B&G Foods, Inc. — FY2013 Form 10-K
Reporting period: 52 weeks ended December 28, 2013; filed February 26, 2014. B&G Foods manufactures and distributes branded shelf-stable food and household products. The filing reports the full fiscal year, not a standalone fourth-quarter 10-K. Financial statements received an unqualified audit opinion; management and the auditor reported effective internal controls over financial reporting.
Financial performance
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net sales | $725.0 million | $633.8 million |
| Gross profit / margin | $242.9 million / 33.5% | $223.3 million / 35.2% |
| Operating income / margin | $154.0 million / 21.2% | $149.0 million / 23.5% |
| Net income | $52.3 million | $59.3 million |
| Diluted EPS | $0.98 | $1.20 |
| Operating cash flow | $114.9 million | $100.5 million |
| Capital expenditures | $14.6 million | $10.6 million |
| Cash and cash equivalents at year-end | $4.1 million | $19.2 million |
| Total debt at year-end | $870.9 million | $637.7 million |
- Fourth-quarter net sales were $211.5 million, versus $173.7 million; net income was $18.8 million, versus $9.6 million.
- FY2013 EBITDA, a non-GAAP measure, was $178.1 million; adjusted EBITDA was $184.0 million. Total debt/EBITDA was 4.9x, up from 3.8x.
- Dividends paid were $62.8 million in FY2013. The board raised the quarterly dividend to $0.34 per share in February 2014 ($1.36 annualized); management estimated 2014 aggregate dividends of approximately $72.4 million at that rate.
Changes versus FY2012
- Sales increased 14.4%, driven principally by acquisitions: additional New York Style sales contributed $36.5 million; Pirate Brands $32.6 million; TrueNorth $13.0 million; and Rickland Orchards $12.9 million.
- Base-business sales declined $3.8 million, or 0.6%: a $6.7 million net price decline was partly offset by $2.9 million of unit-volume growth. Management attributed price reductions in several brands to increased promotions amid competition.
- Gross margin fell 1.7 percentage points, reflecting lower net pricing, mix toward lower-margin products and higher distribution costs. SG&A rose 19.4% to $79.0 million, including increased marketing, selling, warehouse and acquisition costs.
- Operating income rose 3.3%, but net income declined 11.7%. Lower interest expense was more than offset by a $31.3 million debt-extinguishment loss, compared with $10.4 million in FY2012.
Debt, liquidity and capital allocation
- In June 2013, B&G issued $700 million of 4.625% senior notes due 2021. Proceeds refinanced its 7.625% notes and tranche B loans, repaid revolving borrowings, funded related costs and supported the Pirate Brands acquisition.
- At year-end, $131.3 million of tranche A term loans and $40.0 million of revolver borrowings were outstanding. The $300 million revolving facility had $259.5 million available, net of letters of credit. Net debt after cash was $866.8 million.
- The company reported compliance with debt covenants. Its credit agreement requires minimum interest coverage of 1.75x and imposes maximum leverage limits that tighten over time. Debt service, covenant restrictions and the dividend policy constrain financial flexibility.
- Operating cash flow increased, but acquisition spending drove $261.9 million of net investing cash outflow; year-end cash declined by $15.1 million. Management said cash, operating cash flow and available revolver capacity should fund foreseeable operations, debt service, capital spending, acquisitions and anticipated dividends.
Outlook, risks and unusual items
- Management expected marketplace input-cost decreases in 2014 and said it had locked in prices for most significant commodities through 2014 at a cost decrease of less than 1% of cost of goods sold; maple syrup was among the exclusions. It cautioned that customer requests for price reductions could offset benefits.
- FY2014 capital expenditures were expected to be approximately $20 million, including added production lines at the Yadkinville, North Carolina facility. Expected defined-benefit pension contributions were $1.8 million.
- Key risks include high leverage and refinancing needs; raw-material, packaging, labor and distribution cost volatility; competition, retailer consolidation and customer concentration; acquisition integration and execution; reliance on co-packers and single-site production; food safety, labeling and regulatory matters; Canadian-dollar exposure on maple syrup purchases; and pension funding obligations.
- Wal-Mart represented 18.5% of FY2013 sales; the top ten customers represented 48.4%. Approximately 34% of employees were covered by collective bargaining agreements. The Roseland agreement covering about 46 employees was due to expire March 31, 2014, with negotiations underway.
- Pirate Brands faced six coordinated putative class actions alleging improper “natural” labeling related to genetically modified and processed ingredients; a motion to dismiss was pending. Management did not expect currently pending claims to have a material adverse effect. A $1.5 million legal-settlement gain partially offset FY2013 SG&A.
- The multiemployer pension plan was in critical status; B&G reported $1.0 million in annual contributions and expected less than $0.1 million in FY2014 surcharges, assuming hours worked remained consistent.
Important facts for investors to verify
- How much of reported sales growth and future earnings can be sustained organically, apart from acquired brands, and whether base-business pricing and volume improve.
- Whether margin pressure persists and whether the forecast commodity savings translate into realized cost reductions.
- Acquisition performance, integration costs, purchase-price allocations and Rickland Orchards contingent payments, which may total up to $15 million.
- Debt repayment capacity, covenant headroom, refinancing risk and the sustainability of dividends relative to cash generation and capital needs.
- Developments in the Pirate Brands labeling litigation, Roseland labor negotiations and the underfunded multiemployer pension plan.