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B&G Foods (NYSE:BGS)

Q2 2012 Earnings Call

July 19, 2012 4:30 pm ET

Executives

David L. Wenner - Chief Executive Officer, President and Director

Robert C. Cantwell - Chief Financial Officer, Chief Accounting Officer, Executive Vice President of Finance and Director

Analysts

Sean P. Naughton - Piper Jaffray Companies, Research Division

Reza Vahabzadeh - Barclays Capital Inc.

Robert Moskow - Crédit Suisse AG, Research Division

Katya Voronchuk - Sidoti & Company, LLC

Thomas Scherr

Operator

Good afternoon, ladies and gentlemen. Welcome to the B&G Foods, Inc. Second Quarter 2012 Financial Results Conference Call. As a reminder, today's presentation is being recorded. [Operator Instructions] I would now like to turn the conference over to David Wenner, Chief Executive Officer of B&G Foods. Please go ahead, sir.

David L. Wenner

Thank you. Good afternoon, everyone, and welcome to the B&G Foods second quarter 2012 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 condition. 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. Reconciliations of this measure 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 for the quarter, selected business highlights and our thoughts concerning the second half of the year. Bob?

Robert C. Cantwell

Thank you, Dave. Net sales for the second quarter of 2012 increased $19.2 million or 14.8% to $148.6 million compared to $129.4 million for the second quarter of 2011. The Culver Specialty Brands, which we acquired at the end of November 2011, contributed $19.5 million of our net sales for the quarter. For our base business, a sales price increase of $4.3 million, offset by a $4.6 million unit volume decrease, resulted in a $0.3 million net sales decline. Net sales increased by $1.5 million for Ortega and $0.6 million for Cream of Wheat. These increases were offset by a reduction in net sales for B&G of $1.2 million, Las Palmas of $0.6 million and Underwood of $0.5 million. All other brands decreased $0.1 million in the aggregate.

Gross profit increased $9.6 million for the second quarter of 2012 or 22.7% to $51.8 million from $42.2 million in the second quarter of 2011. Gross profit expressed as a percentage of net sales increased 220 basis points to 34.8% for the second quarter of 2012 from 32.6% for the second quarter of 2011. The increase in gross profit as a percentage of net sales was primarily due to pricing gains of $4.3 million and a sales mix shift to higher-margin products, primarily due to the Culver Specialty Brands acquisition, partially offset by commodity cost increase.

Selling, general and administrative expenses increased $0.4 million or 3.1% to $14.6 million for the second quarter of 2012 compared to $14.2 million for the second quarter of 2011. This increase is primarily due to increases in brokerage expenses of $0.4 million, professional fees of $0.2 million and all other expenses of $0.3 million, offset by a decrease in consumer marketing and trade spending of $0.5 million. However, expressed as a percentage of net sales, our selling, general and administrative expenses decreased 120 basis points to 9.8% for the second quarter of 2012, from 11% in the second quarter of 2011.

Operating income increased 33.3% to $35.1 million for the second quarter of 2012 from $26.3 million in the second quarter of 2011. Net interest expense for the second quarter of 2012 increased $3.6 million or 42.2% to $11.9 million from $8.3 million for the second quarter of 2011. The increase was primarily attributed to additional indebtedness to finance the Culver Specialty Brands acquisition and an additional $900,000 of amortization of deferred debt financing costs and bond discount relating to the acquisition financing.

The company reported net income was $16 million for the second quarter of 2012, a 27.2% increase as compared to reported net income for the second quarter of 2011 of $12.6 million. Diluted earnings per share for the second quarter of 2012 was $0.33, a 26.9% increase as compared to diluted earnings per share for the second quarter of 2011 of $0.26. For the 2 first quarters of 2012, reported net income was $32.8 million or $0.68 per diluted share, a 28.3% increase as compared to reported net income of $25.9 million or $0.53 per diluted share for the first 2 quarters of 2011.

Our EBITDA increased 30.6% to $39.6 million for the second quarter of 2012 compared to $30.3 million in the second quarter of 2011. EBITDA as a percentage of net sales increased to 26.6% in the second quarter of 2012 from 23.4% for the second quarter of 2011. Our EBITDA for the first 2 quarters of 2012 was $82.2 million or 29.7% increase compared to $63.3 million for the first 2 quarters of 2011. EBITDA as a percentage of net sales increased to 26.9% in the first 2 quarters of 2012 or 24.3% for the first 2 quarters of 2011.

Moving onto the balance sheet. We finished the second quarter of 2012 with $21.4 million of cash compared to $16.7 million at the end of 2011. Our current dividend rate is $1.08 per share per annum or approximately $52.2 million per annum in the aggregate based on our current share count. We finished the second quarter of 2012 with $715.6 million in long-term debt. Our net leverage based on the midpoint of our full year EBITDA guidance is 4.1x. Our expected cash interest expense for 2012 is approximately $43 million. Our expected cash taxes for 2012 are approximately $20 million. And our capital expenditures for 2012 are forecasted at between $11 million and $12 million.

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

David L. Wenner

Thank you, Bob. Good afternoon again, everyone. The significant gains in our operating results that Bob just cited reflects several important accomplishments in the second quarter.

First and foremost, the Culver Specialty Brands acquisition continued to perform as expected, accounting for all of the sales increase in the quarter and contributing significantly to our 30.6% EBITDA increase and our 27.2% increase in net income. Through 6 months, the acquisition has added $45.1 million in net sales, slightly ahead of our previously announced guidance of $88 million. Given that new products and new distribution will begin to kick in during the second half, we are hopeful that we will continue to improve on that number by year end. We are currently launching -- working on and launching new products in 5 of the 6 Culver Brands and should begin launching those products as the second half unfolds.

The second accomplishment, the quarterly results reflect continued success with our price increases, announced last September and more modestly in February of this year. Price gains are tracking slightly ahead of our projections and contributed approximately 3.3% in net sales gains for the quarter and 2.6% for the first half. Pricing, combined with cost reduction and a favorable sales mix raised the margins in our base business adding to the margin improvement realized from the Culver acquisition.

That sales mix comment leads me to the third important accomplishment implicit in our results. We continue to grow the most important brands in our portfolio. Tier I brands net sales increased by 2.8% for the second quarter, driven by Ortega growth at 4.7% and Cream of Wheat growth at 4.9%. Ortega has been a stellar brand for us, growing consistently, and this quarter was no exception. Most of its growth is coming from mass merchants due to new distribution. But we are holding our own at supermarkets as well, despite the soft environment there.

Cream of Wheat recovered nicely in the quarter after a soft first quarter, confirming in our opinion, that warm weather affected the brand more than anything else in that quarter. Las Palmas had an unusual decline for the quarter, which we are attributing to retailers on the West Coast, shifting the format of their stores and temporarily disrupting sales at the retailer level. Consumer trends on the brand remain very strong.

Underlying these positives, of course, there was a modest volume decline in our base business sales for the quarter. A 3.6% drop that reflected a mild but broad softness in sales across most brands and specific issues with a few brands. The volume loss shows that we have not been totally immune to the general weakness in the food business, though our percent decline is meaningfully lower than many of our competitors. We have no good answers to the 2 key questions: Where are the consumers and what are they eating? But we most certainly see that price increases have influenced their behavior.

Categories where we and our competitors have taken sizable price increases are more noticeably affected than others. The fruit spread category is an excellent example of this. Sweeteners and fruit costs, in general, have increased substantially in the past 12 months, and the category has seen price increases reflecting that. Our Polaner brand, which competes in that category, saw a 3.9% sales decline in the second quarter but an 11% volume decline. That number is very much in line with what competition has reported and with what Nielsen reflects at the consumer level. One reason I believe that we have not seen the overall volume drop that others have seen is that we, in general, have taken very modest price increases, and thus, have not experienced the sticker shock seen in categories such as fruit spreads.

The dynamics of sales volume by channel remained much the same in the second quarter as they were in the first. Our volume issue was, in general, isolated to the traditional supermarket portion of the business and to a great degree, a handful of customers. We are seeing volume declines proportionate to the overall declines of customers who are struggling more than most in this environment, but not making up all of those lost sales at their competitors. Since our business skews somewhat to the northeast in certain brands, those brands, such as B&G and Polaner, have been more affected than most. The effect was apparently compounded in the second quarter by inventory reductions by at least 1 major customer. We assume in response to that customer's volume losses. But I would emphasize that these types of declines are the exception rather than the rule. In most cases, we are seeing flat sales in supermarkets. The difference between this environment and past years is that channel -- in this channel is that there are fewer gains to offset issues at specific retailers.

Meanwhile, sales to dollar in drug stores were flat for the quarter in the base business, with several rotational events not repeating and offsetting sale -- gains in everyday baseline distribution. We expect our sales growth to resume in this channel in the third quarter with a number of new distribution events lined up for dollar stores. We do continue to make very good progress in mass merchants. Sales to these customers rose 8.2% for the quarter on distribution gains with new and existing products. The speed with which we are able to place products in this channel is a notable point of difference with the supermarket channel and may account for part of the relative performance of the 2. Supermarkets continue to extend the timing of category of use, in many cases, to well over 12 months.

This, of course, limits our ability to place successful new products and take advantage of their ability to grow our sales and sales within the overall category. An example of this would be the Cinnabon Instant Cream of Wheat item, which is just now entering distribution at 1 major retailer, 1 of our top 10 customers, even though it has been in the marketplace and succeeding for nearly 2 years. As we all know, innovation is important to a branded business, but innovation that you can't get on the shelf has limited value. To the extent we have been able to place these items in mass merchants and not in supermarkets, we see a corresponding difference in sales performance. Having said that, we do expect increased success of placing new products in the second half of the year in both supermarkets and mass merchants.

As I noted earlier, much of our volume decline was focused on just a few brands, with reasons beyond the general weakness in the industry. Net sales for the Tier II brands declined by 3%, a significant portion of which was due to lower sales of our tomato products under the Sclafani and Don Pepino labels. The seasonal pack for these items was severely affected last summer by the hurricane, which limited the New Jersey tomato harvest. As a result, we were short of product in this past quarter, an issue that should be resolved with this summer's harvest.

Tier III brands net sales declined by 2%, in this case, significantly impacted by sales of the B&G brand, which had retail issues, as I referred to earlier, and lower food service sales and accounts where we exited the business. We anticipate that the second half will yield improved volume results, partly due to a slowly firming consumer environment and partly due to increased distribution of new and existing products. A reasonable outcome would be flat volume in the base business in third quarter and growth in the fourth quarter. New products such as chocolate-flavored Instant Cream of Wheat, Crock-Pot seasoning mixes, Emeril's alfredo sauces, Las Palmas' hot enchilada sauce and a host of new Culver offerings should help us achieve that result.

The cost side of our business is playing out as expected with cost increases on commodities following our long-term commitments and other costs remaining relatively stable. In a few cases, we have been able to lower cost increases through opportunistic purchases. And our cost reduction effort continues to whittle away at the overall increase. Consistent with what we have said in prior calls, we have identified cost-reduction projects totaling roughly 4% of our manufacturing costs as possible cost savings opportunities. So far this year, we have delivered just over 30% of those savings or 1.4% of manufacturing costs. To further control costs, we are being consistent in maintaining a 12-month window on our commodity purchases and have even extended beyond that in cases where we see favorable opportunities.

This posture, which has served us well in the past 18 months, appears to be the correct approach going forward. The recent decline in commodity has made it tempting to shorten positions. But corn recently demonstrated to us yet again how quickly cost can change. We remain convinced that managing to a known cost picture is the better approach to our business. Despite these efforts, there are several significant costs we have little ability to control long-term. In that vein, maple syrup, our largest single purchase, wrapped up the second quarter with a fairly neutral outcome. A poor crop in the South was offset by a good crop in the North and the structural fuel price increase in Québec was offset to a large degree by the stronger U.S. dollar.

The other meaningful cost of this sort is distribution expense, which basically changes weekly. In the second quarter, this cost was essentially flat, with fuel surcharges higher than prior year early in the quarter and lower at the end. At current oil prices, we should see a modest year-over-year benefit in this expense in the second half of the year. Most of our other agricultural costs are set as the new crops are harvested in the fall. We do not foresee any unusual effects from the harvest at this point.

As Bob mentioned, our SG&A expenses were up only modestly, and that's due to additional sales volume from the Culver acquisitions. Trade spending declined in total and as a percent of sales. The Culver Brands require a lower percentage of trade spending in the most brands in our portfolio, which is in line with our experience in the seasonings business. We have found with Ac'cent and other seasonings that we have that only modest and infrequent trade promotions are necessary and that deep promotions are generally ineffective.

Reduction in trade spending in our base business reflects the fact that part of our net price increases came from higher promotional prices on a number of brands. Marketing expenses were down for the quarter and fairly flat for the first half, even though we spent over $3 million in marketing on the Culver brands. We did not repeat the Ortega television advertising that we executed in early 2011, judging it ineffective, and lowered the value of several coupon events on the various brands in the base business. Interestingly, we found redemption was, in some cases, higher despite the lower coupon value, perhaps a further reflection of consumers' avid interest in saving money on their food purchases.

Let me anticipate a question on the M&A environment by saying that activity has increased in terms of properties being offered for sale. Typically, the properties are private or private equity-owned businesses and not brands coming out of large food companies. Short of a large transaction between major food companies that transforms one or both parties, I do not foresee large food companies selling brands in today's volume-challenged environment. We remain highly selective in terms of our requirements for a fit to our business and a strong free cash flow outcome as we examine any acquisitions. Having successfully completed the acquisition and integration of the Culver Specialty Brands into B&G Foods and given our strong balance sheet and operating performance, we believe that B&G is as ready as it has ever been to execute an acquisition quickly and effectively.

With respect to our overall growth strategy, our ability to successfully execute on the Culver acquisition and to enhance margins in our base business, even in a challenging retail environment, provides further validation of our strategy, a strategy that has produced strong net sales, net income and EBITDA growth and superior shareholder returns for the past 3-plus years.

As we go forward in 2012, we believe the second half of the year will bring a healthier top line result for our base business and steady improvement in our bottom line, which should be further good news for our stockholders. In light of that, we are maintaining EBITDA guidance for the full year within a range of $166 million to $170 million. The midpoint of this range represents a year-over-year EBITDA increase of 28.1%.

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

Question-and-Answer Session

Operator

[Operator Instructions] And we'll go first to Sean Naughton with Piper Jaffray.

Sean P. Naughton - Piper Jaffray Companies, Research Division

Dave, you mentioned something interesting in your remarks, where you were talking about the potential for a slowly firming consumer expectation in the back half of the year. Is this something that you're seeing at retail right now? Or is this just a belief that the economy is slowly getting better as employment is improving?

David L. Wenner

Well, it's an overall sentiment, but it is reflecting trends that we're seeing on a good number of our brands that they are slowly firming.

Sean P. Naughton - Piper Jaffray Companies, Research Division

Okay. Is this -- do you feel like it's in -- like some of the Tier I, Tier II? Which kind of slate of brands do you feel like you're seeing some of the nice strength of that?

David L. Wenner

It's more in the Tier II and Tier III brands. The Tier I brands have been growing, 2 out of the 3 of them grew very nicely in the quarter, and pretty much in line with the kind of growth we've seen before. So it really is in that rest of the stable, if you will.

Sean P. Naughton - Piper Jaffray Companies, Research Division

Got it. And then I guess, just lastly on the new product introductions you were discussing, can you talk a little bit more about the timing between Q3 and Q4, when you think that you could see some of those hit, and then any additional distribution opportunities you may be seeing with Culver with respect to any of the channels, whether it's wholesale -- the club business or the dollar store channel?

David L. Wenner

The trend is going to accelerate as the year goes on just because a number of these products aren't going to come to market until the fourth quarter. So we have some that are coming in the third quarter and some that are going to roll in, in the fourth quarter. And obviously, that will be a building trend as we go forward. The distribution gains on the base business are pretty much spread throughout the first, or rather the whole 6 months. And we have some of those in-house today, such as a very nice order from dollar stores on Culver products and on Cream of Wheat.

Operator

And from Barclays, we'll go next to Reza Vahabzadeh.

Reza Vahabzadeh - Barclays Capital Inc.

Any brands that sort of exceeded your expectations, just given the market environment or ones that maybe trailed your game plan going into the quarter? And any brands that you are maybe concerned with for whatever reason on a go-forward basis in the second half?

David L. Wenner

Well, to answer that in reverse, there's really no brands that we're concerned about. I think where we have any kind of issue in a brand, I think, we thoroughly understand why and are trying to address that. The 1 brand that just as a category problem that I don't know what can be done about it because consumers seem to be reacting badly to the price increases is the preserve category. And I noted in the Smucker call that they were saying their fruit spread business was down 11% as well. So we're pretty much in line, I guess. And it seems to be an overall problem with that category, where there were some pretty serious price increases, just because the cost of materials has skyrocketed and sweeteners and a good number of fruits. But I mean, I'm very pleased to see that 2 out of the 3 Tier I brands grow the way they did. Cream of Wheat coming back as it did was very, very encouraging. We struggled in the first quarter and we thought it was the warm weather. But this certainly validates that theory because it came back strong in the second quarter. But other than that, there's really not a lot of surprises. The variances we saw on most sales were very small percentage, plus or minus, and really don't speak to any issues in the portfolio.

Reza Vahabzadeh - Barclays Capital Inc.

Got it. And the Emeril portfolio and the Mexican dinner portfolio, how are you thinking about those?

David L. Wenner

Well, Mexican continues to do very well for us. I mean, Ortega has performed very, very well. Emeril, we continue to try and innovative in that category and push out new distribution to keep that brand in, if nothing more, a stable mode, and hopefully in a growth mode. We're launching 2 new pasta sauces, 2 alfredo sauces here as we speak. They've been very well-received at the retail levels and going into retailers like Kroger's, so we're very encouraged by that. So we're fighting a good fight in both of those areas.

Operator

Our next question comes from Robert Moskow with Credit Suisse.

Robert Moskow - Crédit Suisse AG, Research Division

A question for you. You mentioned something interesting about supermarkets extending the timeframe for category reviews as much as 12 months. Why do you think they're doing that? Are they trying to delay price increases? I mean, it would seem that if category reviews get them new products, they'd be very eager to do more category reviews. And then secondly, with respect to pricing, you have corn prices going up, wheat prices going up. At what point are you going to have to think about higher prices for Ortega and Cream of Wheat, if any?

David L. Wenner

Well, the category reviews -- first off, Rob, the category reviews don't have anything to do with pricing. Retailers can change pricing without doing a category review and they do that all the time. This is more about changing the set within a section to weed out what's not selling and put in new products that hopefully will sell. And we've seen retailers not only extend it to 12 months, but extend it to well over 12 months. In the case of the 1 instance I was citing, it was over 2 years since that category had been reviewed. And that's why it took so long to get Cinnabon into that retailer. I think it's all about the expense of resetting categories. When you have an awful lot of stores it costs an awful lot per store, to strip the shelves down and reset them, and I think that expense is slowing people's inclination down to reset them.

Robert Moskow - Crédit Suisse AG, Research Division

Got it. And the pricing on Cream of Wheat and Ortega?

David L. Wenner

As far as pricing goes, we're looking at 2013. And because we are aggressive in terms of extending our positions on these things, right now, our first blush at 2013 says we're going to see a modest overall price cost decrease and we're certainly going to see that cost decrease in wheat and corn. In the case of corn, when we saw the dip in corn, we have taken positions into the fourth quarter of next year on corn. And as I said earlier, on wheat, when you started seeing the futures dropping and everything, my inclination, I at least ask the question, "Should we shorten up our horizon on these and take advantage of these lower costs sooner?" We decided not to do that. And of course, the weather proved me correct immediately. Or I guess, the weather showed me the wisdom of that way immediately by things drying up and cost skyrocketing again. So we're pretty -- in pretty good shape for 2013, in terms of commodity costs right now.

Reza Vahabzadeh - Barclays Capital Inc.

Yes. it sounds like you're ahead of the curve in terms of planning farther out. And that's been the case for the last year or so.

Operator

[Operator Instructions] And we'll go next to Katya Voronchuk from Sidoti & Company.

Katya Voronchuk - Sidoti & Company, LLC

I believe last quarter you mentioned that there was some reluctance among retailers with regard to implementing promotions. Have things improved since then? And also do you expect increased promotional activity in the second half of the year?

David L. Wenner

Well, the reluctance in terms of the promotions was the typical reaction we see when we raise the promotional price of items that where promotions really make a difference. And yes, there was some reluctance to do those promotions in the first half of the year. We don't foresee that disruption in the second half of the year. As is the usual case, it takes retailers a little while to get used to the fact that this is the new game. There is no other game because cost is what it is and this is what we can afford to do. And as other people in the category behave similarly, retailers get used to those new promotional prices and start executing on them. And that's what we expect in the second half of the year.

Katya Voronchuk - Sidoti & Company, LLC

Okay. And you talked about supermarkets and dollar stores. Could you also give us an update on demand coming from the food service channel?

David L. Wenner

Well, food service was relatively flat for us in the quarter. Some parts grew. We exited some business intentionally, that was very low-margin business that drove a lot of working capital needs. And we did lose 1 account that changed the format of how they were buying things. So the positive and the negatives pretty much offset themselves for food services for us in the second quarter.

Katya Voronchuk - Sidoti & Company, LLC

Okay. And looking at Canada, what percentage of your sales came from Canada for this quarter? And could you maybe give us some color on the progress you're making in penetrating that market?

Robert C. Cantwell

Well, export in -- for us is about, in total, 3% of our sales. Most of it’s in Canada and we include Puerto Rico as export. And we do a little bit small business in a few other places. But pretty much, most of the -- it's about 3% in total, with about 2% of it being from Canada.

David L. Wenner

As far as progress goes, I guess, we were -- we got an education in Canada in terms of how long it takes to change things up there. One of the things that happens when you buy brands from other companies is you usually have to change the UPCs and the G10 numbers that are used with those brands. In the United States, you can execute that very, very quickly. It's usually the matter of a month or so. In Canada, it's taking a fully 6 months to execute that. It's just being done. It did cause some disruptions because the Canadian stance in a lot of cases was, "We're not going to order any new number until we sell out the old number." So that -- so even though Culver results were very, very good, they actually were impaired by about $0.5 million in the second quarter by that stance from the Canadians that once we sell out the old inventory, we'll bring in new inventory. So that's something we expect to snap back in the third quarter as we transition. The other thing that's happening in Canada is we're transitioning the existing business that we had from a distributor format to the traditional warehouse direct-to-customer format. That transition is going to happen in the very first part of August. And that will give us an effective increase in our selling price up there on the base business and should be over $1 million benefit for us in the second half here. So that's a very good positive that's going to kick in very soon.

Katya Voronchuk - Sidoti & Company, LLC

Okay. And just last question. So overall, your volumes declined. How about no sodium and low sodium products within different categories? Did they perform in the same manner as all other products? Or did the sales volumes for those products bucked [ph] the trend?

David L. Wenner

Well, Mrs. Dash continues to perform very well for us. I assume you're partly referring to some lower sodium and no sodium products that we've launched. We've done that with Ortega, for instance, where we've reduced the sodium in our seasoning mixes. Those products are performing very well and selling at about half the rate of the regular products, which we consider very successful and also not cannibalizing our regular products. They're additive to our overall sales. So that's a trend we're going to continue to pursue. And we're looking at reducing sodium in a number of the offerings that we have out there across a number of brands. And it seems to resonate with consumers. So it definitely is something we're going to follow up.

Operator

And from Federated Investors, we'll go next to Thomas Scherr.

Thomas Scherr

So just looking at the non-Culver business, all-in, would EBITDA have been up or down?

David L. Wenner

EBITDA would have been up.

Robert C. Cantwell

Been up a little bit. Yes.

Operator

And at this time, there are no further questions in the queue. Mr. Wenner, I'll turn the call back to you, sir.

David L. Wenner

Okay. Thank you, operator. Again, thank you very much for joining us on the call. Despite the volume challenges that we’ve had, we really think that we have achieved the very important parts of our goals for the second quarter, which include successfully executing on Culver, since that's a very important part of the increases we're having this year, selling the products that we consider the most important products to sell and growing those sales, and also increasing margins in the base business, despite the drag that we did have on the volume side. All of those things speak to an even better result in the second half as we recover volume. And we're looking forward to performing on that and continuing to give our shareholders a very good return. So thank you very much.

Operator

And ladies and gentlemen, that does conclude today's presentation. We thank you for your participation.

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