We can't really say What that looks like in 2022 next year, although I will tell you that I don't think inflation is transitory right now. I think we're going to be looking at inflation in some areas for more than just the next 6 months, we'll be looking at some inflation impact next year. But That's part of what we do to manage the pricing and look at that and we already have kind of plans in place to say how would we execute if we needed to based on input costs. Okay, thanks. Hopefully that helps a little bit, yes. Yes, no, it does. Last follow-up here. Given all the weird volume movements COVID related from last year, where obviously the industry is down a lot because of tough comps, etcetera. Can you attribute any of that to price elasticity yet? Is it too early on some of the products? I mean, it's probably pretty hard to actually analyze if there's any negative elasticity at this point, but I'd be curious on your thoughts on that. I think the easy answer and it's probably not a full answer, but the easy answer is we have taken price and we're relatively happy with where our sales are coming out so far this year. And so, jury is still out because we're only 6, 7 months into the year. But so far, sales trends are holding up to kind of where we talked about when we started to think about 2021 even if you went back to the end of 2020. We are trending at that Mid, maybe a little bit better than mid single digits higher than 2019. Got it. Fair enough. Thank you. Honestly, the place we're going to look at elasticity the most is Crisco, because that's where the magnitude of the input costs and the magnitude of the pricing is the highest and that really hasn't rolled into the market yet. So in Q3 and Q4, we'll have a better Read on that, but that's if you ask me personally which one am I watching pretty close, it's that one. I mean, I'm tracking that almost weekly to see What's happening? And as Bruce said, so far, we have not seen any real elasticity from the pricing We've already taken, it's been implemented in kind of late May, June is when we saw the first waves of things coming in. Thank you, Casey. I appreciate the call. Thanks. Thanks, Eric. And there are no further questions at this time. I'd like to turn the conference back over to management for any additional or closing remarks. I think we'll just go ahead and close, but this is Casey. I want to say thank you for joining today and Thank you for all the great questions. And I look forward to talking to you more about what I'm seeing and where do we want to go in the future. And as I said, I think there'll be plenty of opportunities around the November call and maybe even other time slots around that, that we can have those conversations. So thank you very much. Ladies and gentlemen, this does conclude today's call. Thank you for your participation and you may now disconnect your lines.