Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

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

Q4 2007 Earnings Call

March 6, 2008 4:30 pm ET

Executives

David Wenner - CEO

Bob Cantwell - EVP and CFO

Analysts

Jim Essert - ING

Reza Vahabzadeh - Lehman Brothers

Pi Aquino - Credit Suisse

Andrew Lazar - Lehman Brothers

Operator

Welcome to the B&G Foods Incorporated fourth quarter 2007 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'll conduct a question-and-answer session. Instructions will be provided at that time for you to queue for your questions. I like to remind everyone this conference is being recorded.

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

David Wenner

Thank you. Good afternoon, everyone, and welcome to the B&G Foods fourth quarter and full year fiscal 2007 conference call. Everyone on the call today can access detailed financial information on the quarter and full year in our earnings press release issued today and available on our website at bgfoods.com and in our annual report on Form 10-K that we have filed with the SEC today.

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 recent filings with the SEC 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 measure, EBITDA. A reconciliation of EBITDA to the most directly comparable GAAP financial measure is provided in today's press release and is included in our 10-K.

We will start the call by having our CFO, Bob Cantwell, discuss financial results for the quarter and the year. After Bob's remarks, I'll discuss factors that affected our quarterly and annual results, some of our business highlights and our current thoughts concerning the business going forward into 2008. Bob?

Bob Cantwell

Thank you, Dave. First I’ll review the full year briefly, then talk about the fourth quarter.

Net sales increased $60 million, or 14.6%, to $471.3 million for 2007, compared to $411.3 million for 2006. Net sales of Cream of Wheat products for 2007, which includes two months of net sales under the brand's prior owner, increased $3.8 million, or 6.1%, as compared to net sales during 2006 under the brand's prior owner. Our 10-K has additional disclosure on the performance of our brands for the full year.

Operating income increased 33% to $81.2 million during 2007 from $61.0 million in 2006. Operating income expressed as a percentage of net sales increased to 17.2% in 2007, from 14.8% in 2006.

I’d like to take a moment to discuss EBITDA or non-GAAP financial measures that we have reconciled to net cash provided by operating activities in today’s press release. Our EBITDA increased to $94.5 million in 2007, compared to $69 million in 2006. Net income increased 54% to $17.8 million for 2007, compared to $11.6 million for fiscal 2006.

For 2007, earnings per share of Class A common stock was $0.62. Earnings per share of Class A common stock was negatively impacted by $0.04 due to a $1.9 million accrual, $1.2 million net of tax for special bonus awards to be paid in March 2008 to certain executive officers and members of our senior management in recognition of their contributions to the successful completion of the Cream of Wheat acquisition and the Class A common stock offering. Prior to the third quarter of 2007, B&G Foods had posted two classes of common stock outstanding, and computed earnings per share under the two class method. As a result, it is not meaningful to compare earnings per share for 2007 against 2006.

The capital expenditures in 2007 were $14.2 million, which included $4.9 million relating to the expansion of our Stoughton, Wisconsin facility and the transfer of our instant Cream of Wheat production into that facility, and $4.8 million for the recently completed relocation of our Underwood manufacturing line from the third party co-packer to the Portland, Maine facility. We continue to foresee modest capital expenditure requirements in the future expect for an additional $7.6 million of planned capital spending in the first half of 2008 relating to the completion of the Cream of Wheat production transfer.

Turning now to the fourth quarter of 2007, net sales increased $21.2 million or 19% to $132.4 million for the fourth quarter of 2007 compared to $111.2 million for the fourth quarter of 2006. The Cream of Wheat acquisition accounted for $20 million of the net sales increase, offset by a decrease in net sales of $0.6 million relating to the termination of a temporary co-packing arrangement.

Excluding the impact of Cream of Wheat acquisition and the termination of the temporary co-packing agreement, net sales increased $1.8 million in sales price and unit volume. Net sales of Cream of Wheat products for the fourth quarter of 2007 increased $2.4 million, or 13.8%, as compared to net sales during the fourth quarter of 2006 under the brand's prior owner.

Gross profit increased $11.1 million for the fourth quarter of 2007, or 38.8%, to $39.7 million, from $28.6 million in the fourth quarter of 2006. Gross profit expressed as a percentage of net sales increased 4.3% to 30% for the fourth quarter of 2007 from 25.7% for the fourth quarter of 2006. The increase in gross profit expressed as a percentage of net sales was primarily due to the positive effect of the Cream of Wheat acquisition, partially offset by increased cost of wheat, corn sweeteners, maple syrup and packaging.

Sales, marketing and distribution expenses increased $2.7 million, or 22.8%, to $14.5 million for the fourth quarter of 2007, compared to $11.8 million for the fourth quarter of 2006. These expenses, expressed as a percentage of net sales, increased to 11% in the fourth quarter of 2007, from 10.6% in the fourth quarter of 2006. The increase was due to increased consumer marketing and incentive compensation as a result of the Cream of Wheat acquisition.

General and administrative expenses increased $0.3 million, or 9.4%, to $2.9 million for the fourth quarter of 2007, compared to $2.6 million in the fourth quarter of 2006. An accrual during the quarter relating to the special bonus award accounted for $0.5 million of the increase, offset by $2.2 million relating to other cost reductions

Operating income increased 48.2% to $20.7 million for the fourth quarter of 2007, from $14 million in the fourth quarter of 2006.

Net interest expense increased $2 million to $12.7 million for the fourth quarter, from $10.7 million in the fourth quarter of 2006. Our average debt outstanding was $105 million higher in the fourth quarter of 2007, as compared to the fourth quarter of 2006.

Our EBITDA increased to $24.3 million for the fourth quarter, compared to $16.1 million in the fourth quarter of 2006. Net income increased 54% to $17.8 million for fiscal 2007, compared to $11.6 million for fiscal 2006.

Earnings per share of Class A common stock was $0.14 for the fourth quarter of 2007. Earnings per share of the Class A common stock was negatively impacted by $0.01, due to a $500,000 accrual, $300,000 net of tax during the fourth quarter relating to special bonus rewards mentioned earlier. Capital expenditures for the fourth quarter of 2007 were $3.3 million.

Moving on to the balance sheet. We finished 2007 with $36.6 million in cash, compared to $29.6 million at the end of 2006. We also finished 2007 with $535.8 million in long-term debt and $174.6 million in stockholders equity.

Our inventory at the end of 2007 increased $14.9 million to $93.2 million, compared to $78.3 million at the end of 2006. The majority of the increase related to additional maple syrup inventory and the acquisition of Cream of Wheat.

The business remains healthy from a cash point of view. Annual cash expense for 2007 was $47.7 million. Cash interest expense for 2008 is expected to be approximately $48 million.

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

David Wenner

Thanks Bob. From my perspective this was a remarkable year and its numbers certainly bear that out.

We acquired the Cream of Wheat brand from Kraft Foods two months in to the year. The brand is the eighth major acquisition our company has done in the past ten years, and our expertise in acquiring and integrating brands showed in this acquisition. The brand was integrated into our G&A, sales and distribution systems by April 1st, meeting our standard of 30 days for integration.

The brand responded better than the expected on the sales line, leveling off even as we were acquiring it, and growing for the 10 months we owned it. We fully expected Cream of Wheat sales to continue to decline for six months before we could turn it around. Obviously we exceeded that expectation.

The benefit of this performance shows in our results for the full year. 2007 net sales were up $60 million, almost 15%, with Cream of Wheat contributing $54 million of that increase. We saw nearly $10 million of pricing gains for the year, either from price increases or lower promotional spending. This helped to offset a $3 million loss in net sales from a temporary co-pack arrangement we had in 2006. Adding these two factors, you can see that our base business unit sales were essentially flat for the year, even though 13 of our 18 brands did see increased dollar sales.

Fourth quarter performance mirrored the year to a great degree. Net sales were up 19%, Cream of Wheat accounting for $20 million of the increase, and pricing accounting for the remainder. 12 brands were up and six down for the year, while unit volume on the base business was up 6%.

As Bob mentioned, Cream of Wheat net sales for the full year, which would include two months under Kraft’s ownership, were up $3.8 million, or 6.1%. This is a remarkable turnaround, considering that we were up against extensive distribution losses throughout 2006 that caused a negative 6% sales trend. We regained enough distribution in the existing product line in 2007 to offset those losses and gain volume within distribution by dropping coupons and executing price promotions.

Now in 2008, we are introducing several new products, including a new variety pack for instant products and a whole grain version in Cream of Wheat. These are being sold into merchants as we speak. We have already gained acceptance at Wal-Mart, and are beginning to gain acceptance in supermarket customers as well. We are also expanding our coupon efforts to four events in 2008, versus two in 2007, and expanding other advertising.

In our base portfolio, the most successful brand for the year was Maple Grove Farms, which grew almost 16% in net sales in 2007. We continued to see strong unit volume growth in maple syrup sales throughout the year, even as we took price increases on the brand. Maple Grove Sugar Free Syrups also added to the brands growth. Sugar free sales were up over 30% for the year. Sales of Maple Grove's natural and sugar free salad dressings and pancake mixes were also up strongly.

We have emphasized that Ortega brand is a growth brand, and even though sales were up only 1% for the year, we've seen good results from the brand. Overall, sales of Ortega were depressed by losses in the cheese pouch business, which encountered low price competition in 2007. The rest of the Ortega business grew by over 3%, all volume growths, since we did not take price increases in this line.

New products, such as the Ortega Lasagna Dinner Kit, and expanded distribution accounted for the growth. Our other Hispanic food brand, Las Palmas, also saw a healthy 4% growth in 2007, mainly due to expanded distribution. We gained sizeable new distribution at Wal-Mart with this line, and are extending it into new geography in supermarkets as well.

Our acquisition of the Grandma's Molasses business in 2006 allowed us to coordinate growth of both Grandma's and Brer Rabbit brands throughout 2007. The result was 11% growth over the two brands, most of that gains in unit volume. This is a great example of our ability to grow mature business by coordinating promotional activity between the two principal brands in a category. Most of our other brands saw modest growth, and most of that from pricing.

With the exceptions of B&G brand, which I will discuss in a moment, price increases will pass through with little or no volume effect. Only a few of our brands were down in net sales, and only two of them over $1 million for the year. The B&G brand was down $1.6 million, or not quite 4%, primarily due to changes in promotional price points.

Our pickle and peppers business saw perfect storm, if you will, on the cost front in 2007, with most major elements having cost up double digits, and many of them up over 20%. Since the brand sells the majority of its volume on promotion, we chose to raise promotional price points rather than list prices.

The effect of this move was very similar to what we saw on Polaner 32 ounce product several years ago. Promotional volumes dropped on items we had promoted at $0.99 in prior years, but profits on those events rose. We do not expect the B&G brand sales to recover in 2008, by the way, since the 2008 cost scenario for B&G is very similar to 2007. All major elements were up double digits again, going into 2008.

Competition has raised prices in this category, and we have followed. We've also raised prices on the private label segment of the B&G business, and expect to lose several accounts, as we try to ensure that any private label business we do is profitable, versus our anticipated costs. Given the very low margins typical of these accounts, this may actually be a net positive, as it will lower our working capital needs and improve margins.

The Emeril brand was down 8% for the full year, but had a good fourth quarter showing a 3% gain over prior year. This was in continuation of the trend we're seeing for the later part of the year, most of the lost sales in the Emeril brand occurred early in the year, due to lower sales to mass merchants. The brand has been recovering as the year went on, and it's gratifying to see sales grow in the last quarter.

Emeril cooking stocks, mustards, seasonings, and process sauces continue to be the strength of the line. We have launched a new seasoning for hamburgers, Emeril BamBerger seasoning, a new flavor in the mustard line, Mellow Yellow mustard, and a line of cooking sprays. As most of you have probably heard, Emeril has agreed to sell his interest in television, food, and other products to Martha Stewart Living on the media.

Our license to create and sell Emeril products will be included in this transaction, which is expected to close early in the second quarter. We will retain all the rights of the existing agreement, and will continue to work with Emeril, as well as the Martha Stewart organization. We anticipate that this will be a positive event for us.

Martha Stewart Living is undoubtedly buying these properties to increase their value. In fact the purchase price has incentives for Emeril, should EBITDA for the assets sold to Martha Stewart grow over the next few years. In any event, we look forward to working with the Martha Stewart organization to grow the Emeril franchise.

Cost is, of course, a major issue in the food industry these days. Our gross profit for the fourth quarter, and for the full year 2007, increased in dollars and as a percent of sales. In both cases, due to the positive influence of the Cream of Wheat acquisition. Without Cream of Wheat, gross profit would have been down slightly as a percent of sales. Sales mix within the base portfolio was an important factor in this shift. The Maple Grove line has a lower gross profit than our average, and its strong growth therefore lowered margins.

Cost increases, which I will discuss in a moment, also had a slight effect on gross profit, but were offset to a great degree by price increases, cost reduction efforts, and savings on trade promotion and distribution costs.

In prior conference calls, we had identified cost increases of approximately $8 million for 2007, with an expectation that in 2008, it would be approximately 50% higher at $12 million. During the fourth quarter, we saw a variety of costs increase more dramatically than expected, and we finished the year with an annualized cost increase trend of approximately $12 to $13 million. That upward trend has continued in the first part of 2008. We now know of $15 to $16 million in cost increases that we will see this year. That number, of course, could increase further depending on the price of oil and other commodities.

But to illustrate what we saw in the fourth quarter, transportation fuel surcharges basically track 2006 experience for the first nine months of 2007. The fourth quarter ended with fuel surcharges 50% higher than year-end 2006. Today, transportation fuel surcharges are 80% higher than at this time in 2007. Similar run-ups in the prices of grains, packaging, and other commodities have added to our higher cost outlook for 2008.

To offset the anticipated cost increases, we had announced a broad price increase on most of our brands, and that price increase took effect on March 1st, and it is expected to increase net pricing to us by up to $10 million in 2008. As we have seen cost continue to increase, we have begun planning our next price increase to take effect this summer.

In addition, we continue to refine our trade promotion spending. Our paper performance initiative has reduced trade spending by over 2% of sales in the past two years, and we continue to find ways to promote more efficiently under this effort. Costs saving efforts are expected to yield another $2 million to $4 million in savings in 2008. We believe that these and other efforts will allow us to offset the impact of most, if not all, of the cost increases we now foresee as we now go through 2008.

Our 2007 operating expenses were in line with prior year experience, except that we increased our marketing spending by $3.5 million to support Cream of Wheat and to add supports to our other brands as well. We also increased our slotting expenditures by $1.5 million in 2007, investing more in the growth of new products and expanded distribution of existing products.

Bob mentioned that fourth quarter G&A expenses were affected by $0.5 million, for a special award in lieu of long-term compensation. The total for this award for 2007 was $1.9 million, and we expect that the award will be replaced by a long-term performance based equity compensation plan beginning in 2008.

2007 net income was up 54% to $17.8 million. Impressively, 2007 EBITDA was up 37% to $94.5 million, very much inline with our expectation when we acquired the Cream of Wheat brand. Our balance sheet remains healthy Yearend cash increased by $7 million over 2006, even though inventories were higher than normal. Cream of Wheat caused some of the increase in inventory, part of that in inventory build, as we began moving production of instant products from the Kraft facility to our Stoughton, Wisconsin plant.

Higher inventories of maple syrup were also a factor. Poor 2007 crop forced us to purchase syrup before yearend that we normally would have bought in early 2008. Also, inventories are expected to be lower by yearend 2008. We've also increased cash on the balance sheet, despite unusually high capital spending.

Our CapEx of over $14 million for the year was well above the norm for our company, and we spent to fund that Cream of Wheat production move and to complete the Underwood move. We anticipate the Cream of Wheat project being completed sometime in the second quarter, and CapEx expense returning to a more of normal level beginning in the second half of 2008.

As I said at the beginning of my comments, this was a remarkable year for B&G Foods. We completed a major acquisition very successfully and reached -- well, exceeded the sales goals for the Cream of Wheat brand in 2007, while hitting our EBITDA goals for the brand.

We conducted a successful stock offering in May, and now trade our two securities on the New York Stock Exchange. We dealt with varied and challenging cost environment, and kept our base business producing reliable results, while integrating the Cream of Wheat brand.

The challenges are not going away. 2008 promises to be a very difficult cost year for the food industry, but we feel that we are well-positioned to meet those challenges and continue to produce the reliable result that has been our trademark over the years.

That concludes my prepared remarks and at this time I would like to open up the call to questions. Operator?

Question-and-Answer Session

Operator

Very good. (Operator Instructions) Our first question will come from Jim Essert with ING.

Jim Essert - ING

Hi. Looks like a great year and a great quarter. Thank you.

David Wenner

Thank you.

Bob Cantwell

Thank you.

Jim Essert - ING

On the Cream of Wheat production, will that be all done in-house?

David Wenner

Actually, the instant products are being done in-house and right now that represents about a third of the volume. The other two thirds, which are the more traditional Stove Top products have been co-packed for a good long time.

Jim Essert - ING

Right.

David Wenner

The co-packer is very good at it, and we're going to leave it with him.

Jim Essert - ING

So in terms of total percentage, how much will be co-packed versus produced?

David Wenner

Right now, it's about two thirds co-packed, one third in-house.

Jim Essert - ING

And that will remain the same?

David Wenner

Unless sales shift, yes.

Jim Essert - ING

Okay. And I did hear you say that towards the end of the year of '08 we should see inventory as a year-over-year to go down correct?

David Wenner

We're very hopeful for that, yes.

Jim Essert - ING

Okay. Thank you.

Operator

Our next question will come from Reza Vahabzadeh with Lehman Brothers.

Reza Vahabzadeh - Lehman Brothers

Good afternoon.

David Wenner

Afternoon, Reza.

Bob Cantwell

Afternoon, Reza.

Reza Vahabzadeh - Lehman Brothers

Let me just start with some housekeeping questions. How much pricing did you get in the quarter, roughly a $1 million - $1.5 million?

David Wenner

Better part of $2 million in the fourth quarter.

Reza Vahabzadeh - Lehman Brothers

And that's just on the base business or does that include…?

David Wenner

No, it's just on the base business.

Reza Vahabzadeh - Lehman Brothers

Okay. And Cream of Wheat has done reasonably well in the last couple of quarters, and I know you have touched on it. But to what do you attribute the resurgence of this brand?

David Wenner

Well, the early part of the year we were going up against distribution losses Kraft had experienced in 2006. So as we regained distribution obviously, we were witling away at the comparisons year-over-year. And then we believe that as we dropped coupons and ran promotional events and things like that, we saw increases in the consumer takeaway on the brand. We know that in conjunction with one coupon drop for instance and this is probably the clearest information you’ll get. Wal-Mart same store movement went up 20% based off the coupon drops. So we know that those were effective in bringing consumers to the shelf and buying the brand.

Reza Vahabzadeh - Lehman Brothers

And then in Emeril, the turnaround, is it because of better merchandising, better products, just easier comparisons, and should we expect this thing to continue?

David Wenner

It, first off, is an easier comparison obviously for rolling over against results where we had lost that distribution in the mass merchants, but the brand is performing stronger in a number of categories that it’s in. And we had some very successful new products, the cooking stocks for instance, sales were up about 50%, this year on cooking stocks. And we still have about 50% more distribution to gain than we have today in that particular category. So we are very hopeful that that will continue too.

And we had very good reception on some of the new products like mustards; we added it to that line obviously as I said. The cooking sprays have had a very good reception as well, and we see general strength in a number of areas in the line.

Reza Vahabzadeh - Lehman Brothers

Got it, and Polaner is that still hanging in there despite the rapid price increases?

David Wenner

It is, it’s hanging in there pretty well. We have actually taken some very modest price increases on Polaner this March. The March 1st price increase is a more substantial one, but Polaner grew more modestly for us last year.

Reza Vahabzadeh - Lehman Brothers

Got it. So you talk about the cost inflation and the acceleration in cost inflation. Do you have enough pricing and revenue growth, productivity improvement to offset the cost inflation in ‘08.

David Wenner

We don’t have enough that if the trend continues as it has in the first part of this year as I have said we have seen accelerating costs and that's why we're laying in another price increase in anticipation of that trend continuing. Otherwise, it's close to even, but we feel that we're probably going to have to increase price to stay even.

Reza Vahabzadeh - Lehman Brothers

Right. So you're saying you are close to even now, but might have to do more because you are expecting more cost inflation?

David Wenner

I mean we are looking at -- right now, we are forecasting 15 and we know -- I am not forecasting, we know we have had $15 million to $16 million of cost increases this year. We know that we have just done a price increase that we think will yield us about $10 million of revenue. We believe we have $2 million to $4 million of cost savings outright. And as I said, we think we can save more on trade promotions and things like that. So within a couple of million dollars, $0 million to $2 million of a shortfall perhaps, and we need to lay in another price increase to make sure that's not a shortfall and to have an insurance policy for any further cost increases.

Reza Vahabzadeh - Lehman Brothers

Fair enough. And then on CapEx, Bob, you said the [60 million bucks] extra in the first half, what's the CapEx for the whole year?

Bob Cantwell

Approximately $11 million is what we'll spend in 2008.

Reza Vahabzadeh - Lehman Brothers

And then after '08, you're going to back to 7 to 8?

Bob Cantwell

Probably, closer to 9.

Reza Vahabzadeh - Lehman Brothers

Okay.

Bob Cantwell

9, 10 would be more of a realistic number on a go forward basis.

Reza Vahabzadeh - Lehman Brothers

Thank you.

David Wenner

That really is going to be dictated by a cost savings opportunity. So we've done a lot of integration of product lines in the facilities here in the last couple of years. We know we have some opportunities. We want to take advantage of that, have very quick payback going into 2009. So that may affect the capital spending. But the $10 million give or take is probably good number.

Reza Vahabzadeh - Lehman Brothers

Thanks very much.

Operator

Our next question is from Pi Aquino with Credit Suisse.

Pi Aquino - Credit Suisse

Good afternoon.

David Wenner

Good afternoon.

Pi Aquino - Credit Suisse

You went through your brands for the full year, could you just tell -- really quickly, I am assuming Maple Grove was roughly at the top of that list again. Could you quickly run through that for the fourth quarter in the terms of what the key brand drivers were?

Bob Cantwell

Well, I mean, certainly, the sales were up because $20 million Cream of Wheat, that's our new business. Maple Grove was up a little over $2 million, little over 12%. I mean Maple Grove for the year was up $9.3 million almost 16%. Las Palmas was about $0.5 million or 8%. Everything else, plus or minus. Our Trappey business was up 200,000 or 6%, and everything else plus or minus kind of offset each other. There are no other big swings expected for the co-pack business, which was down $600,000, which is no longer in existence.

Pi Aquino - Credit Suisse

Right. And then, in terms of a guidance for '08, are you thinking 2% to 3% topline growth? What kind of operating margin expansion are you looking for? I mean it sounds like its going to be a tough commodity here, so a lot of that unknown. But do you have some targets that you're looking for internally?

David Wenner

Well, the pricing alone, if we manage to keep unit volumes steady, pricing alone the $10 million implies somewhere north of 2% growth on the topline. And so that's realistic. Margin expansion is harder to forecast and it gets into the whole price versus cost dynamic and also sales mix. As I said, we have seen some margin contraction because a lot of the growth in the business in 2007 was lower gross profit business like Maple Grove. We would certainly hope that that would shift to more growth in Cream of Wheat, which would obviously pull the margins up. So topline we will hopefully grow at least to 2% to 3% and that depends on how successful we are growing unit volume beyond price increases and margins because of this whole cost issue.

Pi Aquino - Credit Suisse

Great, thank you.

Operator

(Operator Instructions) And we do have a question from Andrew Lazar with Lehman Brothers.

Andrew Lazar - Lehman Brothers

Good afternoon.

David Wenner

Afternoon.

Bob Cantwell

Afternoon.

Andrew Lazar - Lehman Brothers

So just one just clarification, I think I heard but I could be wrong that you'd said base business volume in the quarter was up 6%, did I hear about right?

Bob Cantwell

No, we didn't talk about the quarter base business. Total base business was up about $1.8 million for the quarter. I don't have that handy, exactly how much that was.

Andrew Lazar - Lehman Brothers

Okay. I had written something about base business volume up 6% and I wasn't sure what that was relating to, the volume for the base business up 6.

Bob Cantwell

No, the pure business dollar volume…

David Wenner

That was me saying unit volume Andrew.

Andrew Lazar - Lehman Brothers

Okay, right. So unit volume and that was unit volume for the base business.

David Wenner

Yes it was.

Bob Cantwell

So the base sales were up $1.8 million.

Andrew Lazar - Lehman Brothers

Okay.

Bob Cantwell

And the difference is a mix issue, lower price -- unit volume was on lower priced items.

Andrew Lazar - Lehman Brothers

Okay. So that is what I was trying to get at around the base business. I was trying to get a sense of what that meant and what that implied for pricing in the fourth quarter on the base business?

David Wenner

As we said pricing was not quite $2 million in gains, but we did see, I guess, I was trying to point out that we did see some unit volume gains in the quarter as well.

Andrew Lazar - Lehman Brothers

Got it. Okay. And then is there anyway to clarify what the share, sort of dilution or increased share count might be in ‘08 from the compensation accrual that you’ve talked about.

Bob Cantwell

Well, there would be no additional shares issued in ’08. If we do this we would be accruing that initially, actually issuing shares in ‘09.

Andrew Lazar - Lehman Brothers

Okay.

Bob Cantwell

But what you are looking at is about [$100] -- assuming a $10 share prices, if we take about a 150,000 shares.

Andrew Lazar - Lehman Brothers

Got it. Okay. And that will be a known non event.

Bob Cantwell

Right.

Andrew Lazar - Lehman Brothers

Okay, and then terms of thinking about how you budget kind of internally, I know you guys look at this in a granular way, kind of thinking about how all that potentates go in if you build in sort of a worst case scenario -- which I would given your sort of debt levels, and obviously dividend payment, probably look at kind of what you need and then to have a comfortable cushion, right, in terms of EBITDA. You kind of know you can deliver or you clearly hope you can do more than that, maybe even keep EBITDA flat at the end of the day like you have done in the last couple of years.

But what is the reasonable thought process in trying to keep expectations again in a prudent place given the cost environment. Where you just kind of say, worst case, we can get there, hopefully it is better. But that worst case would be hey, well in excess of enough to get -- what we need to do on the debt side and the dividend side. Is there a way to sort of communicate a comfort level, perhaps?

David Wennerz

When I look at ‘08, the EBITDA we produced in ’07 is certainly comfortable in terms of servicing our debt and our dividends.

Andrew Lazar - Lehman Brothers

Okay.

David Wenner

And I guess our worst case scenario would be not doing better than the '07 EBITDA.

Andrew Lazar - Lehman Brothers

Okay.

Bob Cantwell

So we're aspiring at minimum. And this is -- I think you have to have some more unknown costs or costs we don't foresee today, have been coming in -- getting down to the same EBITDA as 2007. We believe that we can do better than 2007 in '08. And as I said that would certainly continue to make us very comfortable in terms of servicing debt and dividend.

Andrew Lazar - Lehman Brothers

Got it. And last thing, I know this is -- it gets a little bit tougher but from an M&A environment perspective, perhaps you can just comment on -- on the one hand you think that some of these cost pressures maybe mix some assets that might be more available now at more reasonable price points. But on the other hand not as easy to get sort of deals done from a financing perspective. Trying to see how those two things way out for you and what are you seeing, perhaps, a fuller pipeline or a pipeline that is less robust, just directionally.

David Wenner

Well, there was a sort of a low in 2007 for 6 to 8 months where there wasn't a whole lot out there. We are actually seeing more properties for sale now. Some of which are interesting to us. I don't know that we can tell you what the financial situation is going to be in terms of being able to do those deals until we actually get to the point that we go to our bankers and say, okay, we have a potential deal, now we want to go to market for financing. I think the market is so uncertain that that the banks can't today speculate on what it will be. And so you actually go out there.

Andrew Lazar - Lehman Brothers

Right.

David Wenner

But as far as pipeline goes, yes, there are a number of things out there.

Andrew Lazar - Lehman Brothers

Great. Thanks very much.

David Wenner

Yeah.

Operator

And we do have a follow-up from Reza Vahabzadeh with Lehman Brothers.

Reza Vahabzadeh - Lehman Brothers

In terms of the different channels that you guys are operating in, are you seeing any relative weakness in the food service channel away from your maple syrup business, which I know has been strong.

David Wenner

We're expecting to see that Reza. Yes. We're seeing it getting softer and it's fairly broad.

Reza Vahabzadeh - Lehman Brothers

Got it. And then on the typical food at home channel, whether it's mass, clubs or grocery. Is that channel relatively stable or strengthening or any trends that you would note?

David Wenner

Yeah. That's harder to see. We believe it's going to strengthen. Certainly everything you read says that people are eating at home more and we've been trying over the last year Orion, Ortega in the dinner kit type of thing where -- buy this -- you have a meal when you add some ground beef or something like to it kind of products, because we believe that those are the products people want to buy from a convenience and cost point of view. Those are right down the runway in terms of the kind of products people should be buying in this environment.

Reza Vahabzadeh - Lehman Brothers

Got it. Thank you.

David Wenner

Yeah.

Operator

And with that there are no further questions. I would like to turn the conference back to you, David Wenner for any additional or closing comments.

David Wenner

Thank you all for joining us on the call. As we said, we believe we had a great year. We had a lot of challenges that we met in terms of cost, but we also integrated a major acquisition into this company and made major strides in terms of taking this company to the next level. The EBITDA increase we saw, the sales increase we saw and our ability to continue to service our debt and our dividends reliably, that's very important to us. And we believe that we had another year proving that we can continue to do that.

So thank you. And we will be speaking to you about the first quarter in not too longer time. Bye.

Operator

Again, this does conclude today's conference call. I would like to thank everyone for your participation

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

This Transcript
All Transcripts