Bridgford Foods Corporation — Q1 FY2012 Form 10-Q
Business context and period: The filing covers the 12 weeks ended January 20, 2012, compared with the 12 weeks ended January 21, 2011. Bridgford operates frozen-food and refrigerated-and-snack-food businesses. Amounts below are in thousands of dollars, except per-share data.
Financial performance
| Metric | 12 weeks ended Jan. 20, 2012 | Comparable 2011 period |
|---|---|---|
| Net sales | $29,715 | $28,809 |
| Gross margin | $8,563; 28.8% of sales | $9,809; 34.0% of sales |
| SG&A | $8,841 | $9,040 |
| Income (loss) before taxes | $(278) | $769 |
| Income tax provision (benefit) | $0 | $(397) |
| Net income (loss) | $(278); $(0.03) per share | $1,166; $0.13 per share |
| Operating cash flow | $713 | $(2,355) |
| Capital expenditures | $263 | $478 |
| Cash and cash equivalents at period end | $9,715 | $11,869 |
Revenue rose 3.1%, while cost of products sold increased 11.3%. Gross margin contracted 5.2 percentage points, principally because of higher commodity costs and increased warehouse sales at lower selling prices per pound. SG&A fell 2.2%; lower wages and bonuses and reduced bad-debt allowance expense were partly offset by a smaller gain on life-insurance policies.
Segments
- Frozen Food Products: Sales declined 2.5% to $13,653. Lower unit volume and increased promotional activity outweighed higher selling prices. Gross margin fell to 35.5% from 41.7%, with unfavorable product mix and higher flour costs cited.
- Refrigerated and Snack Food Products: Sales increased 8.4% to $16,062, primarily on higher warehouse volume. Gross margin declined to 23.1% from 26.9%; higher meat commodity costs contributed approximately $751 to the year-over-year cost increase.
Balance sheet, liquidity and financing
At January 20, 2012, total assets were $56,211, total liabilities $31,712, and shareholders’ equity $24,499. Current assets were $36,600 and current liabilities $13,072 (a current ratio of approximately 2.8). The company reported no interest-bearing debt and no borrowings on its $2,000 Wells Fargo credit line, which expires March 1, 2013. Management said resources were sufficient for fiscal 2012 operating needs and capital expenditures.
Operating cash flow was positive despite the quarterly net loss, helped by inventory reduction of $1,148 and receivables reduction of $687. Cash increased $391 during the period. Financing cash outflow was $61, including share repurchases; no dividend was paid, compared with $932 of dividends in the 2011 period.
Material changes, outlook and risks
- Tax assets: The company maintained a full valuation allowance against net deferred tax assets, citing negative evidence and economic uncertainty. The 2012-period tax provision was zero; management said the fiscal-year effective tax rate would differ from the statutory rate.
- Credit facility covenants: The company had violated tangible-net-worth and net-income covenants; the filing says these were subsequently waived by letter dated February 28, 2012, and the company was then in compliance with all agreement provisions.
- Customer concentration: Wal-Mart represented 10.8% of revenue and 12.9% of receivables; Dollar General represented 8.1% of revenue and 20.4% of receivables. Neither customer crossed these concentration thresholds in the comparable 2011 period.
- Other risks and contingencies: Management identified commodity, labor and employee-benefit costs, competition, economic conditions, regulation, and customer demand among forward-looking risks. Self-insured benefit and pension estimates are subject to uncertainty. Routine legal matters were not expected to materially affect financial position or results; no significant unfulfilled flour contracts remained at period end.
- Unusual items: Net loss included a non-taxable $56 gain on life-insurance policies, versus a $396 gain in the prior-year period. Results are seasonal and interim performance may not indicate full-year results. No formal earnings guidance was provided.
Investor facts to verify
- Whether gross-margin pressure from meat and flour costs, product mix, and lower-priced warehouse sales continued in subsequent periods.
- The terms and continuing effect of the covenant waivers, and compliance with credit-line covenants after the filing date.
- Whether the full deferred-tax-asset valuation allowance remained appropriate and whether the company generated taxable income.
- Changes in sales, receivables concentration, and collections involving Wal-Mart and Dollar General.
- Developments in pension and other employee-benefit obligations, legal claims, and transportation-equipment leasing.