B&G Foods, Inc. — Q3 2023 Form 10-Q
Reporting period: Thirteen and thirty-nine weeks ended September 30, 2023; filed November 9, 2023. B&G Foods manufactures and distributes branded shelf-stable and frozen foods in the U.S., Canada and Puerto Rico.
Financial performance
| Metric | Q3 2023 | Q3 2022 | First 39 weeks 2023 | First 39 weeks 2022 |
|---|---|---|---|---|
| Net sales | $502.7M | $528.4M | $1,484.2M | $1,539.8M |
| Gross profit / margin | $113.8M / 22.6% | $105.8M / 20.0% | $330.4M / 22.3% | $283.5M / 18.4% |
| Operating income (loss) | $(72.5)M | $(50.8)M | $38.9M | $32.5M |
| Net loss | $(82.7)M | $(59.6)M | $(68.8)M | $(35.7)M |
| Diluted loss per share | $(1.11) | $(0.83) | $(0.94) | $(0.51) |
| Net interest expense | $35.9M | $31.9M | $111.1M | $88.6M |
| Operating cash flow | $23.3M | $(69.5)M | $155.7M | $(48.4)M |
| Adjusted EBITDA (non-GAAP) | $80.4M | $80.2M | $231.2M | $207.3M |
At September 30, cash was $359.9M and inventory was $644.1M. Debt was $2,484.6M net of deferred financing costs and discounts, or $2,506.1M at contractual principal amounts; net debt using principal amounts and cash was $2,146.2M. The balance sheet classified $555.4M of debt as current. The revolving facility had $795.0M of available capacity, net of letters of credit. B&G reported compliance with its debt covenants.
Changes versus comparable periods
- Q3 sales declined 4.9%; base-business sales fell 3.0%, with a $13.2M volume decline, $1.3M adverse foreign-exchange impact and $1.1M reduction from net pricing and mix. For the first 39 weeks, base-business sales decreased 1.4%: volume fell $132.8M and foreign exchange reduced sales $4.8M, largely offset by $116.2M of pricing and mix.
- Gross margin improved as pricing caught up with input costs, inflation moderated, and transportation and warehousing costs declined. Interest expense rose, primarily due to higher rates on variable-rate debt.
- Operating results included a $132.9M non-cash impairment charge in Q3 for the Green Giant U.S. shelf-stable product line. The prior-year Q3 included a $103.6M impairment for Back to Nature.
- Operating cash flow improved year to date from a use of $48.4M to cash generation of $155.7M, helped by operating performance and more favorable working-capital comparisons.
Outlook, financing and material events
- No full-year sales or earnings guidance is provided in the supplied filing text. Management expected raw-material costs to remain elevated through the rest of fiscal 2023 and into fiscal 2024, and freight rates to remain elevated through the rest of 2023 and into 2024. The company said it had locked in supply and prices for its most significant raw-material commodities through year-end 2023.
- Management expected fiscal 2023 capital expenditures of approximately $35M; $19.4M had been made in the first 39 weeks. It estimated fiscal 2024 dividends of approximately $59.8M based on an intended annual rate of $0.76 per share, subject to board discretion. The quarterly dividend declared was reduced to $0.19 per share from $0.475 in 2022.
- In September, B&G issued $550M of 8.00% senior secured notes due 2028. On October 12, 2023, it used proceeds and cash on hand to redeem $555.4M of 5.25% notes due 2025; it expected an approximately $1.0M extinguishment loss. As of November 8, $300M of the 2025 notes and $300M of revolver borrowings were outstanding.
- The Green Giant U.S. shelf-stable product line sale to Seneca Foods closed November 8, 2023. It excluded Green Giant frozen, Green Giant Canada and Le Sueur. B&G retained the Green Giant trademarks and granted Seneca a perpetual, royalty-free license for the sold product line; transition services may continue for up to approximately six months.
- Key risks include substantial leverage, higher input and labor costs, pricing and competition, consumer and channel changes, supply-chain disruption, currency exposure and potential further impairment of goodwill or intangible assets. The Mexican peso’s appreciation of nearly 12% against the U.S. dollar in the first 39 weeks adversely affected Green Giant frozen operations in Mexico. Ordinary-course litigation was not expected to have a material adverse effect; two union agreements covering approximately 150 employees were scheduled to expire within twelve months.
Investor facts to verify
- Reconcile reported net losses with the $132.9M impairment and assess the assumptions underlying the asset-sale valuation; adjusted EBITDA and adjusted net income are non-GAAP measures.
- Review post-quarter debt balances, refinancing costs, interest-rate exposure and the company’s ability to meet debt maturities and covenants.
- Track whether operating cash generation, pricing, volumes and margins continue to improve after the divestitures and cost changes.
- Confirm the effect of the Green Giant shelf-stable sale, including retained trademark rights, transition services and resulting revenue changes.
- Assess the sustainability of the intended dividend against leverage, liquidity, capital needs and the board’s discretion to change the policy.