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B&G Foods, Inc. (NYSE:BGS)

Q1 2014 Results Earnings Conference Call

April 16, 2014 04:30 PM ET

Executives

David Wenner - Chief Executive Officer

Bob Cantwell - Chief Financial Officer

Analysts

Farha Aslam - Stephens & Company

Andrew Lazar - Barclays

Chris Carril - RBC Capital Markets

Sean Naughton - Piper Jaffray

Bryan Hunt - Wells Fargo Securities

Robert Moskow - Credit Suisse

Operator

Good afternoon ladies and gentlemen. Thank you for standing by, and welcome to the B&G Foods, Incorporated First Quarter 2014 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 would now like to turn the conference over to Mr. David Wenner, Chief Executive Officer of B&G Foods. Please go ahead, sir.

David Wenner

Thank you. Good afternoon, everyone, and welcome to the B&G Foods’ first quarter 2014 conference call. You can access detailed financial information on the quarter in our earnings release issued today, which is available on our website at 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 conditions. The company undertakes no obligation to publicly update or revise any forward-looking statement 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 financial 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. After Bob’s remarks, I’ll discuss the various factors that affected our results, selected business highlights and our thoughts considering the remainder of 2014. Bob?

Bob Cantwell

Thank you, Dave. Net sales for the first quarter of 2014 increased $26.9 million or 15.7% to $198.1 million compared to $171.2 million for the first quarter of 2013. Net sales of our Pirate’s brands, which we acquired in July of 2013, contributed $20.4 million to the overall increase. Net sales of Rickland Orchards acquired in October 2013 contributed $8.6 million to the increase. And net sales of TrueNorth, acquired in May 2013, contributed $5.8 million to the overall increase.

Net sales for our base business decreased $7.9 million or 4.6%, attributable to $5.2 million of the unit volume decrease and net price decreases of $2.7 million. Net sales decreased by $1.3 million for Ortega, $1.1 million for B&M, $0.9 million for Maple Grove Farms of Vermont, and $0.9 million for Polaner. All other brands decreased $3.7 million in the aggregate.

Gross profit increased $5.9 million or 10% to $64.7 million for the first quarter of 2014 compared to $58.8 million for the first quarter of 2013. Gross profit, expressed as a percentage of net sales, decreased 180 basis points to 32.6% for the first quarter of 2014 from 34.4% for the first quarter of 2013, primarily attributable to net price decrease of $2.7 million and an increase in distribution cost.

Selling, general and administrative expenses increased $6.1 million or 36.9% to $22.6 million for the first quarter of 2014 compared to $16.5 million for the first quarter of 2013. This increase is primarily due to increases in consumer marketing of $3.8 million, selling expenses of $1.3 million, acquisition related transaction costs of $0.7 million, and warehousing expenses of $0.6 million which were partially offset by a decrease in all other expenses of $0.3 million.

Expressed as a percentage of net sales, our selling, general and administrative expenses increased 180 basis points to 11.4% for the first quarter of 2014 from 9.6% in the first quarter of 2013. Net interest expense for the first quarter of 2014 increased $1.3 million or 14% to $11.1 million from $9.8 million for the first quarter of 2013. The increase was primarily due to the increase in our average debt outstanding relating to our recent acquisitions.

Reported net income under U.S. GAAP was $17.8 million or $0.33 per diluted share for the first quarter of 2014 as compared to reported net income of $19.6 million or $0.37 per diluted share for the first quarter of 2013.

The company’s adjusted net income for the first quarter of 2014 which excludes the after-tax impact of acquisition-related transaction cost was $18.3 million or $0.34 per adjusted diluted share. There were no adjustments to net income for the first quarter of 2013. Our adjusted EBITDA increased 1.7% to $46.5 million for the first quarter of 2014 compared to $45.7 million in the first quarter of 2013. Adjusted EBITDA as a percentage of net sales decreased to 23.4% in the first quarter of 2014 from 26.7% for the first quarter of 2013.

Moving on to the balance sheet, we finished the first quarter of 2014 with $874.7 million in long-term debt. Our net leverage was 4.4 times pro forma adjusted EBITDA. Our current dividend rate is $1.36 per share per annum or approximately $73 million per annum in the aggregate, based on our current share count.

Assuming the Specialty Brands acquisition closes in April 2014, we expect our adjusted EBITDA for fiscal 2014 to be approximately $209 million to $214 million. Our full year adjusted diluted EPS will be in the range of approximately $1.59 to $1.65 per adjusted diluted share. Pro forma for the Specialty Brands acquisition net leverage will increase by 30 basis points to 4.7 times pro forma adjusted EBITDA. We expect pro forma net leverage to decrease to 4.4 times pro forma adjusted EBITDA by the end of fiscal 2014.

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

David Wenner

Thank you, Bob. Good afternoon again everyone. As Bob just noted, despite a difficult operating environment, our net cash provided by operating activities remained very strong increasing by 34% over prior year. As always, we remain focused on providing our shareholders with a meaningful return on their investment in part through dividends.

To that end, our strong cash flow allowed us to increase our quarterly dividend rate by 3% during the first quarter to $0.34 per share. That rate is 17% higher than the dividend rate we were paying at this time last year.

Unfortunately for a variety of factors, the strength of our company was not fully reflected in key metrics such as EBITDA and earnings per share. Sales growth came entirely from the three acquisitions we completed in 2013, while base business net sales declined by 4.6%. Approximately one-third of the decline was due to lower pricing, with the balance coming from volume declines across many of our brands.

This result was disappointing given the base business growth seen in the fourth quarter of last year, but less surprising given the challenges of the first quarter. Industry trends remained soft in supermarkets, and our Northeast retail customers seen more challenged than most. Sales to supermarkets now comprise approximately slightly less than 50% of overall sales and were down more than the overall decline.

Food service was down a similar proportion. Here the severe weather in the Northeast to Midwest was a contributing factor. Volume to restaurant customers that would be affected by poor weather was down considerably, a sharp contrast to growth than prior quarters. With almost two-thirds of our volume challenged in this fashion, positive performance in the remainder could not make up the difference.

Sales to mass merchants, now roughly 17% of our total business were up modestly on expanded distribution in both of our largest accounts. The growth here was gratifying given the challenges these retailers have had of late.

Dollar and drug sales on our base business were up almost 60% on higher sales of Static Guard and other items designed specifically for those channels. This channel is now at 2.5% of our sales.

Club sales on the base were flat. It should be noted however that our recent acquisitions had sizable club business and total warehouse club sales are now at approximately 12% of our overall sales. We have clearly grown our presence in this channel and see an opportunity for growth here in a variety of brands.

Export has also grown. Net sales of the base business products to Canada were up roughly 15% for the quarter. Total export sales were up nearly 4% -- excuse me, are now about 4% of our business, again with opportunities to grow in a variety of brands.

Consistent with our brand strategy, we continue to support our most important brands with broader new product offerings, slotting investments and marketing support.

Ortega Fiesta Flats taco shells, Ortega Fiesta Flats dinner kits, Ortega Skillet sauces and the Ortega tacos for two dinner kit were roll out into significant distribution in the second quarter. New product introductions in Cream of Wheat and Mrs. Dash are also rolling out in the distribution. And the Crock-Pot line of slow cooker seasonings continues to do well. With the addition of three new varieties and expanded distribution of the original products, Crock-Pot sales were up 52% for the quarter.

Pricing remained an issue for the first quarter largely due to promotional spending. Promotions in the Ortega and Cream of Wheat brands in response to very aggressive competitive pricing accounted for the large majority of the pricing change. We were not satisfied with the result of the actions taken and continue to work to find the right balance of pricing and other methods to defend our franchises.

Although it’s easy to conclude that this activity is not constructive for the brands or the categories involved, there is no sign that competitive pricing pressure will ease any time soon. Our foremost recent acquisitions, all snack businesses yielded over $45 million in sales for the quarter, performing well in a very competitive environment.

Pirate Brands contributed over $20 million in net sales, a 25% increase from fourth quarter on strong warehouse club sales and good execution at retail. We are working hard to bring all the retailers’ performance up to the best in class levels some retailers achieve for Pirate Brand products. We also move to broaden the Pirate’s Booty line by introducing four Pirate’s Booty Macaroni and Cheese items all made with organic pasta. In early April we launched an additional flavor of Pirate’s Booty puffs Fruity Booty with a sweet profile and raspberry flavor.

TrueNorth also had a strong performance in the first quarter with net sales increasing to $5.8 million an increase of over 25% from fourth quarter. This brand which had minimal retail distribution when we acquired it is expected to go in a supermarket distribution in several major retailers in the next few months.

Rickland Orchards contributed $8.6 million in incremental net sales in the quarter, this business is highly rotational in warehouse clubs and sales will vary quarter-to-quarter depending on the timing of the rotations. Several of the new Rickland Orchards Greek On The Go bite items are entering retail distribution in mass merchants and some major retailers as well.

Moving to costs, manufacturing costs in general are tracking to our projections for the year which you will recall were slightly positive to 2013 for overall costs. Our long-term commitments on commodities such as wheat and corn have insulated us from the market fluctuations seen in the first quarter. The events in the Ukraine and other areas of the world reinforce our belief that long-term predictable costs remain the best approach to commodities. In that context we’ve taken positions on many of our commodities into the first quarter of 2015 typically at lower costs than we’re paying today.

The benefit of this purchasing philosophy compounds on benefits we continue to see from cost improvements associated with our continuous improvement initiative. This initiative continues to identify opportunities to reduce costs in our own facilities and those of our co-packers. Our expanded CapEx spending in 2014 partly reflects projects associated with those efforts. While we’re unable to lock in meat prices in the same way as grains our exposure there is limited to ham and chicken which right now are moving in opposite directions. Even with the recent spike in pork prices we continue to project better overall costs for purchase commodities and packaging in 2014.

We are of course a large purchaser of maple syrup and the annual maple syrup crop is coming in as we speak in Vermont and Quebec. Due to the prolonged cold the crop is late this year, which tends to shorten the window for acceptable quality [sap]. But even with this short crop we do not expect to increase cost in 2014. A large inventory overhanging Quebec and a weaker Canadian dollar are both factors that should work to keep costs close to flat for the year.

As Bob mentioned SG&A expenses were higher than last year by a good amount. Sales expenses were up by a margin consistent with the sizable increase in net sales seen versus last year.

Marketing spending was up significantly, part of that driven by spending on acquired brands and consistent with plan spending and part of it timing of spending earlier in the year than prior year. We are investing more early this year in launching products and revising packaging than we did at this time last year.

The final factor in SG&A was warehousing cost which while still higher than we would like improved over last quarter. In May we will relocate our Houston warehouse to a larger facility better able to handle the increased volume from our recent acquisitions.

In the context of these issues, the pending specialty brands acquisitions should be more manageable than prior acquisitions given the limited inventory carried in the business. This portion of our P&L obviously had a negative effect on EBITDA and EPS but to the extent that the timing of expenses was involved the effect should reverse later this year.

As Bob noted our balance sheet remains in excellent shape, leverages at a highly manageable 4.4 times pro forma adjust EBITDA and an expected to increase to 4.7 times after the specialty brands acquisition. We expect to return to the 4.4 times level by year-end. In reference to the specialty brands acquisition as you all know we signed an agreement to buy that business for approximately $155 million on April 3rd.

We anticipate closing on the transaction before the end of the month. We projected following the acquisition and full integration into B&G Foods specialty brands will generate net sales of approximately $85 million and adjusted EBITDA of approximately $20 million on an annualized basis. The major product lines are the Bear Creek hearty dry soup brand, which is roughly 60% of total sales and the syrup business which consists of Spring Tree, Cary’s and MacDonald’s pure maple and sugar-free syrups. Syrups are roughly 35% of sales.

The remaining 5% comes from the Canoleo margarine and New York Flatbread brands. All products are co-packed with the soups made in the United States and maple syrup produced in Canada.

This business is clearly more typical the acquisitions we have done in the past than our recent snack acquisitions. Margins are excellent, working capital requirements low and free cash flow healthy.

We are excited to own the Bear Creek brand which has been a solid brand overtime with an excellent position in the niche that is hearty dry soup mixes. And that's somewhat insulated from the mainstream highly competitive Camp soup business.

There are significant opportunities for SG&A synergies in the business as well as long-term manufacturing opportunities.

We have obviously taken on a great deal with the rapid successions of acquisitions on top of the generally challenging business environment. Our focus remains on execution against our base business as well as the new acquisitions for top and bottom line.

And while this past quarter was somewhat disappointing for our base business, we are convinced that the underlying strength of the business will come through as the year proceeds.

At this point, we like to open up the call for questions. Operator?

Question-and-Answer Session

Operator

Thank you. The question-and-answer session will be conducted electronically. (Operator Instructions). And we'll first go to Farha Aslam from Stephens & Company.

Farha Aslam - Stephens & Company

Hi, good evening.

David Wenner

Good evening.

Farha Aslam - Stephens & Company

Two questions; the first one is on your base business. Could you share with us kind of the color around the discussions you’ve had with the warehouse clubs around getting some of those base brands into that club house, where you’ve seen particular success opportunities and what would be the push back?

David Wenner

Well, we really haven’t had a lot of success getting new base business into the clubs, we’ve been focused very much on the snack business and executing that part of the club business because that’s a very important element of the snack businesses. What it’s going to take to get into the warehouse club from a grocery point of view is innovation. And we feel that once we establish ourselves as a meaningful portion of the business that these warehouse clubs do, we’re better able to have those conversations with them about how do we innovate to get some grocery products into the stores.

Right now without innovation you are basically competing against a lot of categories that have turned into commodity categories with very low margins and very low prices, and that’s really not where we want to go. So we need to find those points of distinction to get our grocery business in there yet and we’re still working on that.

Farha Aslam - Stephens & Company

And then in your snacks business at clubs, could you just highlight in more detail kind of some of that new products that you are getting into club and what are the opportunities in terms of sales, if you could quantify some of those?

David Wenner

Well I really, the new product that we have put into clubs consist of things like the Rickland Orchards Trail Mix, new varieties of -- we’re looking at new varieties of the TrueNorth business as well to get them into the clubs. Again, part of it is simply execution on base products, Pirate’s Booty is very, very successful in warehouse clubs and we did a major program in the first quarter with Pirate’s Booty.

So, you want to keep those very large pieces of business and then you want to innovate with new flavors. So, we’re looking at things like the Pirate’s Mac and Cheese going into warehouse clubs and the Fruity Booty, we would hope would find a place in clubs as well.

Farha Aslam - Stephens & Company

Okay, that’s helpful. And then final question is on the acquisition of the Specialty Brands, is that closing about a quarter earlier than you had anticipated? I thought it was going to close and contribute about six months of earnings?

David Wenner

Well, timing was all about regulatory issues and those have cleared up, so it looks like we’ll move forward.

Farha Aslam - Stephens & Company

So, it’s going to be a little bit more accretive to this year than previously anticipated?

David Wenner

Yes. We should get about 8 months of contribution not all of it full contribution, there is a three month period where we will still employ all of the Specialty Brands’ employees, there will be severance after that for whoever we decide not to keep with the business. So, you’re going to have some erosion of the full contribution of the business here for the first three months of the eight.

Farha Aslam - Stephens & Company

That’s helpful. Thank you.

David Wenner

You’re welcome.

Operator

We’ll now go to Andrew Lazar from Barclays.

Andrew Lazar - Barclays

Good afternoon, Dave and Bob.

David Wenner

Good afternoon Andrew.

Bob Cantwell

Good afternoon.

Andrew Lazar - Barclays Capital

Just a couple of questions from me; the first one, I think in the release you talked about the base business volume expected now to return to volume growth sort of by year-end, I think were your words there? And I guess I would have thought it might have been sooner just given that you have the weather disruptions you talked about in the first quarter, now the late Easter I would have thought it would have given a boost to the second quarter, you get easier volume comps in the second and third quarter coming up. And as you said, you had some improved volume in the fourth quarter of last year.

So, I guess I’m just trying to get a sense of, is that with the overall industry malaise or is there something specific or discrete to your business that’s going to sort of hold off that volume on the base business still I guess really towards the end of the year?

David Wenner

Well, I am hoping for growth in the second quarter. I think what we were trying to say was, we expect the business to recover on a full year basis to where we hoped it would be for the year by the end of the year. But yes, your points are well taken. When you look at the volume issues around the business, obviously the weather portion of it won’t repeat, those sales however are gone and won’t come back.

But the Easter portion of it hopefully will shift into the second quarter and that’s what we’ve seen, we’ve seen about almost two-thirds of the volume decline in the first quarter come back on the base business in the first two weeks of April. So, there is a very meaningful validation if you will of the fact that volume did move from the first quarter to the second quarter because of Easter.

Andrew Lazar - Barclays

Great, that’s helpful. And then trying to get a handle on I guess full year underlying EBITDA guidance. I guess as of last quarter before the Specialty was announced, you were looking for $198 million to $203 million. If we take just the proportioning amount of EBITDA from Specialty and that be right, but it would seem like the underlying EBITDA guidance maybe is a bit lower for the full year.

So, is there something about how the seasonality in Specialty or how you talk just a bit earlier about not getting the full contribution for the first three months. Do you see that underlying EBITDA changed at all for the full year based on how the first quarter ended up?

Bob Cantwell

No, we actually are looking at pretty flat guidance on the base business. On the Specialty announced kind of $20 million in the EBITDA. What Dave mentioned before is, we have really two to three months out of the box where we have a full infrastructure that will still exist on the specialty brands that will go, most of that will go way after three months. So, we have a little difficulty in running at the $20 million during the first part of that cycle.

The second part is, it is seasonal; Soup businesses fourth quarter and first quarter. So we lose the benefit of the first quarter on a run rate of that $20 million. But we're looking at fairly flat guidance from the $198 million to $203 million and then really adding between $11 million $12 million relating to Specialty on top of that.

Andrew Lazar - Barclays

Got it. Okay, that's helpful. And then last thing is, I’ve been curious around the rationale for the normally give EBITDA guidance for the full year. And you have added an EPS guidance range and I guess that's typically not been what you’ve done, if I’m mistaken. So, trying to get a sense of what drove that decision there…?

Bob Cantwell

Yes. We wanted to make sure everybody out there, including all our analysts, [related] to EBITDA to EPS and we wanted to make sure, we try to give guidance in the past on the amortization and to enter a smaller stuff outside of EBITDA. We just wanted to bring it all together based on our guidance and based on our current shares outstanding what that EPS would really look like? So, everybody is kind of looking at our guidance and looking consistently at our EPS as it relates to our EBITDA guidance.

Andrew Lazar - Barclays

Got it. So you're saying if the analyst maybe, maybe myself including haven't exactly gotten the math right all the time, but I can say that….

Bob Cantwell

Part of it is solely acquisitions, it’s the acquisition and the amortization, it’s not the EBITDA so much for the acquisition and it’s not the interest that’s getting the right amortization, getting the right tax rate et cetera.

Andrew Lazar - Barclays

Yes. No, we appreciate it, thanks for that. Thank you.

Operator

We will now go to David Palmer from RBC Capital Markets.

Chris Carril - RBC Capital Markets

Hi, good afternoon. This is actually Chris Carril in for Dave Palmer today.

David Wenner

Hey Chris.

Chris Carril - RBC Capital Markets

So on the last call, you discussed some of the expense anomalies that you had experienced at the end of the year last year with respect to some of your more recent acquisitions. Today it sounded like you mentioned that warehousing costs were a little higher than you would hope for them to be but still were down from Q4. Can you talk a little bit about the learnings from the end of last year with respect to these expenses and how you think it will affect your decision making going forward and how you will aim to avoid these anomalies in the future?

David Wenner

Well, I mean the expenses, part of the problem was we just expanded very, very quickly and were not able to move into facilities that accommodated that expansion. In the context of doing the acquisitions and then doing the acquisitions you feel are very good acquisitions in and of themselves sometimes you have to suffer a little bit growing pain as you take on the acquisitions. But we with the four acquisitions we did in not much more than a year, we took on 30% more volume and not small volume, bulky volume with the snacks. So, it was -- it’s very difficult. It’s also high velocity product which means there is a lot more work going on in the facilities, a lot more flow going through the facilities as these products come in and out.

Probably the biggest trauma to the warehouse and the distribution is that a lot of these products under previous owners were shipping directly from co-packers, in our case customers want to combine orders with the other products so now those products have to transfer to our warehouses and then ship to customers. That adds distribution cost. We are trying to unwind that making arrangements to have direct shipments to co-packers more and more and we’re being fairly successful of doing that and that will defray that cost as we get better and better at that. But that’s part of it too.

And then there is simply a matter of sourcing specific products in the right places. Pirate’s has two co-packers but not necessarily rational in terms of what products are made at what co-packer and sometimes you end up shipping products all the way across the country when you obviously rather not do that. And again, we’re working on rationalizing that and lowering those costs. So there is a lot of work going on. We feel that after we move the Houston warehouse in May, they will have the space to accommodate the volume that we’ve handed them. The Tennessee warehouse follows this summer and again that will hopefully fix that issue. And then we can move forward on a more normalized expense level.

Chris Carril - RBC Capital Markets

Okay, great. Thanks for the color on that.

David Wenner

Sure.

Operator

Our next question comes from Sean Naughton from Piper Jaffray.

Sean Naughton - Piper Jaffray

Hi, good afternoon.

David Wenner

Good afternoon.

Sean Naughton - Piper Jaffray

I guess outside of recent pick up that you were discussing earlier in your volume trend, is there anything else that you’re seeing whether it’s in new product introduction that you might have coming or is there something by geography that’s giving you some additional confidence that you believe that the base business volume to pick up again throughout the rest of the year?

David Wenner

Well, I think as I said earlier, the volume we hope will pick up simply because the anomaly of the first quarter that will take care of itself is Easter holiday. So I would not, I think it would be inappropriate to say okay that volume drop associated with that is going to annualize. That’s not the case; we hope to recover it in the second quarter and then move forward normally in that context.

The new products I listed for the Ortega brand for instance are significant new products that are doing -- are going to do a great job of growing that brand. We have a large pieces of distribution coming on on-board here on that brand with these new products there. They are unique, they are innovative, the Fiesta Flats is an award winning product, Better Homes cited it as the best New Mexican product of the year.

So we feel we’ve done a good job of innovating in a number brands and pushing these things out into new distribution as well as just executing on what we have already because at the end of the day, these new products are not going to be a huge proportion of sales going forward. But we do those new products to drive growth in the brands and then we need to execute well on the base portion of the brands. And I think you will see both of those better as we go forward throughout the year.

Sean Naughton - Piper Jaffray

Got it, okay. And then I guess on the sourcing side of things, it sounds like costs are pretty manageable at this point, but you don’t sound like you are making some changes in the ingredients with some of the products more non-GMO, you mentioned I think organic wheat in the Pirate’s Booty, Mac and Cheese. Can you talk about, can you hedge some of these inputs out for the 12 months that you have been doing or are these more bought on spot and I guess does that increase the volatility in the cost of goods sold or am I reading a little bit too much into that, these are kind of too small, it’s just the matter of the point?

David Wenner

We pretty much lock in all commodity costs that we can, unless we think that the pricing of the particular commodity is still out of whack at that point in time and then we’ll hesitate to do it. But in general, I would say we’ve locked in everything you can lock in for a 12 month horizon.

When you get into do more exotic things like organic wheat or flour, if there is a not a conventional market if you will for those kind of products, so it’s much harder to lock in cost for those products. But we’re definitely locking in the supply and the price wherever we can on those kind of products. Obviously, that’s a new product, so there is, the cost comparison, there is no cost comparison, it just started up.

The really the only area where you have great difficulty taking long-term positions is protein. And so, we’re having to roll with the punches a little bit as pork goes up, fortunately chicken is going down after going up last year. So, they are offsetting each other to some degree, but you have to deal with those things, because there is no market that allows you to take 12 month positions on things like ham.

Sean Naughton - Piper Jaffray

Sean Naughton - Piper Jaffray

Got it. And then just lastly in terms of the product portfolio, you added some consumer product goods categories a couple of years ago I think Mrs. Dash acquisition, any update on how those are doing? I think you might have mentioned in the script but just anything on that category, is that something interesting that you would look to grow moving forward or was that just more of a one-off?

David Wenner

No, no, Mrs. Dash is a very exciting proposition. We think it’s a great brand and it’s very extendable. We have had a marinade business that frankly was suffering mostly because it was priced totally incorrectly. We have corrected the sourcing and corrected the pricing on marinades and re-launched the marinades with improved flavors. We have come out with Mrs. Dash salt free dip mixes, Mrs. Dash slow cooker seasonings that are salt free and now we are looking at other Mrs. Dash seasoning items as well. So, we are aggressively expanding that line because what we have seen is that the base Mrs. Dash business despite some very obviously sizable and confident competition, the base Mrs. Dash business is rock solid, it’s a great franchise and it’s one that we would love to take advantage of the name.

Sean Naughton - Piper Jaffray

Okay. That’s helpful. My question probably wasn’t clear. I was interested in like the Static Guard and Baker’s Joy products. I think I asked it, I wasn’t clear. So anything there that is still interesting for you just outside of the normal…

David Wenner

Static Guard is actually one of the few products that had a very good first quarter. What we found is there is an incredibly direct correlation between how cold it is and how much Static Guard you sell. So a year ago, we suffered because it was warm early this year and we have had a great year on Static Guard here and in Canada because it’s stayed cold. So Static Guard in of itself we love the franchise, nice business. We’ve extended that line into a product called Shed Guard which is all about easy removal of pet hair on couches and things like that. It’s a slow growth product so far because we have to penetrate new channels there in terms of selling things into pet stores and all of that but we’re very optimistic about where that will go.

Baker’s Joy, I think we’ve done a very good job in terms of really using the size of our business and the focus of our business to execute against Baker’s Joy, making sure we get on the bake isles and the major retailers and Wal-Mart and things like that. So, we’ve grown the Baker’s Joy franchise as well.

The Sugar Twin is very much a Canadian business. There we’ve launched all of the other variants that you have on sugar substitute. So there now is a Sugar Twin sucralose, there is now a Sugar Twin, I am sorry, I am blanking out on what the other sweetener is but -- yes. I don’t want to use the brand name. Yes, aspartame, there is also a Sugar Twin aspartame. So we took that franchise and expanded it into all the competitive products as well as Sugar Twin. And Sugar Twin actually had a very good quarter and was part of the growth that we saw in Canada.

Sean Naughton - Piper Jaffray

Got it. That’s helpful. Thank you.

David Wenner

Yes.

Operator

(Operator Instructions). And we’ll now go to Bryan Hunt from Wells Fargo Securities.

Bryan Hunt - Wells Fargo Securities

Good evening.

David Wenner

Good evening Bryan.

Bryan Hunt - Wells Fargo Securities

Thanks for taking my questions Dave. I guess first of all going back to the sales number, you said you’ve regained roughly two-thirds which were lost and you feel like that was Easter shift. So if we look at the other third of the sales decline in Q1, is there any way you can parse it out in between whether snap payment, is there anything you would directly attribute that other third of this (inaudible) too?

David Wenner

A lot of it, because food service was down more than our overall drop just as supermarkets were, I really think a lot of it’s food service. And when you look at, we have several accounts that we sell directly to the restaurant chains and their great parameters of what is going on in the restaurant business and particularly in the restaurant business associated with travel and things like that.

And those accounts have been growing for the last number of quarters and there was a serious decline in their business in the first quarter, at least their business was lost in the first quarter. And there is no doubt in my mind that it was all about the weather.

Brian Hunt - Wells Fargo Securities

Okay. And so I guess like the Easter pop you saw in April, you’ve seen your food service business come back in April as well?

David Wenner

Well, no, no. What I -- well, I think it recovers to normal, you will never get those sales back, people aren’t going to suddenly hop in their cars twice as much in the second quarter because they didn’t do it in the first quarter, those sales are off.

Brian Hunt - Wells Fargo Securities

Right. I just meant recovery.

David Wenner

Yes. Recover to a more normal level, yes.

Brian Hunt - Wells Fargo Securities

Okay, great. Kind of shifting gears -- no problem, I probably didn’t state it clearly. Kind of shifting gears, you talked about some of your co-packers and the cost of those co-packers in the way that product is inline throughout the country and regionally. Could you tell us how much of your volume is co-packed and maybe what the opportunities are to crop early align that manufacturing to reduce your cost? Is that part of your every year trying to squeeze 3% to 4% out of the P&L?

David Wenner

Well, absolutely yes. I mean we participate a great deal in buying the packaging and a lot of times the commodities associated with the co-packers. Our co-pack business is actually over 50% of our total business now in terms of dollar sales associated with what we source. So, it's a very sizable business, we have 50 some co-packers. You can imagine that the light in the purchasing group when I told them everything is co-packed, those four people are already working very. But now they have a number of more co-packers to work with.

But we are very hands on with co-packers in terms of sourcing, packaging and commodities. And in any number of instances have actually reduced cost by sourcing canes better, by sourcing wheat better, by doing a whole lot of things that help their profitability and ours.

Brian Hunt - Wells Fargo Securities

Great. And then my last question is, this acquisition, this most recent one kind of got you back into the multiple realm that released a little more normal lift and under a $100 million. Do you feel like the M&A environment become a little less competitive, as well as can you enumerate or talk about the opportunities that are out there? Are you seeing more opportunities or less, that's my last question. That’s it.

David Wenner

No, I don't think it's become less competitive. I think especially when you get pass that $100 million threshold, it's very competitive. The expectation from the seller point of view is that the multiples are going to be double-digit multiples. The numbers that are being sighted around Ragu represent double-digits multiples, if in fact they get that kind of number for Ragu. And the driver here is financing costs. Financing costs are as cheap as they are, people can afford to pay very high multiples and still have the cash flow outcome that you’d like to have out an acquisition.

So, our ability to buy things that what you consider more representative multiples than, and of course depending on what timeframe you are looking at really does revolve around the size of the acquisition, the nature of the acquisition and the competitive set. And once you get up in these larger brands, the bidding gets up there in the double-digit multiple range. And for somebody like us you have to start asking well, what value am I creating buying something that’s close to what I am valued at as a business now.

Brian Hunt - Wells Fargo Securities

And are you seeing just as many opportunities call it in the last quarter as you saw in the previous quarters?

David Wenner

Yes, I think it’s a pretty healthy environment, there is a lot of private equity out there trying to sell businesses and get these wonderful multiples and that’s just smart on their part because if that day ever comes when interest rates go back up and now you have to wonder if that effort will come because it’s been coming for a long time, multiples will go down.

Brian Hunt - Wells Fargo Securities

Again, I really appreciate your time, Dave. Look for a nice quarter.

David Wenner

Welcome. Thank you.

Operator

(Operator Instructions). We will now go to Robert Moskow from Credit Suisse.

Robert Moskow - Credit Suisse

Hi. Thanks Dave, thanks Bob. This is I think the second quarter maybe more where we’ve heard about competitive promotion on Cream of Wheat and Ortega, but commodities are starting to go the other way and you could see it in the food CPI tracking. I want to know at what point do you think that that might play a role in easing that promotional environment and what are your retailers saying about pricing now? Are they looking at first quarter and saying, gee! The volume is really bad, we got to promote more or are they saying let’s wait and see how Easter is, let’s see how commodities are before we do anything?

David Wenner

I think it’s fairly safe to say that retailers would always like you to promote more. And it’s up to you to manage the category as best you can. And then really the driving force is what is your competition doing? In hot cereal I think the competitive activity is all about recovery of volume from private label. We did not lose volume to private label during the downturn, but our major competitor in hot cereal did lose a lot of volume to private label in the downturn. And I think one of their objectives, and this is my opinion obviously, they know what they’re trying to do and I don’t. One of their objectives is to take that volume back from private label and they’re being very aggressive in doing so.

We don’t have a direct comparison or we don’t believe that there is a go, no go choice here in terms of should I buy their product or should I buy our product. We think we have a strong position in wheat-based cereals in the hot cereal category and to the extent somebody wants something like that, we’re the choice. So, it’s more -- it really is more showing up for the game and protecting your shelf space from all the slotting that’s going on in the category and things like that than it is trying to gain share or take share away from people.

Robert Moskow - Credit Suisse

Okay. A quick follow-up; Rickland Orchards, I think in fourth quarter it added almost $13 million of sales and then it added $8.6 million in this quarter. Could you help me through that difference?

David Wenner

Rickland is very much a club-based business and to the extent club rotations happen or don’t happen and they can move, they can -- one quarter, you can do a good number, the next quarter you take a pause and the next quarter you do a good number again. You’re talking rotations that can do $3 million, $4 million, $5 million in a single event. So it’s easy for that business to see those kinds of swings.

Robert Moskow - Credit Suisse

Okay. When are we going to see a really good one, next quarter?

David Wenner

Well, I hope so. We are working hard and making the products to do that, yes.

Robert Moskow - Credit Suisse

Well, if you don’t know, what chance do I have to forecast it? So, I’m going to go 8.6 again.

David Wenner

Well, a few million dollars and now over $800 million business, so...

Robert Moskow - Credit Suisse

Right, I got you. All right, thanks again.

David Wenner

You are welcome.

Operator

And it appears there are no further questions. I will turn the conference back over to Mr. Wenner for any additional or closing remarks.

David Wenner

Thank you. Thank you everybody for your interest in the company and our results. Obviously a very challenging quarter, but we think there were things that are one-time events, there are things that we can fix, we’re confident for the year is still and obviously our guidance reflects that. We’re looking forward to delivering that in the second quarter. Thank +you.

Operator

This concludes today’s presentation. Thank you for your participation.

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