Bridgford Foods Corporation — Q2 FY2021 Form 10-Q
Reporting period: Twelve weeks ended April 16, 2021; year-to-date results cover the 24 weeks ended that date. Comparatives are the corresponding periods ended April 17, 2020. Dollar amounts are in thousands unless stated otherwise. The company processes and distributes frozen foods and snack foods.
Financial performance and liquidity
| Metric | 12 weeks ended Apr. 16, 2021 | 12 weeks ended Apr. 17, 2020 | 24 weeks ended Apr. 16, 2021 | 24 weeks ended Apr. 17, 2020 |
|---|---|---|---|---|
| Net sales | $50,477 | $42,999 | $105,170 | $89,641 |
| Gross margin | $10,587; 21.0% | $12,910; 30.0% | $25,138; 23.9% | $27,964; 31.2% |
| Operating income (loss) | $(2,311) | $220 | $(1,661) | $2,329 |
| Net income (loss) | $(1,773) | $427 | $(309) | $2,286 |
| Basic earnings (loss) per share | $(0.20) | $0.05 | $(0.03) | $0.25 |
- Quarterly sales rose 17.4%, while year-to-date sales rose 17.3%. Growth was concentrated in Snack Food Products: sales increased 22.2% in the quarter and 25.5% year to date. Frozen Food Products sales declined 1.0% and 10.7%, respectively.
- Gross margin contracted substantially as product costs rose faster than sales. Management attributed the pressure chiefly to higher meat commodity costs, increased production costs and depreciation, and a $567 net realizable value charge on meat products.
- For the 24 weeks, operating cash flow was $1,531, versus cash used of $733 in the prior-year period. Investing activities used $5,657, mainly for $5,755 of property and equipment additions; financing activities used $401. Cash and restricted cash declined by $4,527 to $900, comprising no unrestricted cash and $900 restricted cash at period-end.
- At April 16, 2021, working capital was $33,424 (current assets $61,483 less current liabilities $28,059). Total assets were $152,579 and total liabilities $81,642. Equipment notes totaled $26,927, including $4,513 current and $22,414 long-term. The company also had $2,000 outstanding on its revolving credit line; the balance sheet presents the line within current liabilities.
- The Wells Fargo revolving line was increased to $15,000 and expires March 1, 2022. The company reported $13,000 available at April 16 and compliance with its covenants. It drew a further $2,000 on April 27, after the reporting date.
Material changes and management commentary
- Snack Food Products’ strong volume growth drove consolidated sales, but also brought higher commodity and operating costs. The company reported significant meat commodity cost increases of $2,680 year to date. Management said higher commodity and other inflationary costs were expected to continue through the rest of fiscal 2021.
- COVID-19 continued to shift demand from foodservice to retail. Frozen Food Products’ retail growth had not offset foodservice weakness; management expected lower volume in that segment for the remainder of fiscal 2021. Snack Food Products experienced higher volumes, alongside rising commodity costs and supply-and-demand constraints.
- Management stated it did not expect the company to be profitable on a consolidated basis for the remainder of fiscal 2021, citing extremely high meat commodity costs. It also said it expected liquidity to be sufficient for operations and completion of the Chicago plant expansion, considering operating cash generation, $9,910 of refundable income taxes, and deferred payroll taxes. These expectations are subject to business and pandemic-related uncertainties.
- The company deferred approximately $1,511 of employer Social Security taxes; 50% is due December 31, 2021, and the remainder December 31, 2022. Management noted potential exposure to commodity price increases, labor and freight inflation, supply constraints, production disruptions, worker availability, channel shifts, inventory valuation and customer credit risk.
Unusual items, contingencies and other disclosures
- A proposed sale of the Chicago property and processing building to CRG for $60,000 remains contingent on approvals and other conditions. The agreement has been extended several times; the latest amendment moved the zoning deadline to February 1, 2022 and the closing deadline to March 1, 2022. The company reported $1,650 in earnest money deposited in escrow by April 16, including $750 non-refundable; a further $100 non-refundable amount was received by May 3.
- Management said ordinary-course claims and legal actions were not expected to have a material adverse effect. The company reported no significant unfulfilled flour purchase contracts at period-end and no off-balance-sheet arrangements.
- Major customers represented a material share of sales: Walmart accounted for 37.6% and Dollar General 14.0% of year-to-date sales. Management said Walmart receivables were a smaller share of accounts receivable than in the prior year because of accelerated payments.
- The filing text gives conflicting revolving-line pricing: one disclosure states prime or LIBOR plus 2.0%, while another states prime or LIBOR plus 1.5%. The tax note also reports a 19.7% second-quarter effective tax rate, while MD&A reports 23.2%; investors should consult the filed statements and clarify these differences.
Important facts for investors to verify
- Whether elevated meat and other input costs persist, and whether pricing can offset them without materially reducing demand or volume.
- The extent and duration of foodservice weakness, retail-channel shifts, and COVID-related production and labor disruptions.
- Liquidity and funding needs for operations and the Chicago expansion, including revolver availability, covenant compliance, and scheduled debt obligations.
- Whether the conditional $60 million Chicago property sale receives required approvals and closes by the extended deadline.
- The correct revolving-credit interest spread and second-quarter effective tax rate, given the filing’s inconsistent disclosures.