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B&G Foods ramping up cost savings plan after tough year

March 1, 2019
Food & Drink

B&G Foods, Inc. plans to combat continued freight headwinds and other input cost inflation with higher pricing and a leaner organization. The maker of Green Giant, Ortega and Cream of Wheat is embarking on an aggressive cost savings program that will slash expenses across logistics, procurement, manufacturing, product and packaging, and selling, general and administrative expenses.

The move comes as a new chief executive prepares to take the reins and follows a disappointing financial performance in the recent quarter and fiscal year. Industrywide inflationary pressures and increased promotional spending contributed to a shortfall in profit. The company’s net sales and earnings also were negatively impacted by the divestiture of Pirate Brands to the Hershey Co. in October.

“While there are many things that we did well in 2018, we missed on the margin side, which unfortunately depressed our adjusted EBITDA and adjusted e.p.s., two very important measures of our performance,” said Bruce C. Wacha, chief financial officer of B&G Foods, during a Feb. 26 earnings call.

Net income for the full year ended Dec. 29, 2018, totaled $172,435,000, equal to $2.61 per share on the common stock, down 21% from $217,463,000, or $3.27 per share, in the prior year. Net sales were $1,700,764,000, up 3.3% from $1,646,387,000.

Fourth-quarter net income was $111,924,000, equal to $1.70 per share, down 14% from $129,908,000, or $1.95 per share, in the year-ago period. Net sales declined 1.8% to $458,055,000 from $466,353,000.

Kenneth G. Romanzi, chief operating officer, will take over as president and c.e.o. in April, following the retirement of longtime leader Robert C. Cantwell.

“We had a great year on many fronts, highlighted by the reawakening of Green Giant and the entire frozen vegetable category with industry leading innovation, driving solid core brand sales and consumption growth, initiating a multiyear cost savings program, realizing significant value creation with the sale of Pirate’s Booty and generating a lot of cash,” Mr. Romanzi said. “But expectations are expectations. Our earning results this past year were far from our expectations due to lower-than-expected margins. We were not able to overcome the resurgence in cost inflation across many input factors, way more than just freight. While we were among the leaders in taking list pricing last April, we were unable to gain the net price realization through trade promotion productivity we hoped for and our cost savings program was just too new to yield significant results last year.

“To drive results going forward, we’re going to redouble our efforts across both of these fronts, and we’re going to start at the top.”

Leadership changes include the upcoming retirement of Vanessa E. Maskal, executive vice-president of sales and marketing. Erich A. Fritz will join the company as chief supply chain officer, and Jordan E. Greenberg and Ellen M. Schum will step up as chief commercial officer and chief customer officer, respectively.

The leaner management structure, coupled with the elimination of positions that were dedicated to supporting the Pirate Brands business, will reduce the general and administrative cost structure by approximately $7 million on an annual basis, Mr. Romanzi said.

“In 2019, these expected savings should offset increased expenses from year-on-year salary merit increases, the full year cost of employees added midyear in 2019 and pension expenses,” he added. “Now our intention is not to shrink business over the long term, rather we believe our new, leaner structure will make us more effective as well as more efficient. In fact, we’re investing in our sales organization with some key hires to support our direct selling efforts in the club channel and with several key grocery customers, relying less on third-party brokers.

“So our 2019 plan is rooted in list pricing and cost savings initiatives that are more aggressive in 2019 than in 2018, to tame the higher inflationary pressures we expect. Both of these pillars are supported by sales growth consistent with our long-term objective of 0% to 2% top-line growth.”

The company expects continued freight inflation but at a more moderate pace in the year ahead, as well as input cost inflation driven by increases in wages, ingredients, packaging and pension expense, Mr. Romanzi said.

“For 2019, we expect net sales to be in the range of $1.635 billion to $1.665 billion, or in line with our 0% to 2% long-term top-line growth model,” Mr. Wacha said, noting the 2018 results include three quarters of Pirate Brands net sales of $74.8 million.

Additionally, management is forecasting adjusted EBITDA of $305 million to $320 million, which compares with fiscal 2018 adjusted EBITDA of $314.2 million.

By Monica Watrous

Source: Food Business News

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