B&G Foods, Inc. (BGS)

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B&G Foods, Inc. (BGS)

Barclays Back-to-School Conference Call

September 06, 2012 09:45 AM ET


Dave Wenner – President and CEO

Bob Cantwell – EVP, Finance and CFO



Unidentified Analyst

Relative to many of its peers, B&G Foods has been notably successful at navigating the recent challenges that have faced the package food group. In addition to utilizing its portfolio strategy and true hedging to deliver above average based business growth, company also completed an opportunistic acquisition of The Culver Specialty Brands from Unilever, the combination of which has led to its outsized performance. We're delighted to have President and CEO, Dave Wenner and Executive Vice President in Finance and CFO, Bob Cantwell with us today to discuss B&G in more detail. And with that, I'll turn it over to Dave. Thanks for being here.

Dave Wenner

Thank you Andrew, good morning everyone. Thanks for joining us today. We appreciate your interest in the company. Our basket gets larger and larger every year which I'm very proud of and we'll just let you read those statements on your own. When you look at B&G Foods, there is some core strengths here that really are the keys to our success over the years as a growth company, albeit a primarily growth through acquisition company. Our first is that we have been able to find acquisitions that we can make immediately accretive to our business and this has been very important. We like to think that we are very, very good at executing on acquisitions, understand what we're faced with typically which includes a sales decline of some sort from the previous owner because we are in a lot of cases buying "orphan" brands from larger food companies and then turning those businesses around and not only stopping the sales decline but putting innovation in to the brands to generate modest organic growth in the brands.

We prioritize our efforts by arranging our brands in three tiers and I'll talk about this a little bit later, but that gives us focus on higher margin businesses and businesses where we really see a return on investment in if you in terms of slotting and marketing and things like that with brands and efficiency from a working capital point of view.

When you look at what we buy and what we do with it, we're looking to generate a merging structure that is well above the average in the food industry and then to turn those margins into something more tangible in terms of free cash flow and this company emphasizes free cash flow as much as any metric financially and management is incentivized around free cash flow, so it’s a very, very important measure that we look at all the time.

Out of that free cash flow, we have I think demonstrated over the years that our intention is to return a meaningful of that free cash flow to our shareholders as dividends and between that and stock appreciation as Bob will show you generate a superior return for our shareholders. It’s formula has worked very, very well over a good number of years now and so we really don't see any reason to change what we do in a lot of ways. It is work, it has generated the returns and it's been very, very successful.

So when we look at well, what are we are going to do in the future, it’s a blend of the same as it has been in the past. We're of the size that we can continue to do these incremental accretive acquisitions, if we buy the right properties and just keep on doing the Culvers of the world, year-after-year for some time yet and generate nice business growth from acquisition and then turn those businesses around and generate organic growth as well, look for cost efficiencies and just keep working on improving the margins on our business and turn those margins into free cash flow. That's the essence of what we do and we are ready to continue to do that. We're well established in terms of our capital structure to continue to do those acquisitions and continue to build this business as we have in the past.

So what do we look for when we look for acquisitions? If you followed B&G for any number of years, you're going to recognize this slide, because our acquisition strategy having been very successful really hasn’t changed a lot. We are a shelf stable branded food company, so that's the kind of properties we're looking for. And we isolate pretty much the brands because we have found that although that's an attractive proposition in private label, that proposition typically comes with lower margins and higher working capital needs and that's not what B&G Foods is. We're looking for shelf stable products and shelf stale products with defensible, niche positions in a lot of cases so that we're not competing in commodity categories and we can enjoy the margins we enjoy. And a lot of our margins are simply a function of the categories we compete in. obviously you like to acquire products that fit what you already are. So if we stay this shelf stable either grocery or household now, we have similar sales distribution in G&A systems, we get synergies that. That has and I'm sure will in the future serve us well when we're up against private equity people. And a lot of times, private equity is our principal competition in these acquisitions, because we are focusing on brands under $100 million in sales or even packages of brands under $100 million in sales.

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