Bridgford Foods Corporation — Q1 FY2024 Form 10-Q
Reporting period: Twelve weeks ended January 26, 2024; comparison is the twelve weeks ended January 20, 2023. Dollar amounts below are in thousands, except per-share data. Bridgford makes and distributes frozen foods and snack foods.
Financial performance
| Metric | Q1 FY2024 | Prior period | Change |
|---|---|---|---|
| Net sales | $54,842 | $61,622 | Down $6,780 (11.0%) |
| Gross margin | $16,038 (29.2%) | $17,066 (27.7%) | Down $1,028; margin rate improved |
| Operating income | $1,011 | $1,344 | Down $333 |
| Income before taxes | $1,745 | $1,330 | Up $415 |
| Net income | $1,235 | $932 | Up $303 |
| Basic EPS | $0.14 | $0.10 | Up $0.04 |
| Operating cash flow | $(703) | $(2,627) | Less cash used |
Higher other income, especially a $905 cash surrender value gain on life insurance (versus $111), lifted pretax and net income despite lower operating income. Interest expense was $171, compared with $125. Income tax expense was $510; the effective tax rate was 29.2%, versus 29.9%.
Segments and material changes
- Snack Food Products: Sales fell 14.4% to $40,443. Management attributed the decrease to lower unit volume (down 8.1%) and lower selling prices per pound (down 4.8%), including weaker direct-store-delivery demand and product-mix effects. Segment operating income was $339, versus $1,333.
- Frozen Food Products: Sales were unchanged at $14,399. Higher prices offset lower volume; management noted weaker retail demand, partly attributed to inflation’s effect on consumer spending. Segment operating income rose to $672 from $11.
- Consolidated sales declines reflected lower volume, lower selling prices and promotional activity. Cost of products sold declined 12.9%, faster than sales, and gross margin rate increased to 29.2%. Management reported increased significant meat commodity costs of about $2,222, partly offset by lower sales volume and a lower inventory reserve.
- SG&A decreased 4.9% to $15,027, mainly from lower wages and bonuses, bad-debt expense and advertising; higher insurance, healthcare, legal, consulting and vehicle costs partly offset savings.
Cash, liquidity and debt
- Cash and cash equivalents were $12,648 at January 26, 2024, down from $15,708 at November 3, 2023. Net cash decreased $3,060 over the period.
- Operating activities used $703; investing activities used $1,860, including $1,860 of capital spending; financing activities used $497. Capital spending was $259 in the prior comparable period.
- Working capital was $67,747, as reported by management. The cash conversion cycle increased to 84 days from 78 days, partly due to higher average inventory days and longer Walmart credit terms, which increased from 45 to 65 days.
- Total debt was $3,660, consisting of equipment notes; no revolving facility borrowings were outstanding. The company had a $7,500 revolving credit facility available through November 30, 2024, at daily SOFR plus 2.0% (or prime if SOFR is unavailable). The equipment note bears 3.68% and is due April 2027.
- Bridgford reported compliance with its loan covenants. Management said it expects sufficient liquidity to operate for at least the next twelve months and sufficient capital resources for the remainder of FY2024.
Outlook, risks and unusual items
No numerical earnings or sales guidance was provided. Management expects inflationary pressure, including labor, freight and material costs, to continue through the rest of FY2024. It cautioned that commodity-price and availability volatility, consumer price sensitivity, competition, higher interest rates, labor shortages and supply-chain issues could affect results and liquidity; price increases may not fully offset cost inflation and could reduce demand.
- Customer concentration is significant: Walmart represented 28.4% of sales and 24.7% of receivables; Dollar General represented 15.5% of sales and 19.1% of receivables.
- The company buys pork, beef and flour, generally without commodity hedging. Some meat inventory remained subject to a net realizable value reserve of $111 at period-end.
- Ordinary-course legal claims are not expected by management to have a material adverse effect, but outcomes cannot be predicted with certainty. No material subsequent events were identified.
- Management identified estimates involving receivables, promotional allowances, inventory, employee benefits and pensions as subject to uncertainty. It reported effective disclosure controls as of period-end.
Key facts for investors to verify
- Whether snack-food volume and retail demand stabilize, and whether the quarter’s sales decline persists.
- How much reported earnings depended on the $905 life-insurance cash surrender value gain versus recurring operations.
- Cash conversion, receivables and inventory trends, particularly following the extension of Walmart payment terms.
- Commodity, labor and freight cost trends, and the company’s ability to recover those costs through pricing.
- Availability and renewal terms of the $7,500 revolving credit facility, which expires November 30, 2024.