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Executives

David L. Wenner - President, CEO and Director

Robert C. Cantwell - EVP, Finance, CFO and Director

Analysts

Bryan Hunt - Wells Fargo Securities

Robert Moscow - Credit Suisse

Sean Naughton - Piper Jaffray

Andrew Lazar - Barclays Capital

B&G Foods, Inc. (BGS) Q4 2012 Earnings Conference Call February 14, 2013 4:30 PM ET

Operator

Good afternoon ladies and gentlemen, thank you for standing by and welcome to the B&G Foods, Incorporated Fourth Quarter 2012 Financial Results Conference Call. Today’s call is being recorded. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. And instructions will be provided at that time for you to queue-up for questions.

I’d now like to turn the conference over to Mr. David Wenner, Chief Executive Officer of B&G Foods. Please go ahead, sir.

David L. Wenner

Thank you, operator. Good afternoon, everyone and welcome to the B&G Foods fourth quarter and full-year 2012 conference call. You can access detailed financial information on the quarter and the full-year in our earnings release issued today, which is available on our website at www.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 all of you to our most recent annual report on Form 10-K and subsequent SEC filings for a more detailed discussion of the risks that could impact our 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.

We also will be making reference on today’s call to the non-GAAP financial measures, adjusted EBITDA, adjusted net income and adjusted diluted earnings per share. Reconciliations of these measures to the most directly comparable GAAP financial measures are provided in today’s press release.

We will start the call with our CFO Bob Cantwell discussing our financial results for the quarter and for the full-year. After Bob’s remarks, I’ll discuss the various factors that affected our results for the periods, selected business highlights and our thoughts concerning 2013. Bob?

Robert C. Cantwell

Thank you, Dave. First, I will review the full-year briefly, then talk about the fourth quarter. Net sales for 2012 increased $89.9 million or 16.5% to $633.8 million compared to $543.9 million for 2011. Net sales of the Culver Specialty Brands, which B&G Foods acquired at the end of November 2011, contributed $81 million and net sales of the New York Style and Old London brands, which we acquired at the end of October 2012 contributed $8.4 million to our overall increase.

Net sales for our base business increased $0.5 million, with a sales price increase of $13.1 million offset by a unit volume decline of $12.6 million. Net sales increased by $3.8 million for Ortega, $1.8 million for Las Palmas, $1.2 million for Maple Grove Farms of Vermont, $1 million for B&M and $0.9 million for Ac’cent. These increases were offset by a reduction in net sales of B&G of $4.2 million, Cream of Wheat of $2.5 million, Don Pepino of $0.8 million and Underwood of $0.7 million. In the aggregate, net sales of all our other brands remain consistent.

Gross profit for 2012 increased $45.6 million or 25.6% to $223.3 million from $177.8 million in 2011. Gross profit expressed as a percentage of net sales increased 250 basis points to 35.2% in 2012 from 32.7% in 2011, attributable to a sales mix shift to higher margin products primarily due to the Culver Specialty Brands acquisition and pricing gains of $13.1 million, partially offset by commodity and packaging cost increases. Operating income increased 31.3% to $149 million for 2012 from $113.5 million in 2011.

Net interest expense increased $11 million to $47.7 million in 2012, from $36.7 million in 2011 attributable to the increase in indebtedness to finance the Culver Specialty Brands acquisition, and an additional $2.8 million of amortization of deferred debt financing costs and bond discount relating to the acquisition financing.

The Company’s adjusted net income which excludes the acquisition related transaction costs and loss on extinguishment of debt was $66.7 million, a 25.6% increase as compared to adjusted net income of $53.1 million for 2011. Adjusted diluted earnings per share increased 23.9% from a $1.09 per share in 2011 to a $1.35 per share in 2012.

Adjusted EBITDA, which for 2012 excludes the impact of $1.2 million of transaction costs relating to the New York Style and Old London acquisition and for 2011 excludes the impact of $1.4 million of transaction costs relating to the Culver Specialty Brands acquisition, increased 28.9% to $169 million from $131.1 million in 2011. Adjusted EBITDA as a percentage of net sales increased to 26.7% for 2012, from 24.1% for 2011.

Turning now to the fourth quarter of 2012, net sales increased 15.8% to $173.7 million compared to $150 million for the fourth quarter of 2011. Net sales of the Culver Specialty Brands contributed $15.7 million and net sales of the New York Style and Old London brands contributed $8.4 million to the Company’s overall increase in the fourth quarter. For our business, a sales price increase of $2.8 million offset by a $3.2 million unit volume decline resulted in the net sales decrease of $0.4 million.

Net sales increased by $0.9 million for Las Palmas, $0.5 million for Ac’cent, $0.5 million for B&M, $0.3 million for Emeril, and $0.3 million for the Polaner business. These increases were offset by decreases of $1.3 million from Maple Grove Farms of Vermont, $0.9 million for B&G and $0.7 million for Cream of Wheat. All other brands remain consistent in the aggregate.

Gross profit for the fourth quarter of 2012 increased $10.2 million or 20.7% to $59.5 million from $49.3 million in 2011. Gross profit as a percentage of net sales increased to a 130 basis points to 34.2% for the fourth quarter of 2012 from 32.9% in the fourth quarter of 2011. The increase in gross profit as a percentage of net sales was primarily attributable to a sales mix shift to higher margin products and pricing gains of $2.8 million, partially offset by commodity and packaging cost increases.

Excluding acquisition related transaction costs, selling, G&A – selling, general and administrative expenses increased $3.7 million to $18.8 million for the fourth quarter of 2012 compared with $15.1 million for the fourth quarter of 2011. The increase was primarily attributable to an increase in consumer marketing of $3.4 million. Expressed as a percentage of net sales, our selling, general and administrative expenses increased 50 basis points to 11.5% for the fourth quarter of 2012 from 11% in the fourth quarter of 2011.

Operating income increased 20.8% to $37.4 million for the fourth quarter of 2012 from $31 million in the fourth quarter of 2011. Net interest expense for the fourth quarter of 2012 and the fourth quarter of 2011 remained consistent at $11.8 million.

The Company’s adjusted net income was $17 million, a 15.8% increase as compared to adjusted net income of $14.7 million for 2011. Adjusted diluted earnings per share increased 6.7% from $0.30 per share in 2011 to $0.32 per share in 2012. For the fourth quarter of 2012, adjusted EBITDA increased 20% to $44 million from $36.7 million for the fourth quarter of 2011. Adjusted EBITDA as a percentage of net sales increased to 25.3% for the fourth quarter of 2012, from 24.4% for the fourth quarter of 2011.

Moving on to the balance sheet, we ended 2012 with $637.7 million in long-term debt and our leverage was 3.6 times pro forma adjusted EBITDA. During the fourth quarter of 2012, we redeemed 101.5 million of our 7.625% senior notes and amended our credit agreement to among other things effectively reduce the interest rate on our Tranche B Term Loan by 50 basis points. These actions will reduce our ongoing cash interest expense by $8.5 million.

Annual cash interest expense for 2012 was $42.6 million, cash interest expense for 2013 is expected to be approximately $34 million. Capital expenditures for 2012 for $10.6 million and are expected to be approximately $13 million for 2013.

I will now turn the call back over to Dave for his remarks.

David L. Wenner

Thank you, Bob. Good afternoon again everyone. This was a quarter of significant accomplishment for our Company, but it was not without its challenges. The number Bob cited represents record net sales in the single month, December, in a single quarter with almost 16% increase we saw in the fourth quarter and on an annual basis with a 16.5% net sales increase in fiscal 2012.

The 28.9% increase in adjusted EBITDA to a $169 million set a Company record as well, as did the almost 24% increase in adjusted diluted earnings per share. At a $169 million, adjusted EBITDA for the year came in at the middle of our projected range of $168 million to $170 million.

The improvement in performance for the year reflected the continued success of the Culver Brands acquisition from November 2011, continued price increases into the fourth quarter and benefits from our cost reduction efforts. In addition to all of this we completed another acquisition, this time in snacks at the end of October that we expect will contribute to further gains in our business in 2013.

We also completed a stock offering that reduced our leverage in the business to a pro forma number right around 3.6 times adjusted EBITDA at year-end. This of course positions our Company to execute any perspective acquisition that may arise in 2013 with speed and surety. All in all, it was an eventful and productive quarter.

The challenges I alluded to, revolve around volumes in our base business. Net sales in the quarter were down 30 basis points overall for the volume – the decline in volume of just over 2%, offset for the most part by net price increases. I characterize the increases in that way because the smaller share of the increases came from changes in list pricing. For the most part pricing came from the continued elimination of inefficient trade spending. This is a discipline that we’ve been exercising for a number of years and we continue to refine our trade programs every quarter, even in the phase of increasing trade spending in certain categories.

Our volume decline in the quarter was roughly 2% of fourth quarter of 2011 sales, a bit higher than declines seen in previous quarters. The wild card in the fourth quarter was of course hurricane Sandy, which severely affected our strongest markets and even our headquarters. B&G corporate offices were without power for the better part of nine days and only good work and foresight by our IT group prevented the shutdown of our systems, as it was the hurricane shutdown, many supermarkets and food service operators in the New York, New Jersey area. While it’s very difficult to be precise engaging the effect, I’m comfortable estimating that Sandy accounted for at least 1/3 and it’s much as one half of the volume decline we saw in the quarter.

Setting Sandy aside, the volume trends improved overall in the quarter, but did not fully recover. We are seeing similar results with other food companies and syndicated data indicates that industry volumes have not yet recovered as well. The wild card as we enter 2013 is now the payroll tax increase, which will most certainly squeeze a large percentage of people. The question still to be answered is, will that result in a pullback to cooking at home, which could benefit us or a more general pullback as we’ve seen in 2012.

We did see growth in our Tier 1 brands, which came 1% net sales for the quarter. Las Palmas and Ortega both grew in the quarter with Las Palmas had particularly good quarter with 9% growth. This brand continues to be very strong in the West Coast and our efforts to spread its distribution to other geographies continue. Cream of Wheat sales were soft comparing against the strong fourth quarter in 2011 that saw several new product pipeline fills. We will continue to prioritize Tier 1 in 2013. For example as I speak, we have 18 new Mrs. Dash products and flavors being presented to customers, many in new forms and applications with more to come as the year progresses.

New Ortega seasonings and dinner kits are being presented as well, with the dinner kits formatted to offer a value proposition to consumers. We will continue to expand the current products and Cream of Wheat and Las Palmas. Only 16 % of our budgeted new product slotting dollars over 80% of our marketing dollars are being focused on Tier 1 brands and support of these efforts.

Tier 2 brand net sales were down just under 2% for the quarter. Nearly all of that due to food service sales of Maple syrup, which we view as a temporary dip at a key customer. Most brands in Tier 2 saw sales increases, including the important Underwood and Ac’cent brands. An exciting addition to this tier where the Crock-Pot slow cooker seasoning mixes that we launched in the second half of 2012. This line is exceeding our expectations. We believe it has the prospect of reaching 1% of our total sales in 2013.

Given the response from our trade customers and consumers, this line will be e point of emphasis for us in 2013. We are also launching new products in the former Culver brands that fall into Tier 2. That includes Baker’s Joy, Static Guard, Sugar Twin and Molly McButter all of them will see new products offered in 2013 as we work to grow those brands.

Tier 3 brand sales were flat for the quarter, but we did see substantial impact from Sandy on several brands. In particular, brands such as B&G, which is very much a metropolitan New York business. Losses in that region were somewhat compensated for by gains in more nationally distributed brands such as the Emeril brand, which was up 6% due to new products in the pasta sauce line. Sales trends by channel follow the pattern of previously quarters, but not as dramatically as in the past. Our supermarket business was flat for the quarter, a strong gains in the West offsetting weakness in the East, partly due to Sandy and partly a result of some struggling change in that region.

Food service sales were down for the quarter, much of that the Maple syrup issue that I cited earlier, and part of it B&G Food Service business in the New York, New Jersey area. Mass merchants continued to grow, but not as much as previous quarters. We continue to gain additional distribution in key mass merchants. In each case, points of distribution on our base business were up double-digit percentages from the end of 2011. Sales to dollar and drug customers were up 18% in the quarter. But the base here remains relatively small, just over 2% of total sales.

Moving to cost, manufacturing costs increased modestly in the quarter and for the full-year of 2012. Cost increases net of cost savings came in just below $6 million or roughly 1.5% of total cost of manufactured and co-packed products. This was modestly lower than we originally projected and reflects cost reduction benefits of over $11 million from our continuous improvement efforts. This cost effort was very meaningful accomplishment by our organization that limited the need to take price increases and helped our competitiveness.

Our philosophy of committing to the price of commodities 12 months out wherever practical served us well in 2012, and we continue to follow that practice in 2013. In some cases this means that costs will increase were part of the upcoming year. But we still project the modest overall cost decrease for the full-year. Even though fuel surcharges were generally higher in 2011 last year, our distribution costs actually decreased as a percent of sales by 20 basis points in 2012. Thanks to efficiencies gained from the Culver Specialty Brands acquisition. We foresee relatively stable costs in this area for 2013 barring any unusual events.

Our SG&A expenses increased $3.5 million for the quarter and $8.6 million for the year. The large majority of that represented increased marketing spending on the Culver Brands and the remainder increased selling expenses associated with the acquisition. Our total brand support, if you will, coupon, slotting, marketing and advertising increased by over 20% in 2012. This spending was well within the projections we made at the time of the acquisition.

In 2012 the Culver acquisition met all of our expectations, in terms of what it would bring to the Company in increase sales, profitability, margins and cash flow. Net sales EBITDA margin and cash flow benefits were almost exactly in line with projections. The very successful integration of this large important acquisition once again illustrates the key element of our Company. Our ability to source acquisitions that are immediately accretive to our results, stabilize their sales, and then develop them to bring promise for future growth for the Company.

As Bob mentioned, we accomplished a great deal in the fourth quarter in terms of adjusting our capitalization to reduce our 2013 interest expense and better position ourselves for the next acquisition. The very successful stock offering that we completed in October allowed us to exercise a clawback provision and redeem a $101.5 million of our senior notes at year-end. This reduced our leverage to 3.6 times adjusted EBITDA on a pro forma basis.

At this leverage level, we would be able to fund a $50 million EBITDA acquisition at a competitive multiple and still stay under the five times leverage level that we believe begins to cause investor’s concern. That’s not a signal that we have intentions for such an acquisition, but rather an illustration of our capacity and the value of our capitalization work done in the fourth quarter.

As far as M&A goes, the market has started the year quietly, which is not unusual. 2012 saw multiples for larger brands at very attractive levels if you were a seller. That makes one believe the brands will become available as the year progresses. One rule of thumb that has been part of our acquisition strategy for many years has been that properties over $100 million in sales attract more buyers, and in particular buyers willing to pay higher multiples. That proved to be true in a number of instances last year, and its part of the reason that our acquisitions have tended to involve smaller brands. Whether this trend will continue in 2013 remains to be seen. But one has to believe that the environment for selling a business or a brand will never be better than it is today.

And as I illustrated a moment ago, our company is prepared to fund the right acquisition should it come along. In the meantime we are working hard to integrate the New York Style and Old London snack brands we purchased at the end of October. This acquisition performed very well in the two months we owned it in 2012 posting net sales of $8.5 million. That sales rate puts the annualized sales number at the high-end of our $45 million to $50 million projection. Here again, margins and cash flow are also tracking projections. Our brief ownership of the brands has only reinforced our belief that this business has an opportunity to grow at a rate well beyond a typical B&G acquisition.

The snack portion of the business is expected to benefit from our plan refresh of packaging and better support of the products. We believe that the deli based snack portion of the business offers very significant opportunity. When we sold the bagel chip business 12 years ago it was essentially the largest part of deli snacks. In the intervening years, snacks sold in the deli section of the supermarket have grown tenfold and New York Style to this point has not participated in that growth.

We believe with the dedicated sales force that is now in place and a focused effort on product and packaging, we can carve out a piece of that growth. The opportunity is significant, but certainly not without competition. If we succeed this will be a meaningful growth vehicle for our Company. And unlike when we sold the bagel chip business, our ambitions are backed by a start of the art manufacturing facility with capacity to support that growth.

As I said at the beginning of the call, when we look back on the fourth quarter and full-year we see tremendous progress and accomplishments within our business. Net sales for the year increased by 16.5%, and adjusted EBITDA by 28.9%, both the record levels for the business. Our adjusted EBITDA margin increased by 260 basis points to 26.7% of net sales reflecting the extraordinary profitability of our portfolio and the margin benefits from our tier based approach to managing our base business.

Excess cash before divided payments increased by 39%, and as a result of that performance our shareholders saw two increases to our dividend we had announced in the year. The dividend just paid on January 30th was 26% higher than last January, a strong affirmation of our commitment to return a meaningful portion of our excess cash to shareholders. That in combination with the 17.6% gain in the stock price last year made for another year of substantial gains for our shareholders. This model which we have executed for over 15 years now works because we buy strong brands with stable margin structures and manage those brands as cost effectively all the while looking for that next accretive acquisition.

2013 will see us continue to execute the model. In that vein we have issued adjusted EBITDA guidance of $178 million to $182 million reflecting the benefit of an additional 10 months of the New York Style and Old London brands and modest growth in our base business. We recognize the challenges the year brings to the industry and to our Company and we look forward to meeting those challenges. At this point, we’d like to open the call up to questions. Operator?

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) And we’ll take our first question from Bryan Hunt with Wells Fargo Securities.

Bryan Hunt - Wells Fargo Securities

Good afternoon.

David L. Wenner

Hello, Bryan.

Bryan Hunt - Wells Fargo Securities

It doesn’t sound like you quite got over that cold yet there.

David L. Wenner

I have not.

Bryan Hunt - Wells Fargo Securities

I was wondering if you could take about what percent of your sales in 2012 came from new products, and how do you expect that to change in 2013?

David L. Wenner

Well it's probably a couple of percent. Hopefully it will go up. We have, as I said some exciting things. The Crock-Pot license is a very exciting proposition, the business that we got out there now is tracking to do about 1% of the total sales and we’re adding more SKUs as we speak, expand the line and hopefully seize that opportunity, so we’ll see. But we have a sizable offering of new products across a whole lot of brands. So, we’re looking for it to contribute more in 2013.

Bryan Hunt - Wells Fargo Securities

Do you have any loading on those new product introductions, are most of those first half or the first quarter?

David L. Wenner

Well, normally I would say it's loaded towards the first half, but now with category reviews it's much more spread out than it was. We used to have a rule of thumb that after September 1st we really weren’t going to take new distribution and spend slotting dollars, because you didn’t get a return on your investment for that year. But now you have to deal with whatever the category review schedule dictates and, so it tends to be more spread out.

Bryan Hunt - Wells Fargo Securities

Okay. And then, one of the opportunities was to -- you would have a sound sales force in Canada and expected to see some substantial distribution gains from that. Can you talk about where you stand from that opportunity?

David L. Wenner

We’re launching some products into Canada now. We’re out there offering the products, so we’ll see what happens here as the quarter goes on, probably most of the effect. You won't see a meaningful effect until second quarter, but we’re definitely out there pushing that. We did see a gain last year just because as I spoke on previous calls we took a distributor margin out and basically put it into our pockets, so we saw a sales gain from that, but we’re looking for much more meaningful gains by expanding the distribution.

Bryan Hunt - Wells Fargo Securities

And you keep saying that, it's no better time than the present to sell a business. Are you seeing more opportunities today and you said competitive multiple you can make a $50 million acquisition. What do you think a competitive multiple is?

David L. Wenner

Well for a smaller brand I think it's below double-digits. The bigger brands seem to be going for 12 times plus certainly depending on what number you want to attribute to Heinz that multiple is there. And it really follows the rule of thumb, that the bigger it is the higher the multiple tends to go and the more aggressive the buyers tend to be and that’s something we believe for many years the range of multiples has moved around depending on what financing costs are, but -- so the brands that we’re buying not double-digits, but I mean, we bought Culver for about nine times and that’s a competitive multiple I would say.

Bryan Hunt - Wells Fargo Securities

Okay. Well, Dave and Bob, thank you. I’ll get back in the queue.

Operator

And we’ll take our next question from Robert Moscow with Credit Suisse.

Robert Moscow - Credit Suisse

Hi, thank you. I wanted to know and maybe you gave a number on the call, but quantifying the profit impact of Hurricane Sandy in the quarter, is it about $1 million short, $2 million short? And in your guidance for fiscal ’13 have you accounted for that and do you think that, has that lowered your base or you’re taking that out of your base when you think about what ’13 would be?

David L. Wenner

Well it's not in the millions of dollars. Whatever sales we lost due to Sandy would carry the typical EBITDA margin at best on the business. So, if you say half the sales loss this quarter was Sandy you’re still only -- you’re talking less than a half a million dollar of profit hit.

Robert Moscow - Credit Suisse

Okay. So there was no like incremental cost that you took on in the quarter like hiring temps or anything like that?

David L. Wenner

No.

Robert Moscow - Credit Suisse

Okay.

David L. Wenner

No, not at all. No, we saved on utilities (indiscernible).

Robert Moscow - Credit Suisse

Okay. Well in that case like it was, I think the street was expecting something higher in the fourth quarter and for the next year. Did you look at those assumptions and did you have different assumptions internally? I guess, as I look at how the quarter came in, I think you came in at the low-end of your EBITDA guidance for the year, like a $168 million?

David L. Wenner

That is the middle actually. It came in at $169 million which was right in the middle of our guidance.

Robert Moscow - Credit Suisse

Okay. So, maybe the street.

David L. Wenner

People took me at what I said in the last call which was we hope volumes would come to flat.

Robert Moscow - Credit Suisse

Right.

David L. Wenner

But even if volumes came to flat you’re not talking a significant EBITDA number, because you’re talking a few million dollars in sales, and again the margin on those few million dollars in sales is not a million dollars in EBITDA. So, I’m not sure where people were getting very aggressive in terms of what that number was going to be, because we are in our best hopes our volume was going to get to flat. It did not quite get there, but I mean – I would argue that it improved because if you say half of the volume drop was Sandy. First quarter we say volume go down 1.7%, second 3.6%, third quarter was down 1.9% improving, and if I discount Sandy it could that volume was down 1% in the fourth quarter. So, there’s an improving trend here. We just didn’t quite get there and when you look at Nielsen, you can see that things are crawling back to flat in all of the categories, but they’re not there yet.

Robert Moscow - Credit Suisse

Got it. Okay, it makes sense. I’ll get back in the queue. Thank you.

David L. Wenner

Thank you.

Operator

(Operator Instructions) And we’ll go next to Sean Naughton with Piper Jaffray.

Sean Naughton - Piper Jaffray

Hi, thanks for taking the question. You guys talked about the volume trends being a little bit challenging obviously in the fourth quarter. Can you maybe update us on how things are kind of trending here as we start the first quarter and head into 2013?

David L. Wenner

Well again syndicated data in the categories that we compete in, and these aren’t our numbers, they are just the general industry numbers are slowly recovering to a flat, but they’re not there yet in the latest things that I have seen. So, it's still industry wide and I of course I’m watching as other food companies file and by in large I’m seeing people still talk about volume losses in their North American food business. So, I don’t think anybody has seen the light at the end of the tunnel yet, but I think we’re starting to see a little glimmer. But, again as I said in the script, the wildcard now is, what's going to be the reaction to the payroll tax increase, and what's that 50% of the population if you want to speculate that, that’s a very meaningful hit. What is their reaction going to be? I have seen articles that say well people aren’t going to eat out as much, they’re going to cook at home more, well that’s good for B&G Foods. But in 2012 there was a general pullback which wasn’t good for anybody. I don’t know where that stands, so it's not a certain thing like it might have been without that.

Sean Naughton - Piper Jaffray

Got it. And then you talked a couple of times about the, some of the new innovation and packaging that you’re doing with Mrs. Dash and some of the different SKUs that you had out there. If these are accepted by the retailers; when do you think we could start to see some of those on the shelves out there?

David L. Wenner

Well, hopefully by the end of the quarter you’ll see some of them on the shelves depending on what retailers take them, but yeah -- we’re really taking Mrs. Dash into other seasoning type things besides the jar that it's in now and trying to do in packets and seasoning mixes and variants on the Crock-Pot slow cooker mixes that we have out there that is a salt-free variant of that, and trying to take that salt-free proposition further than it has been taken before in the seasoning category. So we’ll see -- we’re getting good responses from retailers. We’ve worked hard to make sure that the flavors are good, because the last thing you need to do is sell something that doesn’t taste good; and then we’ll see what the consumer response is.

Sean Naughton - Piper Jaffray

Okay. And then just lastly on the, kind of on the slow cooker spices that you have out there; is there any incremental distribution opportunity there with those, I know you’re going to be starting to anniversary that one at the middle of year, but is there -- are there new places where those products can be sold?

David L. Wenner

Absolutely. We’ve scratched the surface and mostly we’ve scratched the surface in the people like mass merchants that take these things on quickly. We’re doing a slow build in terms of supermarket distribution; but yeah, this things is going to continue to build through the year and anniversarying what we’ve done in the middle of the year is not a -- is really not material. I don’t think. If the reaction continues to be what it is, we will see a nice build through the whole year.

Sean Naughton - Piper Jaffray

Okay, great. Thank you.

Operator

(Operator Instructions) We’ll go next to Andrew Lazar with Barclays.

Andrew Lazar - Barclays Capital

Hi, Bob and Dave.

Robert C. Cantwell

Good afternoon.

David L. Wenner

Good afternoon.

Andrew Lazar - Barclays Capital

Two, I guess, a question on both volume and pricing as we think about 2013. On the volume side, I realize that there’s been a number of quarters now we could have some different issues, some -- one quarter it was some seasonality, one obviously was Sandy and such, but I guess, volume has been down year-over-year in I guess, five straight quarters and part of that obviously is the overall industry backdrop you talked about. But, you’ve taken and needed to take a lot less pricing than a lot of those food companies that have had steeper volume declines. So, I’m just trying to get a sense maybe why that is in terms of the volumes declines you had and my sense is we should be thinking still a pretty modest, very low single-digit kind of full-year volume increase in ’13.

David L. Wenner

Yeah. I would agree with the modest volume increase in 2013. We’ve attributed the fact that we did take lower price increases in general to the fact that we didn’t see the volume declines other people saw, and it varies by category of course where we took larger price increases in things like preserves as did our friends at Smucker. The category and we suffered as a result more than we suffered in other pieces of the business; so that’s to be expected. The consumer already respond more dramatically to higher price increases, but cost in that category skyrocketed last year was sweeteners and fruits. And I think if you dissected it, the people who had large volume declines should see the exact same things. People with flour cost skyrocketing and things like that. What does that mean? And we’ve had different reasons for the overall decline as quarters went by, but I think the underlying theme is that, in the past we’ve always had these issues if you will within a brand or a specific event with a customer or something like that, but the momentum has been positive in the rest of the business and so it doesn’t even show up. In this case for 2012 the softness is everywhere to the extent that it doesn’t cover up those little warts that show up every now and then. So, a negative sticks out because there aren’t a lot of positives to offset it if you will as there’s a general malaise in the industry.

Andrew Lazar - Barclays Capital

Got it. Thanks for that and then on pricing, you mentioned that most of the pricing improvement you got in the quarter was really more the, more effective sort of trade spending work and discipline that you’ve been doing. So, as we think about pricing as we go through ’13, have you pretty much lapped all of the sort of rate or like-for-like pricing at this point, such that any improvement in pricing is more of this sort of effective trade spend, and if it is; how much of that is really let to go in terms of the improvement we could see in ’13?

David L. Wenner

Well that’s – yes, we have lapped pretty much all of the announced price increases. There is tuning of prices here and there, mostly in food service and some of the very limited co-pack business we do where we expect a certain level of profitability, and if we can’t get it we start questioning why we’re doing the business, so we might raise the price in something like that. But other than that it will be trade spending. We don’t see the dramatic gains in trade spending that we’ve seen in the past, I mean, there were years a few years ago where we improved margins a 100 basis points or more by reducing trade spending. It's more in the low single-digits or double-digits I should say, excuse me; that you would tune up your margins by continuing to do this. But if it's a discipline that we challenge every event we do, and as I say -- we’ll not even be grudging the spending, we’ll be grudging poor performance on the spending and if we find a better way to spend it, we will spend the money, if we can’t find a better way to spend it then we won't spend the money.

Andrew Lazar - Barclays Capital

Got it. The last thing would be; just out of curiosity today’s announcement obviously on the Heinz acquisition. I’m just curious of your thoughts around potential for something like that to spur maybe more non-core brand divestitures of some larger companies maybe even Heinz asset swapping, if you will. I’m trying to get a sense of how you think that may well or could change the landscape in terms of availability of assets for companies of your size?

David L. Wenner

I don’t think it will reduce the availability. I think there is the prospect that Heinz especially if these people go in there and do what their reputation precedes them in terms of cutting costs and if they can see that …

Andrew Lazar - Barclays Capital

They’re fairly affective at that.

David L. Wenner

Yes, exactly. And if they can see that, owning these small brands is requiring us to carry this overhead that we really need to question why, what's the solution here in terms of reducing this overhead because we don’t have to manage these small brands. It could very well make them decide to divest some things and I -- we certainly have the laundry list of brands that Heinz owns that we would be very interested and they own a number of small sauce businesses, things like Wyler’s, Mrs. Grass and things like that, that really just can’t be meaningful in the context of Heinz that we would be very interested in.

Andrew Lazar - Barclays Capital

Okay. I appreciate your thoughts. Thanks.

David L. Wenner

Yeah. Thank you.

Operator

And that will conclude our question-and-answer session. At this time I would like to turn the call back over to management for any additional or closing remarks.

David L. Wenner

All right. Thank you, operator and thank you all for your interest. We believe that this was a great year for the Company, very strong gains in the top line and the bottom line. And ending the year, even though we did an acquisition towards the end of the year, ending the year with very, very good leverage level that does allow us to sit here and say that we’re ready enabled to do that next acquisition should the right acquisition come along. But meanwhile, we will manage the business to our best abilities and hopefully take advantage of the growth prospects we see in the snack acquisition we just did. Thank you.

Operator

Again that does conclude today’s conference. We do thank you for your participation.

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