B & G Foods (BGS) Q3 2019 Earnings Call Transcript

B & G Foods (BGS -5.20%)
Q3 2019 Earnings Call
Oct 31, 2019, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the B&G Foods third-quarter 2019 earnings call. Today's call is being recorded. You can access detailed financial information on the quarter in the company's earnings release issued today, which is available at the Investor Relations section of bgfoods.com. Before the company begins its 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 you to the company's most recent annual report on Form 10-K and subsequent SEC filings for a more detailed discussion of the risks that could impact the company's future operating results and financial condition. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The company will also be making reference on today's call to the non-GAAP financial measures, adjusted EBITDA, adjusted net income, adjusted diluted earnings per share and base business net sales.

Reconciliations of these financial measures to the most directly comparable GAAP financial measures are provided on today's earnings release. Ken Romanzi, the company's president and chief executive officer, will begin the call with opening remarks and discuss various factors that affected the company's results, selected business highlights and his thoughts concerning the outlook for the remainder of 2019 and beyond. Bruce Wacha, the company's chief financial officer, will then discuss the company's financial results for the quarter, as well as its guidance for 2019. I would now like to turn the conference over to Ken.

Ken Romanzi -- President and Chief Executive Officer

Good afternoon. Thank you all for joining us today for our third-quarter earnings call. This afternoon, I'd like to provide you a perspective on our third-quarter results before I turn the call over to Bruce to provide more detail of our financial performance. Over the many years, B&G Foods has had a strong track record of increasing sales, profitability and cash flow through organic growth, disciplined acquisitions of complementary branded businesses and new product development.

Unfortunately, we have not lived up to our track record over the past two years. But I believe that our results this quarter show that we're making the necessary improvements to our business and that we're beginning to return our company to a path that will allow us to achieve our short- and long-term goals. Highlights of the third quarter, which I'll discuss more fully in a few minutes, include: first, the ongoing integration of Clabber Girl, which is proceeding very well; second, the successful completion of the largest debt refinancing in company history at very attractive interest rates; third, continued success of our new product innovation; fourth, achievement of price increases in a difficult marketplace. Through the first three quarters of 2019, we generated approximately $16 million in price increases, which is trending at the high end of our expected range; fifth, increasing momentum behind our cost-savings initiatives projected to be $20 million for the year primarily in logistics costs; and sixth, continued strengthening of our organizational capability, including organizational redesign, personnel enhancements and system improvements such as our new Oracle JDE ERP system and trade spend management system.

In the third quarter of this year, net sales and adjusted EBITDA declined primarily due to the divestiture of Pirate Brands in the fourth quarter of 2018. Excluding that divestiture, our net sales increased 2.6%, mostly driven by the acquisition of Clabber Girl, which is performing very well, in line with our acquisition model. The integration of Clabber Girl continued to proceed smoothly during the third quarter as we began transitioning Clabber Girl to our sales team. We expect to fully integrate Clabber Girl sales and distribution in January of 2020.

Base business net sales, which excludes the impact of the Pirate Brands divestiture, the Clabber Girl acquisition and an extra two weeks of McCann's Irish Oatmeal, declined 2.5%, mostly due to Green Giant and our spices & seasonings businesses. While much of this was planned, sales performance for the quarter was at the low end of our expectations. Our spices & seasonings business declined 3% versus last third quarter primarily driven by promotional timing, modest price declines in our commodity spice business, particularly garlic and pepper, and some lost distribution of low-margin private-label business. Green Giant net sales declined 4.9% versus the third quarter of 2019 primarily due to the implementation of our trade promotion optimization strategy that increased the promotional price points of our bag-in-a-box product line.

Much of this was planned, although in certain customers, the promotional volume sensitivity was greater than we expected. However, we will continue this strategy in nonholiday time frames as it contributes to our overall net price realization and we believe will help improve our margins for these products. We also experienced supply shortages of our frozen corn-on-the-cob products from the poor crop in 2018. We believed we could stretch the limited supply we had on hand, but it just didn't last until the new crop came in.

We're now back in full inventory position, fulfilling customer orders from the 2019 harvest. And lastly, Canadian Thanksgiving was later this year, which negatively impacted the third quarter, but should positively impact the fourth quarter. We recognize this was the first time in seven quarters, dating back to 2017, that Green Giant hasn't shown growth. But we're confident that it will return to growth in the fourth quarter, the kind of growth we've come to expect from Green Giant.

In the fourth quarter, we're executing our traditional holiday promotional practices on our bag-in-a-box line, so that should not be the drain that it was in the third quarter. In addition, as I mentioned earlier, we expect Green Giant to benefit from the later Canadian Thanksgiving. However, we believe the real driver of expected Green Giant growth in the fourth quarter will come from our 2020 innovation product launches that have already begun shipping to customers that represent about a third of the ACV. We're very excited about these products.

They include Green Giant Pizza with Cauliflower Crusts, Green Giant Cauliflower & Spinach Gnocchi, Green Giant Vegetable Hash Browns, building off the terrific success of our Green Giant Veggie Tots, and Green Giant Marinated & Grilled Vegetables. As part of our continuing mission to make Green Giant the plant-based food brand of the future, these innovative new products will expand Green Giant's reach into areas of the frozen food case beyond vegetables, including frozen potatoes, frozen pizzas and frozen pasta. And in 2020, we expect Green Giant will continue to expand its reach both in the frozen food case and the dry grocery area of the store. So the outlook for Green Giant continues to be a very bright green.

Year to date, our total company sales have increased 1.7%, excluding Pirate Brands, driven by Green Giant, Maple Grove Farms, Ortega, McCann's, Las Palmas and New York Style, partially offset by Back to Nature, SnackWell's, Mama Mary's and Bear Creek, another brand in which we are raising promotional price points to improve margins. Excluding the impact of the divestiture of Pirate Brands, we estimate that our adjusted EBITDA for the third quarter increased by approximately 2% to 3% versus last year, driven by the continuation of price realization of $5 million and the success of our cost-savings initiatives totaling nearly $8 million for the quarter. Year to date, we estimate that our adjusted EBITDA, excluding the impact of Pirate Brands, was relatively flat to 2018 as our plan to take pricing and implement cost savings to ward off inflation has been fully implemented. In fact, we expect to deliver both pricing and cost savings at the top end of each expected range of $15 million to $20 million for the year.

However, our earnings were hampered a bit in the third quarter and will continue to be in the fourth quarter by higher costs than anticipated. Therefore, despite delivering the high end of our budgeted pricing and cost savings, we're lowering our full-year adjusted EBITDA guidance to $295 million to $310 million. This reduction is primarily driven by two factors: one, higher Green Giant 2019 vegetable pack costs and the acceleration of the use of the new more expensive pack due to last year's short vegetable crop that did not last as far into the calendar year as it normally does; and two, higher import tariffs, particularly garlic, and the effect of steel tariffs on domestic steel pricing. While we had increases in those for the year budgeted, the increases came in -- are coming in higher.

I do not like lowering our earnings projections and disappointing our investors, but when I took this role, I promised as much transparency as possible as early as possible, and I believe you should know our business expectations as soon as we do. But despite these newly identified costs, we have even more conviction in our plans moving forward. Our expectation moving forward remains to drive 0% to 2% base business growth, deliver pricing and cost savings to ward off inflation and improve margins and add accretive acquisitions to our business. In addition to the reasons for optimism highlighted at the beginning of my discussion, we believe this is achievable for the following reasons.

One, we compete in growing categories. A substantial majority of the categories in which we compete are healthy and growing. Two, we have strong brands. A B&G Foods brand is in over 80% of U.S.

households, and many of our brands have the No. 1 or 2 national or regional market share in the categories in which we compete. Three, we have geographic distribution expansion opportunities. Many of our brands have relatively low geographic distribution, around the 50% mark.

Brands like McCann's, Victoria, Mama Mary's and Back to Nature have solid growth potential by expanding geographic retail distribution. And lastly, we have a robust innovation pipeline. We have a very strong track record of new product innovation and a great pipeline of new products hitting the shelves over the next 12 to 24 months that we're excited about, particularly on Green Giant. And we've extended much of the innovation approach from Green Giant to several of our other brands, which we're also very excited about.

On the cost-savings initiative, we've made great progress reducing our logistics cost. Going forward, we plan to step up our asset rationalization and repatriation of products in and out of our manufacturing facilities for the best low-cost solution. We plan to continue to reduce product and packaging costs wherever possible and expect to continue to drive trade spend optimization as we implement a new go-to-market trade program and system to manage it in 2020. Regarding our capital structure.

We were very pleased with the successful refinancing of $1 billion of our long-term debt, securing our balance sheet for the foreseeable future. This was our largest debt refinancing in company history. Our new senior notes were issued at one of the lowest interest rates in our company history. We secured an attractive 4.8% blended cost of new debt, and the refinancing eliminated all near-term maturities.

Furthermore, we remain committed to returning cash to our stockholders. Yesterday, we paid our 60th consecutive quarterly dividend, and two days ago, our board of directors declared our 61st quarterly dividend, which will be paid in January 2020. During the third quarter, we also returned cash to our stockholders through our repurchase of approximately 1.3 million shares of common stock at an average price of $18.55 or $24.7 million in the aggregate. And lastly, as always, we remain very active in evaluating acquisition opportunities.

So now, I'd like the call to turn over to Bruce to discuss the details of our third-quarter financial performance.

Bruce Wacha -- Chief Financial Officer

Thank you, Ken. Good afternoon, everyone. As Ken just outlined, we had solid performance in the third quarter as we reported net sales of $406.3 million and adjusted EBITDA of $86.2 million. Adjusted EBITDA as a percentage of net sales was 21.2% for the quarter.

After adjusting for approximately $26.6 million in net sales for Pirate Brands in the third quarter of 2018, net sales increased by $10.3 million or 2.6% over last year's third quarter. Net sales benefited in the quarter by $20.1 million resulting from the acquisition of Clabber Girl in May of 2019. Base business net sales decreased by $9.8 million or 2.5%, largely driven by declines in Green Giant and our spices & seasonings business. Outside of Green Giant and the spices & seasonings business, nearly 60% of our brands were up for the quarter.

Third-quarter net sales benefited from approximately $5 million of price increases, which were largely driven by our list price increases, as well as improved trade spend optimization, particularly for Green Giant. Unit volumes, exclusive of the sale of Pirate Brands and including our acquisition of Clabber Girl, increased by $5.3 million. As Ken mentioned earlier, Green Giant had a softer quarter than anticipated, with net sales down $6.1 million or 4.9% as the brand was negatively impacted by a couple of discrete events, including a trade optimization program that is designed to improve profitability on our recently revamped bag-in-a-box line, temporary out-of-stocks on corn-on-the-cob following a second short crop and the timing of the Canadian Thanksgiving, which shifted from the third quarter a year ago to the fourth quarter of this year. Each of these events cost us about $2 million in reduced Green Giant net sales for the quarter.

On a year-to-date basis, performance remained strong for Green Giant and net sales was up $9.1 million, a 2.5% increase year to date versus 2018. And we are very excited about the brands' prospects in the fourth quarter as we are introducing 11 new frozen innovation products, which we expect to generate approximately $5 million to $10 million in incremental net sales versus the year ago fourth quarter. The new innovation launches include Green Giant Cauliflower Veggie Hash Browns; Cauliflower & Broccoli Veggie Hash Browns; Cauliflower Gnocchi; Cauliflower Spinach Gnocchi; Marinated Mushrooms; Eggplant, Pepper & Zucchini Marinated Veggies; Zucchini Grilled Veggies; Cauliflower, Cheese and Bacon Veggie Tots; Margherita Pizza; Four Cheese Pizza; and a 24-ounce value size of Zucchini Spirals. These new innovation products are also expected to positively impact Green Giant net sales in 2020.

We expect 2020 to further benefit from another round of new innovation products that we plan to launch in the first half of 2020 and that we expect will further cement Green Giant as the preeminent plant-based brand in the frozen foods aisle. Among our other large brands, net sales of Maple Grove Farms increased by approximately $1.3 million or 8.1%. Net sales of Ortega increased by approximately $1.1 million or 3.2%. And net sales of New York Style increased by $300,000 or 3.2%.

Net sales of Cream of Wheat were down $200,000 or 1%. Net sales of our entire spices & seasonings business were down $2.5 million or 3%, largely driven by lower pricing of some commodity spices, as well as a result of decreases in commodity input costs, primarily garlic and black pepper, and some losses in certain low-margin private-label contracts. Profits in our spices & seasonings business remain strong, and net sales of our legacy spices & seasonings brands, including Ac'cent, Mrs. Dash and Sason, were up 5.6%, 5.6% and 1.7% for the quarter, respectively.

Gross profit was $108.8 million for the third quarter of 2019 or 26.8% of net sales. Excluding the impact of $1.5 million of acquisition, divestiture-related and nonrecurring expenses during the third quarter of 2019, our gross profit would have been $110.3 million or 27.2% of net sales. Gross profit was $115 million for the third quarter of 2018 or 27.2% of net sales. Excluding the negative impact of $3.2 million of acquisition-related and nonrecurring charges during the third quarter of 2018, our gross profit would have been $118.2 million or 28% of net sales.

Our plan this year was to increase pricing and implement cost-savings initiatives to offset inflation in order to maintain gross profit margins, and for the most part, that is exactly what is happening. For the first -- third quarter of 2019, gross profit benefited from an increase in net pricing of $5 million, bringing the year-to-date net pricing benefit to $16.2 million. Cost savings are also benefiting our margins as our cost-cutting initiatives have helped to offset inflationary pressures that we are seeing across the industry. Our cost-savings initiatives include the realignment of our dry and frozen distribution networks, improved procurement and packaging and a G&A rationalization that we implemented earlier this year.

These initiatives, in addition to the Pirate Brands divestiture, helped to lower our cost of goods sold, inclusive of the cost of materials, labor, overhead, freight and warehousing, from $307.6 million in the third quarter of 2018 to $297.5 million in this year's third quarter. Cost of goods sold as a percentage of net sales was 73.2% in the third quarter of 2019, compared to 72.8% in the third quarter of 2018 as increased input costs, particularly driven by a second consecutive short agricultural crop, negatively impacted Green Giant margins and offset these gains. Selling, general and administrative expenses of $38.1 million were favorable by $1.9 million or 4.7%, compared to $40 million for the third quarter of 2019. The favorability was driven by decreases in selling expenses of $1.6 million, warehousing of $0.8 million and consumer marketing expense of $0.5 million.

These improvements were offset in part by an increase in other general and administrative costs of $0.8 million and acquisition, divestiture-related and nonrecurring expenses of $0.2 million. Expressed as a percentage of net sales, selling, general and administrative expenses improved by 0.1 percentage points to 9.4% for the third quarter of 2019, compared to 9.5% for the third quarter of 2018. We generated $86.2 million in adjusted EBITDA in the third quarter of 2019, compared to $91.9 million in the prior-year quarter, which represents an increase of approximately $2 million after adjusting for the lost contribution following last year's divestiture of Pirate Brands, which we estimate contributed approximately $7.7 million in the year-ago quarter. Adjusted EBITDA benefited from improved pricing, trade optimization, product wait-outs, packaging and trade efficiencies driven by our distribution realignment plan, which has now been fully implemented in both our dry and frozen distribution networks.

Net sales of our newly acquired Clabber Girl provided some benefit, which also helped to offset declines in Green Giant and certain of our other legacy brands, as well as modest input cost inflation across the portfolio. Adjusted EBITDA as a percentage of net sales was 21.2%, which was in line with the prior-year third quarter and represents an increase from the 18.7% generated over the course of the first two quarters. Year to date, adjusted EBITDA as a percentage of net sales is now 19.6%. We generated $0.54 in adjusted diluted earnings per share in the third quarter of 2019, compared to $0.57 per share in the third quarter of 2018.

The decrease of $0.03 per share was primarily driven by the lost contribution resulting from the sale of Pirate Brands. Separately, while interest expense of $24.2 million was lower than the $27.9 million in interest expense in 3Q 2018, net interest expense was negatively impacted by approximately $1 million as a result of the increased borrowings to fund the acquisition of Clabber Girl. Adjusted diluted earnings per share is also beginning to benefit from the recent share repurchases under our $50 million share repurchase authorization approved by our board of directors earlier this year. During the third quarter this year, we repurchased approximately 1.3 million shares of common stock at an average price of $18.55 or $24.7 million in the aggregate.

These share repurchases are in addition to the $36.9 million or 1.4 million shares that we repurchased under our previous share repurchases authorization at an average price of $26.41 that were executed between March 2018 and March 2019. Now I would like to review our guidance for the remainder of the year. First, we are reaffirming our top-line guidance range of $1.665 billion to $1.7 billion, which updated last quarter after the announcement of the acquisition of Clabber Girl. As I mentioned earlier on the call, we have generated $233 million of adjusted EBITDA through the first 3 quarters of 2019.

This is essentially flat to last year's adjusted EBITDA of $255.7 million, less the estimated $22.7 million in contribution that left the organization due to the sale of Pirate Brands. We are currently trending at about $292 million in trailing 12-months' adjusted EBITDA through the end of the third quarter of 2019 or essentially flat with 2018's adjusted EBITDA after removing the contribution of Pirate Brands. As we outlined earlier this year, we expect to see benefits from increased pricing and cost-savings initiatives that would offset the increases in costs. We have executed on this plan and we expect to continue to do so in the fourth quarter.

Through three quarters, we have realized approximately $16 million in benefits from pricing, and so we expect to finish at the high end of our expected range of $15 million to $20 million of pricing. We have also realized more than $20 million in logistics cost savings year to date, largely driven by our dry and frozen distribution realignments, which have offset modest increases in rate. We are also on pace to achieve at least $5 million in additional cost savings from other initiatives such as procurement, wait-outs and improved packaging. These benefits should have pushed us higher into our initial expected cost savings range.

However, while we have executed our cost savings and price increases on the high side of our plan to offset inflation, we have experienced higher-than-expected costs in a couple of areas this year, including higher-than-anticipated vegetable costs driven by a second-straight short crop for vegetables, greater-than-anticipated increases in tariffs and increases in our canned prices resulting from greater-than-anticipated steel and aluminum prices. As a result, we are revising our adjusted EBITDA guidance for the full year and tightening that guidance to $295 million at the low end of the range, would be just a hair above our current LTM adjusted EBITDA. And we are tightening the high end of the range to $310 million in adjusted EBITDA, which would represent an increase of a little bit more than 5% to our 2018 adjusted EBITDA, excluding the estimated product contribution that we lost as a result of the Pirate Brands divestiture. We are also updating our adjusted diluted earnings per share guidance to $1.65 to $1.80, which reflects the change to adjusted EBITDA, as well as the incremental interest expense associated with the acquisition of Clabber Girl, our share repurchases and our recent refinancing.

I would also like to quickly walk through the rest of our P&L assumptions for the full year of 2019, which include net interest expense of $95.5 million to $99.5 million, including cash interest expense of $92 million to $95 million and interest amortization expense of $3.5 million to $4.5 million. The increase in interest expense versus our original forecast is largely driven by $82 million of borrowings to finance the Clabber Girl acquisition, approximately $35 million spent on share repurchases, fees and expenses associated with our refinancing and the partial double count of interest for a two-week period between the issuance of our new five 1/4% senior notes and the redemption of our four 5/8% notes. We also expect depreciation expense of approximately $41 million; amortization expense of approximately $18.5 million; an effective tax rate of approximately 25.5% to 26%; cash taxes, excluding the negative tax impact from the gain on sale of Pirate Brands, to be $5 million or less for the year; and finally, we anticipate CapEx to be approximately $45 million to $50 million for 2019, which is in line with last year. As a reminder, the Pirate Brands divestiture resulted in a pre-tax gain on sale of approximately $176.4 million during the fourth quarter of 2018.

The gain on sale negatively impacted our income taxes for 2019 by approximately $71.8 million, which includes a cash tax payment that we made during the second quarter of 2019 of $43.2 million and a cash tax refund we otherwise would have expected to receive of approximately $28.6 million. Excluding the negative tax impact of the gain on sale, our net cash provided by operating activities for the first three quarters of 2019 would have been approximately $73.1 million. As a reminder, the third quarter tends to be our softest from a net cash provided by operating activities perspective as we typically build inventory during the large vegetable pack season. We then typically increase cash during our fourth and first quarters as we sell down inventory.

Due to the timing of the pack this year, we had a slightly greater outlay in the third quarter than typical. And as a result, we expect to have a larger reduction in the fourth quarter, which will benefit fourth quarter cash from operations. Our fourth quarter typically generates the largest cash from operating activities. This concludes our prepared remarks, and now, we would like to begin the Q&A portion of the call.

Operator?

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Karru Martinson with Jefferies. Please go ahead.

Karru Martinson -- Jefferies -- Analyst

Good afternoon. With the new Green Giant introductions, what are the slotting fees and the profitability of that -- those products? Are they in line with the existing, or how should we think about that as it flows into 2020?

Ken Romanzi -- President and Chief Executive Officer

The routine we are now on is that we are now launching, for the second year in a row, the following year's innovation to about a third of the ACV that doesn't require slotting. So the items we're launching will have no slotting attached to it. For customers that require slotting, they will be able to get that starting in January. So no slotting associated with these products, and the margins are as good or better than the kind of average of what we've been introducing.

Karru Martinson -- Jefferies -- Analyst

OK. And as you guys pulled back promotion, was it just a broad-based slowdown in the Green Giant volumes? I think there's just concerns that this is something that you're not able to pull back on promotions.

Ken Romanzi -- President and Chief Executive Officer

The -- so there's several -- many segments of the Green Giant frozen business. There were two segments that hurt us. One was the promotional pullback, and that -- we still believe it's the right thing to do in the nonholiday time frames. And the second was we were out of stock on corn-on-the-cob.

Those -- we'll be past that in the fourth quarter. Our innovation items that we've been launching have been doing very, very well, and so there's no issue with how the innovation's performing.

Karru Martinson -- Jefferies -- Analyst

OK. And just lastly, you talked about the distribution gain opportunities for the acquisitions that you've done and that you're only in 50% of the geographic areas. What does it take to broaden that distribution? That seems to be low-hanging fruit for you guys.

Ken Romanzi -- President and Chief Executive Officer

Well, some of the brands are relatively new to our portfolio. So for instance, McCann's, which we just bought last year, we've been growing that -- I think that was up in the quarter like 30% or 40%, now off a low base. But we've been out presenting all year long to customers that, "Hey, this is a new brand that we have. It's a terrific heritage Irish oatmeal." That was well below 50%.

I think our distribution -- I think we purchased that brand at something like a quarter of the ACV, and now, we're ramping that up. Victoria pasta sauce, which we bought a couple of years ago, again, an East Coast brand. So it will take slotting dollars and it will take some shopper marketing and some consumers [Inaudible] those customers. And some of it will take innovation.

Some of our brands, some of our real legacy brands like Mama Mary's and the now three-year ownership of Back to Nature is going to take some reemphasis in terms of building out, not only strengthening the business in the current customers, but gaining new customers. So we're totally relaunching Back to Nature after a couple of years of soft sales. As we've been cleaning up the product line, we are totally revamping Back to Nature with new graphics, new products and a cookie and a cracker and a granola line in the portfolio, which will not only help current distribution, but is giving us now kind of a resurgence and ability to talk to the customers that don't have it in distribution.

Karru Martinson -- Jefferies -- Analyst

Thank you very much, guys. Appreciate it.

Operator

The next question comes from Bryan Hunt with Wells Fargo. Please go ahead.

Bryan Hunt -- Wells Fargo -- Analyst

Yes. I was wondering if you could go back over -- you talked about a couple of hits to sales throughout the quarter, corn-on-the-cob and a couple of other things, and I think you enumerated the sales mix. Could you repeat that for me associated with those shortfalls?

Bruce Wacha -- Chief Financial Officer

For Green Giant?

Bryan Hunt -- Wells Fargo -- Analyst

Yes.

Bruce Wacha -- Chief Financial Officer

The three things we highlighted for Green Giant was the trade optimization program, the short on corn-on-the-cob, and the third one was the timing of Thanksgiving in Canada. Each one of these I noted were approximately $2 million. The Canada one is timing, obviously.

Bryan Hunt -- Wells Fargo -- Analyst

So you'll get -- so $6 million in total, and you'll get $2 million of that back in Q4?

Bruce Wacha -- Chief Financial Officer

More or less.

Ken Romanzi -- President and Chief Executive Officer

And we won't have the drag from the promotional because we're not executing the higher price points in the holiday time frame. And we're back in stock on corn-on-the-cob, so that won't be a drag.

Bryan Hunt -- Wells Fargo -- Analyst

Gotcha. My second question is when you look at all the new products that you announced, you said five -- I think $5 million to $10 million of incremental sales in Q4. Can you talk about -- are your retailers just bumping out other brands? Are any of these things potentially cannibalizing your own? Because I buy your Cauliflower Pizza, but now I've got the chance to buy -- crust, now I've got a chance to buy the whole pizza. One, is there potential for cannibalization? And two, who are you bumping out?

Ken Romanzi -- President and Chief Executive Officer

The retailers are always adding in the leading items across the portfolio, not just ours, but across the whole range of items, and it's their real estate so they decide. But what we're encouraged about with these items is we're going outside the vegetable set. So as we continue to launch vegetable -- new vegetable items, we always will lose some while we gain some. We always look to have a net gain, but we don't -- but we will lose items in the vegetable set, but we're going after sets that we're not really present in.

So we're not very present in potatoes, we're not very present in pizza, we're not very present in pasta. So while our new product development strategy is very consumer-focused by bringing plant-based alternatives, particularly carb replacement alternatives, to the consumer, it's also going to expand our footprint and get net facings of the Green Giant brand beyond just traditional vegetables. We already know in some of our customers who merchandise our Veggie Tots in potatoes -- frozen potatoes, not in frozen vegetables, which is a whole different section and a very large section. And while we do very well when we're merchandising in frozen vegetables, the Veggie Tots would move even better when it's next to the carbohydrate [Inaudible] alternative, which is a lot of [Inaudible] potatoes.

Bruce Wacha -- Chief Financial Officer

And also, we would very strongly recommend that you continue to buy both the crust and full pizzas.

Bryan Hunt -- Wells Fargo -- Analyst

I'm carb-light. And then lastly, when I think about packed vegetables and then steel costs and some of the other kind of inflationary items that were unexpected, can you talk about what maybe that carryover cost will be for 2020 and your ability to either price or create additional cost savings to offset those costs?

Ken Romanzi -- President and Chief Executive Officer

We're still developing our 2020 plan, but just to either remind or for the first time, educate people on what happened, in the Midwest, the harvest only happens once a year. So vegetables, both in our canned business, as well as some supply of our frozen vegetables, that harvest happens throughout the summer. The packing of those products are just -- just wrapped up in October. So when we put together a plan for 2019, we don't even know what the 2019 pack is going to be.

Normally, most of that is for the 2020 P&L, but because we were so short on vegetables this year, we started getting into this year's pack much earlier than we usually do because last year's pack was so short. This year's pack was also short in the Midwest, but we had to go outside the Midwest in other suppliers, which cost us more to make sure we have enough product for the full year, but at a slightly higher cost. So we'll have some elevated costs with vegetables next year, but as part of inflation that we would expect, and we would continue to have our pricing and cost savings, at least our early plans for 2020 on pricing and cost savings to offset that again.

Bryan Hunt -- Wells Fargo -- Analyst

Very good. I will hand it off to somebody else and thanks for your time.

Operator

Next question comes from Michael Lavery with Piper Jaffray. Please go ahead.

Michael Lavery -- Piper Jaffray -- Analyst

Thank you. I just wanted a little bit of color on some of the retail trends we see in the scanner data and just how to think about turning the tide there. If you look at from July through -- we have ours through mid- to late October, and there's pretty significant declines, especially in the two -- your two largest categories, which are 12 or 15 points worse than their trends in July. Can you just give us a little bit of diagnosis? It's prepared vegetables and spices.

It's not corn-on-the-cob because that comes through in our data as plain frozen. Just some of maybe what's happening there and how you plan to turn that around.

Ken Romanzi -- President and Chief Executive Officer

Well, again, on frozen Green Giant, our bag-in-a-box line is a very, very large segment of our total frozen business. It accounts for about $140 million, $130 million out of our 500 -- out of our 400 -- almost $400 million in the frozen vegetables. So that promotional strategy did cost a lot of volume, and that's the main drag on our frozen business. We don't expect that to be happening in the fourth quarter because we're not implementing that promotional strategy in that time frame.

On the spices & seasonings business, while we had some softness in consumption, we have a lot of business in spices & seasonings that are not recorded by Nielsen. So as Bruce mentioned, our spices & seasonings business, in total, was only off about 3%. And a lot -- some of this promotional timing in certain periods, some of it is distribution -- some distributional losses on some small SKUs, but nothing major that we're concerned about.

Michael Lavery -- Piper Jaffray -- Analyst

I guess maybe if you look at the total company, I recognize there's unmeasured channels, of course, and some are very important. But certainly, the channels, potato covers are significant and important as well. And the total company pace, for example, has gone from a down one and a half to like a down seven. I mean I guess I'm a little surprised that there's -- I wonder if -- I mean what sort of sense of urgency do you have about the turn of -- to sort of turn this around? Certainly, even on the spices side, I think that's important, and it's your largest measured category.

Is there a little more sense of how you might be able to expect some improvement, or are we just going to cycle through these kind of declines into next year?

Ken Romanzi -- President and Chief Executive Officer

No. We don't expect that. I'm not sure. By our measure, and the way we -- our Nielsen measure, our total 13-week consumption was down 2.5% for the full company.

And spices was down 2.4%. And our frozen trends really hurt us. But like I said, we fully expect frozen trends to turn around. Spice trends should also turn around based on programming that's going in the marketplace.

And Back to Nature, especially next year, our snacks business will be a big turnaround given the relaunch of that business with new products and expanded distribution. So there's lots of activity. We're not certainly satisfied with that, but we understand what the consumption was. And on a quarter-to-quarter basis, there can be swings, but we wouldn't project out -- at least by our tracking, we wouldn't project out the fact that we're going to continue to be down 2% to 3% in consumption.

Michael Lavery -- Piper Jaffray -- Analyst

OK. Thank you very much.

Operator

Next question comes from Carla Casella with JP Morgan. Please go ahead.

Sarah Clark -- J.P. Morgan -- Analyst

Hi, this is Sarah on for Carla. Can you talk a little bit more about your process of placing your new plant-based proteins in retail given all the hype in the space? And then how are grocers approaching this shelf space placement differently, and any color that you can give on that?

Ken Romanzi -- President and Chief Executive Officer

Well, the customers have enthusiastically accepted our products. There's lots of activity going on. We presented all these 11 new items that we shared with you to our customers a while ago. They've had an enthusiastic acceptance.

They are struggling, where they're going to put them all. And there's a lot of activity going on. We are seeing or hearing that actually some of the innovation in frozen is going to move to the fresh space, particularly in the protein alternatives. So we actually see that as an opportunity that might free up more opportunity in the frozen food case as some of the recent entries are focused more on the fresh food case.

But it is a battle for real estate. It's not simple. I mean -- and the product that -- the strongest brands and the products that do the best stay on the shelf. And the weaker brands and the products that aren't turning well enough come off the shelf.

And our Green Giant frozen business, notwithstanding this last quarter because of -- nothing to do with innovation, our Green Giant innovation products are continuing to be among the fastest-turning items in the category. Our vegetable rice business, which really started -- the cauliflower rice business, which started this revolution to save the frozen food case from extinction, is still growing, and we're now three years into -- two and a half years into distributing that product. So cauliflower rice and all of its permutations that we offer is still growing very well. And it's the oldest of our innovations, but it still has a very, very low household penetration.

If you look at the penetration of cauliflower rice versus just frozen cauliflower in general or even all cauliflower, there's a lot of room to grow. And while these items continue to do well, they will continue to deserve space on the shelf.

Sarah Clark -- J.P. Morgan -- Analyst

Got it. That makes sense. And then just one more. We talked a little bit about Canadian Thanksgiving, but does the shorter period between U.S.

Thanksgiving and Christmas impact you at all?

Ken Romanzi -- President and Chief Executive Officer

No. Our sales, it basically -- Thanksgiving basically shifts a week , so it's kind of still in our -- it's still in -- it's still basically in most of the sales in November, particularly since Thanksgiving week is a short week for shipments, so we usually don't ship five days out of that short week. So it's still within the quarter, and most of it's even within the month of November.

Sarah Clark -- J.P. Morgan -- Analyst

Got it. Thank you. All for me.

Operator

The next question comes from Eric Larson with Buckingham Research Group. Please go ahead.

Eric Larson -- Buckingham Research -- Analyst

Yeah, good afternoon, everybody. Thanks for taking my question. A couple of things. Your pricing -- your volume losses still are sort of exceeding your net sales gains.

So is it you pulled back on promotion but are you still promoting some things in that mix? And then so you're getting the negative impact of positive pricing plus some slippage from promotional spending. Could you walk through that a little bit?

Ken Romanzi -- President and Chief Executive Officer

Well, it's not just the net sales. We have taken a net sales hit in some of these promotions, but this isn't a net sales management move. This is about improving margins. So it's really to make better net margin on the business that we pull back on.

But it's not a strategy that we can -- we can't keep doing it forever. We pulled it back, and that's over. And now, we're going to get back to normal promotional tactics in the fourth quarter. We might have one more quarter of this to go because there's 1 more quarter that is really not a heavy promoted time frame, and that could be the first quarter of next year.

But then we'll be -- at least on Green Giant, we'll be done with most of the heavy promotional strategy shifts. And when we look at our sales softness due to that versus our EBITDA, our EBITDA has hung in there, ex all the other factors. When you think about the volume loss, we really haven't lost a lot of EBITDA from these soft volumes. And while we don't want soft volume forever, these were the right moves to do for the total business and the total P&L.

Eric Larson -- Buckingham Research -- Analyst

OK. So when you look at consumption, public consumption data, when would you then expect to start seeing -- maybe at least the near-term four-week data, when would you start thinking you would see a positive cadence on those numbers?

Ken Romanzi -- President and Chief Executive Officer

October data should be better, and the fourth quarter clearly in the frozen business because of the fact, as we talked about, that won't be repeated in the fourth quarter like it hurt us in the third quarter from a sales standpoint. And then so in the fourth quarter, we're back to normal promotions on frozen, and we're launching the new products on frozen. And while you won't see the Canadian Thanksgiving in the consumption numbers in the U.S., that will also help the fourth quarter in our net sales.

Eric Larson -- Buckingham Research -- Analyst

Got it. OK. And so just my final question. My final question is on cash flow.

So your net debt is just under $1.9 billion, and if I use the midpoint of your EBITDA guidance, it's at $302.5 million. So that puts a 6.2 times leverage ratio on you folks, and I think you'll want to kind of get that closer to five. So how are you going to try to get 100 basis points off that leverage ratio?

Bruce Wacha -- Chief Financial Officer

Sure. I mean we're very confident in our cash flow model. It will take time to generate enough cash to bring it down a full turn, but we are committed to doing so. And as a reminder, you are calculating ratios off our third-quarter numbers, which tend to be our seasonal highest from an inventory, from a net debt standpoint and lowest from a cash-generative standpoint.

Eric Larson -- Buckingham Research -- Analyst

Got it. Yeah. Yeah, so your third quarter, it tends to be a significant cash user because you're packing the vegetable crop. And so I understand that maybe the near term side of it uses a lot of cash.

So you would start seeing that come down as early as fourth quarter here now then, Bruce?

Ken Romanzi -- President and Chief Executive Officer

Correct. That is usually our steepest drop in inventories, from the third quarter high to the fourth quarter. But as we go from coming out of the vegetable pack, which drives everything up, to a very, very high seasonal period of consumption holidays for our frozen and canned vegetables, so it does come down. But in answer to your question, when we share our 2020 plans, while we'll have modest growth, we really believe that we can generate even further excess cash by even better and tighter working capital management.

Last year, we had a big reduction in inventory. This year, our inventory is up a little bit, but we believe that between this year and next year, we can even generate more cash than our -- more of a cash increase than our -- even our EBITDA growth will generate because of better reductions in inventory. Not nearly the huge reduction we had in 2019, but we do see the opportunities to tighten up on inventories from where we are today to generate more cash.

Bruce Wacha -- Chief Financial Officer

And as a reminder, last year's third quarter to last year's fourth quarter included an unwind of that seasonal inventory of something like $87 million.

Eric Larson -- Buckingham Research -- Analyst

Right, right, right. OK. Yeah. Thank you.

Operator

[Operator instructions] Our next question comes from David Palmer with Evercore. Please go ahead.

David Palmer -- Evercore ISI -- Analyst

Thanks. Hey, Bruce, just a follow-up on that last thing that you said about the third quarter inventory, because it does look like the operating cash flow has been lower year to date, and a big reason for that would be the third quarter in terms of operating cash flow. So I'm sure people are going to have questions about that. Is this going to be a bigger-than-average fourth quarter when it comes to that metric? What sort of operating cash flow should we be thinking about for your full-year 2019?

Bruce Wacha -- Chief Financial Officer

Yeah. So last year's fourth quarter, we generated something like $70 million to $75 million in cash from operations, and so realistic to expect something greater than that in this year's fourth quarter.

David Palmer -- Evercore ISI -- Analyst

OK. So north of $70 million, $75 million. I mean I would imagine you would want it to be higher -- significantly higher than that on an average here. Is that one of the reasons why -- let's just say, it comes in at $80 million, that -- why that $80 million would be that low? I mean, obviously, you want to have more to prove to the naysayers that you could pay the dividend on an annual basis than that.

So what are some things that, that $80 million would be held back for when you look at the year-end total?

Bruce Wacha -- Chief Financial Officer

Right. It will come down to just the working capital cycle. And like I said, expectations are we reduce inventory to something similar this year between the third and the fourth quarter as last year, and that we likely have very much greater than last year's fourth quarter cash from operations number, which is very much in line with what we've done historically.

David Palmer -- Evercore ISI -- Analyst

And then would you -- and then you'd want -- and probably, would you imagine that your inventory levels would be similar at year-end to last year?

Bruce Wacha -- Chief Financial Officer

They will be a little bit higher. Maybe a little bit higher in the base business. And when we acquired Clabber Girl, it came with a little bit more than $10 million of inventory. So that's obviously an impact as well.

But it shouldn't be -- it should be significantly less than where it is right now.

Ken Romanzi -- President and Chief Executive Officer

Where also, while we'd love to reduce inventory, we are higher at this point because, as I -- we mentioned, we did run out of some products from the last year's vegetable pack, which means we packed more this year so we don't run out next year, which unfortunately gives us a little bit of a higher inventory profile. But it's to make sure we don't run out of any product by the end of next season before the new pack hits in 2020.

David Palmer -- Evercore ISI -- Analyst

Got it. Thank you. And then when you talked about the consumption data, we were seeing that too, how late in the third quarter, it looked like some of this data was falling off in Green Giant and your spices business. And you talked about some of the off -- out of the nonchannel or nonmeasured channel stuff with spices, but also it should get better.

But I'm wondering, is there not -- how much of a delta between your nonmeasured and measured do you think we should see on a sort of medium-term basis for your business? Do you expect your nonmeasured or your total channel to be outperforming your non, the measured data on --

Ken Romanzi -- President and Chief Executive Officer

The total channel is definitely outperforming the measured data because our -- at least our measured spices, the way we track all of our spices & seasonings businesses, for the 13 weeks ending September 28, it was down 2.5%. But that doesn't include a very large food service business that's doing very well. It doesn't include some measured items in a very large customer, one of our big, large club customers. So our sales definitely outperforms consumption.

David Palmer -- Evercore ISI -- Analyst

OK. And maybe just then -- do you think the timing of items, promotions and whatnot, would have stolen a certain immeasurable amount of consumption percentage points from third quarter and pushed them into fourth quarter?

Ken Romanzi -- President and Chief Executive Officer

We do believe we have more promotional activity going on in the fourth quarter than in the third quarter. So we do expect consumption trends to improve on spices. Obviously, that will be up to the consumer voting with their pocketbook, but we will have the inventory out in stores. We have shippers [Inaudible] programs.

We've got holiday spice programs, baking and the like. So lots of activity will be in the marketplace.

David Palmer -- Evercore ISI -- Analyst

Great. Thank you.

Operator

I would like to turn the floor over to Ken for closing comments.

Ken Romanzi -- President and Chief Executive Officer

Well, we appreciate your attention and questions today. Like I said, while we don't like to lower our earnings projections. We do believe with a quarter to go, we can tighten the range for you. We do believe that everything we set out to do this year, we're actually doing.

While we wish that sales could always be a little higher, we like that, we do believe that we battled the cost inflation with the pricing and cost-savings initiatives, saved a little bit of uncontrollables in the area of mother nature handing us another bad vegetable pack and then of course, the effect of tariffs. But save the things that are not in our control, we're very pleased with our progress in executing the things we can control. So we really appreciate it and look forward to updating you on our year-end results in the new year. Thank you.

Operator

[Operator signoff]

Duration: 60 minutes

Call participants:

Ken Romanzi -- President and Chief Executive Officer

Bruce Wacha -- Chief Financial Officer

Karru Martinson -- Jefferies -- Analyst

Bryan Hunt -- Wells Fargo -- Analyst

Michael Lavery -- Piper Jaffray -- Analyst

Sarah Clark -- J.P. Morgan -- Analyst

Eric Larson -- Buckingham Research -- Analyst

David Palmer -- Evercore ISI -- Analyst

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