B&G Foods, Inc. — Q2 2015 Form 10-Q
Reporting period: Thirteen and twenty-six weeks ended July 4, 2015; filed July 30, 2015. The company manufactures and distributes shelf-stable foods and household products across the U.S., Canada and Puerto Rico.
Financial performance
| Metric | Q2 2015 | Q2 2014 | First half 2015 | First half 2014 |
|---|---|---|---|---|
| Net sales | $193.6M | $202.9M | $410.8M | $401.0M |
| Gross profit / margin | $62.0M / 32.0% | $63.0M / 31.1% | $129.4M / 31.5% | $127.7M / 31.8% |
| Operating income | $40.1M | $42.6M | $82.0M | $81.4M |
| Net income | $18.7M | $16.1M | $38.3M | $33.9M |
| Diluted EPS | $0.33 | $0.30 | $0.69 | $0.63 |
| Adjusted EBITDA | $47.4M | $46.1M | $97.3M | $92.5M |
First-half operating cash flow was $57.6M, compared with $36.1M; capital expenditures were $7.4M. Investing cash use was $7.4M versus $163.8M a year earlier, when the Specialty Brands acquisition required $154.3M. Financing provided $47.0M, including $126.2M net proceeds from a May stock offering, offset in part by debt repayments and $36.5M of dividends paid. Cash ended at $98.5M, up from $1.5M at fiscal year-end.
At July 4, total debt was $984.4M net of discount, including $700M of 4.625% senior notes due 2021 and $285M of term loans; no revolver borrowings were outstanding. Net debt was approximately $885.9M. Revolver availability, net of letters of credit, was $498.7M. The company reported compliance with debt covenants. Current liabilities were $88.8M and current assets $289.6M.
Changes versus prior period
- Q2 sales fell 4.6%, mainly because Rickland Orchards sales declined $6.1M; comparable base-business sales fell 1.9%. The comparable decline reflected $7.7M lower volume, partly offset by $3.9M of higher net pricing.
- First-half sales rose 2.4%, including $23.1M from Specialty Brands, acquired in April 2014. Rickland Orchards sales fell $13.7M. Comparable base-business sales increased 0.4%, as $7.5M higher pricing more than offset a $5.9M volume decline.
- Q2 gross margin improved, helped by pricing and lower delivery costs; first-half margin declined, affected by recall refunds and Canadian currency movements.
- Q2 SG&A decreased $6.1M, largely from lower acquisition costs and consumer marketing. First-half SG&A fell $5.9M on similar factors, partly offset by higher warehousing and other costs.
- Reported comparisons are affected by prior-year items: Q2 2014 included an $8.2M noncash gain from revaluing Rickland Orchards contingent consideration and a $5.7M debt-extinguishment loss.
Outlook, risks and notable items
- Management expected 2015 costs for a majority of key commodities to remain relatively flat versus 2014 because supply and pricing were largely locked in, while noting marketplace input costs were expected to rise. Planned fiscal 2015 capital expenditures were approximately $20M.
- Management said cash, operating cash flow and available revolver capacity should fund operations, debt service, capital spending, possible acquisitions and anticipated dividends for the foreseeable future. This is not a guarantee of future results.
- The board raised the quarterly dividend to $0.35 per share beginning with the dividend declared July 23, 2015, payable October 30; management expected approximately $76.5M of total fiscal 2015 dividends.
- On July 10, after quarter-end, the company acquired Mama Mary’s for approximately $50M cash, funded from cash on hand. Purchase accounting was incomplete at filing. The May stock offering proceeds were also intended for debt repayment, the acquisition and general purposes.
- The Ortega and Las Palmas allergen recall affected first-half results by $1.9M: $1.2M in customer refunds, $0.5M in cost of goods sold and $0.2M in SG&A. At quarter-end, receivables included a $0.3M recall reserve and prepaid expenses included $5.0M of expected insurance recoveries.
- Key risks include substantial leverage, commodity and distribution costs, pricing and promotional pressure, customer concentration (Walmart represented 19.7% of first-half sales), consumer and food-safety risks, Canadian currency exposure, and acquisition integration. The company reported no material expected adverse effect from pending ordinary-course legal matters; it also noted higher pension-plan contributions expected under a rehabilitation agreement.
- There were no material changes to previously disclosed risk factors, no off-balance-sheet arrangements, and management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether base-business volume trends and Rickland Orchards weakness improve, and whether pricing can be sustained without further volume losses.
- Actual funding, integration results and purchase-price allocation for the Mama Mary’s acquisition, including effects on debt and cash.
- Free cash flow after capital expenditures, dividends and scheduled debt amortization; assess the sustainability of the increased dividend against leverage.
- Whether expected insurance recoveries for the recall are realized and whether additional recall costs arise.
- Progress on commodity-cost management, Canadian-dollar exposure, labor negotiations and compliance with leverage and interest-coverage covenants.