Bridgford Foods Corporation — Q2 FY2012 Form 10-Q
Reporting period: 12 and 24 weeks ended April 13, 2012; comparative periods ended April 15, 2011. Dollar amounts are in thousands except per-share data. The company operates frozen-food and refrigerated/snack-food businesses.
Financial performance
| Metric | 12 weeks ended Apr. 13, 2012 | 12 weeks ended Apr. 15, 2011 | 24 weeks ended Apr. 13, 2012 | 24 weeks ended Apr. 15, 2011 |
|---|---|---|---|---|
| Net sales | $27,313 | $25,178 | $57,028 | $53,987 |
| Gross margin | $9,741 (35.7%) | $8,458 (33.6%) | $18,304 (32.1%) | $18,267 (33.8%) |
| SG&A | $8,701 | $8,602 | $17,542 | $17,642 |
| Income (loss) before taxes | $1,040 | $(144) | $762 | $625 |
| Net income (loss) | $1,040 | $(144) | $762 | $1,022 |
| Basic and diluted EPS | $0.11 | $(0.02) | $0.08 | $0.11 |
- Second-quarter sales rose 8.5%; management attributed the increase to selling prices, volume, returns and promotional activity. For the 24-week period, sales rose 5.6%, led by pricing and volume.
- Quarterly gross margin improved, reflecting higher-margin product mix and sales volume. Year-to-date gross margin declined as higher meat commodity costs and product mix offset revenue growth.
- Frozen-segment 24-week sales slipped 0.5% to $26,262; refrigerated/snack-segment sales increased 11.5% to $30,766. The refrigerated/snack segment’s 24-week gross margin declined to 27.5% from 28.9%, with meat commodity costs up approximately $1,180.
- Net cash provided by operations was $344 for the 24 weeks, versus cash used of $3,259 in the prior-year period. Capital spending was $289; net cash from operating and investing activities was approximately $61. Cash declined $58 to $9,266.
- At April 13, 2012, current assets were $35,830 and current liabilities $11,663, implying a current ratio of approximately 3.1. Total liabilities were $30,203. The company reported no interest-bearing debt and no borrowings on its $2,000 credit line, which expires March 1, 2013.
Changes, outlook and risks
- Compared with the prior-year 24 weeks, net income fell 25% despite higher sales; gross profit was nearly flat as cost of products sold rose 8.4%. There was no federal or state income-tax provision for the current period, based on the expected annual effective rate; a full valuation allowance remained against deferred tax assets.
- Current-period net income included a non-taxable $630 gain on life-insurance policies ($574 in the second quarter). Management cautioned that policy gains and losses depend on underlying equity performance and may vary considerably.
- The company funded $1,663 toward its defined-benefit pension plan during the 24 weeks. Management cited a lower pension discount rate as a factor in increased pension cost.
- Management said its financial resources were sufficient for fiscal 2012 operating needs and capital expenditures; it provided no specific earnings or revenue guidance. It remained compliant with credit-line covenants.
- Key risks discussed include commodity, labor and employee-benefit costs; competition and pricing; economic conditions; customer concentration; inventory obsolescence; regulatory changes; and pension and insurance-related estimates. Dollar General represented 9.0% of 24-week revenue and 21.6% of receivables; Wal-Mart represented 11.6% of revenue and 10.5% of receivables.
- Ordinary-course legal claims were not expected by management to materially affect financial position or results. No significant unfulfilled flour purchase contracts remained at period-end. No material changes to previously reported risk factors were disclosed.
Important facts for investors to verify
- Whether pricing and refrigerated/snack-food volume gains can persist, and whether meat and other commodity cost pressure eases.
- How much reported earnings depend on non-cash life-insurance gains and how future pension funding and obligations develop.
- Whether cash generation remains adequate as working-capital needs, capital expenditures and customer concentration evolve.
- The availability and covenant requirements of the $2,000 credit line, and the status of the remaining 228,636 authorized share repurchases.
- Management’s estimates for inventory reserves, self-insured liabilities and the deferred-tax valuation allowance; actual outcomes may differ.