Bridgford Foods Corporation — FY2013 Form 10-K
Reporting period: Fiscal year ended November 1, 2013 (52 weeks), compared with the year ended November 2, 2012 (53 weeks). This filing reports annual results; it does not provide a clear standalone fourth-quarter income statement.
Business context
Bridgford manufactures, markets and distributes frozen foods and refrigerated and snack foods. Fiscal 2013 sales were 40% frozen products and 60% refrigerated and snack products. The company serves retail and food-service customers across the United States and Canada.
Financial performance and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net sales | $129.0 million | $127.4 million |
| Gross profit / margin | $45.4 million / 35.2% | $44.3 million / 34.8% |
| Income before taxes | $3.1 million | $4.0 million |
| Net income | $2.9 million | $3.7 million |
| Basic earnings per share | $0.32 | $0.40 |
| Cash from operations | $3.8 million | $1.8 million |
| Capital expenditures | $4.4 million | $1.0 million |
| Cash and cash equivalents at year-end | $8.3 million | $9.7 million |
| Total assets / total liabilities | $64.8 million / $31.3 million | $61.6 million / $41.4 million |
Net margin was approximately 2.3%, versus 2.9% in FY2012. Cash flow from operations less capital expenditures was negative $0.6 million, compared with positive $0.8 million in FY2012. The company had $40.4 million in current assets and $15.6 million in current liabilities (about 2.6x current ratio). It reported no bank borrowings and no interest-bearing debt other than capital leases; remaining capital lease obligations were $1.6 million. A $2.0 million Wells Fargo credit line was unused at year-end.
Material changes versus FY2012
- Consolidated sales rose 1.3%, despite the fiscal year having one fewer week. Higher pricing and favorable mix contributed; pounds sold declined 2.6% and promotional activity reduced sales.
- Frozen segment sales fell 7.2%, mainly from an 8.5% decline in volume and increased promotions; segment gross margin declined to 37.0% from 38.5%.
- Refrigerated and snack segment sales increased 7.8%; gross margin improved to 34.1% from 31.9%, helped by lower meat costs and product mix.
- Consolidated SG&A increased 5.1% to $42.4 million, outpacing sales growth. Higher pension, workers’ compensation, payroll, healthcare, storage and depreciation costs contributed.
- Operating cash flow improved, but cash declined $1.4 million as capital spending rose substantially. Inventory increased, principally from holiday-related finished-goods buildup.
- Shareholders’ equity increased to $33.5 million, including $11.1 million of other comprehensive income, primarily reflecting pension-related actuarial changes.
Outlook, risks and unusual items
- No quantified revenue or earnings guidance is provided. Management said financial resources were sufficient for operating needs and capital expenditures in fiscal 2014; expected pension-plan contribution for FY2014 was $1.7 million.
- Management cited rising commodity costs as a source of uncertainty. Pork, beef and flour prices can be volatile, and the company does not hedge commodity exposure; selling-price changes may lag input-cost changes.
- Customer concentration is material: Wal-Mart accounted for 19.6% of FY2013 revenue, and Dollar General for 9.9%. They represented 17.0% and 20.7% of year-end receivables, respectively.
- The company maintained a full valuation allowance against deferred tax assets. The FY2013 income-tax provision was $169,000, and management noted a federal tax net operating loss of $1.4 million and uncertainty about future profitability.
- The company exceeded its credit-line capital-expenditure covenant; the bank waived the violation by letter dated December 17, 2013. The filing says the company was then in compliance with the agreement.
- OSHA-related accruals were reversed in FY2013, producing a $25,000 gain; no unpaid OSHA penalties remained. No material legal proceedings were pending at filing.
- Fiscal 2013 included a one-time $0.05-per-share dividend, totaling $458,000, and $208,000 of share repurchases. No assurance is given regarding future dividends.
- Other key risks include food-safety incidents or recalls, regulation, competition, employee and pension costs, and Bridgford-family control of more than 80% of the shares.
Important facts for investors to verify
- Whether the refrigerated and snack segment can sustain sales and margin gains, and whether frozen-food volume weakness persists.
- Subsequent commodity-cost trends, pricing actions and their effect on gross margins.
- Cash conversion and inventory levels after the holiday buildup, alongside the elevated FY2013 capital spending.
- Credit-line covenant status and the terms or consequences of the capital-expenditure waiver.
- Pension funding needs, valuation assumptions and the impact of future rate or market changes.
- Customer concentration, deferred-tax-asset realizability, and any changes in dividends or repurchases.