B&G Foods, Inc. — Q1 2024 Form 10-Q
Reporting period: Thirteen weeks ended March 30, 2024; filed May 8, 2024. Results are unaudited and compared with the thirteen weeks ended April 1, 2023.
Business context
B&G manufactures and distributes branded shelf-stable and frozen foods and household products in the U.S., Canada and Puerto Rico. Effective this quarter, it reports four segments: Specialty, Meals, Frozen & Vegetables, and Spices & Flavor Solutions. Prior-period segment results were recast. Comparisons are also affected by the 2023 divestiture of the Green Giant U.S. shelf-stable product line and the Back to Nature business.
Financial results and liquidity
- Sales: $475.2 million, down 7.1% from $511.8 million. Base-business sales were $475.3 million, down 4.4%; lower net pricing and product mix reduced sales by $15.4 million, and volume declined $6.8 million. The Green Giant shelf-stable divestiture reduced year-over-year sales by $14.6 million.
- Profit and margins: Gross profit was $108.9 million (22.9% margin), versus $114.2 million (22.3%). Adjusted gross profit margin improved to 23.1% from 22.4%. Operating loss was $15.6 million, including a $70.6 million noncash goodwill impairment; prior-year operating income was $62.2 million. Net loss was $40.2 million, or $0.51 per share, versus net income of $3.4 million, or $0.05 per share. Adjusted net income was $14.4 million, or $0.18 per diluted share, compared with $19.1 million, or $0.27.
- Adjusted EBITDA: $75.0 million, down from $82.4 million. Segment adjusted EBITDA totaled $99.3 million versus $103.9 million; unallocated corporate expenses rose to $24.3 million from $21.5 million.
- Cash flow: Operating cash flow was $35.1 million, down from $69.5 million. Capital expenditures were $7.6 million paid in cash ($9.2 million incurred). Investing used $8.1 million, compared with $47.5 million provided in the prior-year quarter, which included $51.4 million of Back to Nature sale proceeds. Financing used $25.5 million; cash increased $1.4 million to $42.5 million.
- Debt and liquidity: Long-term debt had a $2.054 billion face amount ($2.036 billion net carrying value); net debt after cash was approximately $2.012 billion. The company had $160 million of revolving borrowings and $635.1 million of remaining revolver capacity, net of letters of credit. Current assets were $785.3 million and current liabilities $244.2 million. B&G reported compliance with its debt covenants, including a maximum leverage ratio of 7.00:1.00 and minimum interest coverage of 1.75:1.00.
- Dividend: $0.19 per share declared for the quarter; management’s current intended rate is $0.76 annually, with approximately $60 million of fiscal 2024 payments expected. The board may change the policy.
Changes, outlook, risks and unusual items
- The $70.6 million goodwill impairment followed the change to four reporting segments and was recorded in Frozen & Vegetables, reducing that segment’s goodwill to zero. Management used an 8.00% discount rate and flat terminal growth assumption; further impairments remain possible if performance, market capitalization or discount rates weaken.
- Management attributed improved gross margin to moderating input-cost inflation and lower transportation, warehousing and depreciation costs. It cited lower pricing, mix and volume as sales headwinds. Frozen & Vegetables results were also pressured by the divestiture, higher material costs and unfavorable Mexican peso movements; the peso had appreciated approximately 18% against the U.S. dollar from fiscal 2023 through Q1 2024.
- Management expects fiscal 2024 capital expenditures of approximately $35–$40 million and believes cash, operating cash flow and revolver availability will fund foreseeable operations, debt service, capital spending and intended dividends. It expects elevated costs for some raw materials and freight; most significant commodities were contracted through the first three quarters, while oil coverage extended through the second and into the third quarter.
- Debt refinancing and interest costs remain significant. Fiscal 2025 contractual debt maturities are $425.4 million, and the revolving facility matures in December 2025. A 1% rate change would affect annual interest expense by approximately $6.9 million.
- Customer concentration is high: Walmart represented 31.1% of quarterly sales and 32.6% of receivables; the top ten customers accounted for 63.3% of sales. Risks include commodity, labor, freight and currency costs; pricing and competition; changing consumer demand; supply disruptions and food safety; leverage and credit-market access; and the ability to maintain dividends while funding operations and debt service.
- Following the Green Giant asset sale, holders tendered approximately $0.7 million of 8.00% notes for repurchase in April 2024; B&G used remaining sale proceeds to prepay approximately $21.3 million of term loans. After these transactions, approximately $549.3 million of the notes and $507.3 million of term loans remained outstanding.
- Management reported no material change in risk factors from its 2023 Form 10-K, no material pending legal matter expected to affect financial position, results or liquidity, and effective disclosure controls. It did not provide a clear quantified full-year revenue or earnings forecast in the supplied filing text.
Important facts for investors to verify
- Whether sales and volume trends stabilize, particularly in Frozen & Vegetables and foodservice, and whether pricing and cost changes support margins.
- Cash generation and working-capital needs relative to the $60 million intended dividend and $35–$40 million capital-spending plan.
- Debt refinancing or repayment plans for the 2025 maturities and revolver, covenant headroom, and sensitivity to interest rates.
- Whether the Frozen & Vegetables impairment assumptions remain supportable and whether additional goodwill or trademark impairments may arise.
- Continued exposure to Walmart and other major customers, commodity and freight costs, and Mexican peso and Canadian dollar movements.