B&G Foods, Inc. — Q1 2023 Form 10-Q
Reporting period: Thirteen weeks ended April 1, 2023, compared with the thirteen weeks ended April 2, 2022. Filed May 4, 2023. Figures are in U.S. dollars unless otherwise noted.
Business context and key financial results
B&G Foods manufactures and distributes branded shelf-stable and frozen foods and household products, primarily in the United States, Canada and Puerto Rico. The company completed the sale of its Back to Nature business on January 3, 2023; its May 2022 Yuma frozen-vegetable acquisition also affects comparability.
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Net sales | $511.8 million | $532.4 million | Down 3.9%; base-business sales were down 1.2% to $511.4 million. |
| Gross profit / margin | $114.2 million / 22.3% | $101.3 million / 19.0% | Margin improved 3.3 percentage points; pricing was the principal driver. |
| Operating income / margin | $62.2 million / 12.1% | $56.3 million / 10.6% | Income increased 10.4%. |
| Net interest expense | $39.4 million | $26.8 million | Up 47.1%, primarily from higher rates on variable-rate debt and accelerated financing-cost amortization. |
| Net income / diluted EPS | $3.4 million / $0.05 | $23.7 million / $0.34 | Decline chiefly reflects a $14.7 million tax valuation allowance related to the Back to Nature sale and higher interest expense. |
| Adjusted net income / diluted EPS (non-GAAP) | $19.1 million / $0.27 | $19.9 million / $0.29 | Excludes specified comparability items, including the tax allowance. |
| Adjusted EBITDA (non-GAAP) | $82.4 million | $73.0 million | Up from the prior-year period. |
| Cash from operating activities | $69.5 million | $25.2 million | Improved partly due to interest-payment timing and working-capital comparisons. |
Liquidity, debt and capital allocation
- At April 1, 2023, cash was $35.9 million and long-term debt, net of financing costs and discounts, was $2.281 billion; net debt was approximately $2.246 billion. Stockholders’ equity was $861.8 million.
- Revolver borrowings were $292.5 million, with $502.6 million of available borrowing capacity after outstanding letters of credit. The company reported compliance with its debt covenants.
- During the quarter, B&G Foods repaid $121.0 million of term loans, funded with $50.0 million of Back to Nature sale proceeds and $71.0 million of cash on hand. Cash used in financing activities was $126.5 million.
- Contractual debt maturities include $1.193 billion in fiscal 2025, $550.6 million in 2026 and $550.0 million in 2027. The credit agreement’s maximum leverage ratio is temporarily elevated through 2023 and is scheduled to tighten thereafter.
- The quarterly dividend was $0.19 per share. The company reduced its intended annual rate from $1.90 to $0.76 per share, and estimated fiscal 2023 dividend payments of approximately $54.9 million.
- Fiscal 2023 capital expenditures were projected at $35–$40 million; $5.2 million was incurred in Q1, of which $3.9 million was paid in cash.
Material changes versus the prior period
- Base-business sales declined $6.4 million: a $67.5 million unit-volume decrease and $2.1 million adverse foreign-currency impact were largely offset by $63.2 million of net pricing and product-mix benefit.
- Sales increased in spices and seasonings and Clabber Girl, while Green Giant, Crisco and Ortega sales declined. Total Green Giant sales fell 7.3%.
- Gross margin recovered as prior price increases began to offset input-cost inflation. Reported Q1 2022 results included a $7.1 million gain on the Portland facility sale, partly offset by $2.2 million of closure and transfer costs.
- Back to Nature contributed $14.4 million of Q1 2022 sales but was divested in January 2023. The sale generated $51.4 million in cash proceeds and an approximately $0.1 million pre-tax loss in Q1 2023; related tax treatment produced the $14.7 million valuation allowance.
Outlook, commentary and risks
- The filing does not provide specific full-year revenue or earnings guidance. Management expected input-cost inflation to remain significant and freight costs to remain elevated during fiscal 2023. It said most major raw-material costs, excluding certain items such as oils, were locked in through Q3 2023; most oil needs were covered through the first half.
- Management said the company expects cash, operating cash flow and revolver availability to fund operations, debt service, capital spending, possible acquisitions and anticipated dividends for the foreseeable future. This assessment depends on operating results and financing availability.
- Key risks include substantial leverage and interest-rate exposure; commodity, packaging, labor and distribution costs; the ability to realize price increases and savings; supply-chain disruptions; customer concentration; changing consumer preferences and competition; foreign-currency movements; and possible goodwill or intangible-asset impairment.
- A hypothetical 1% change in interest rates would affect annual interest expense by approximately $8.4 million, based on debt outstanding at quarter-end. Walmart represented approximately 29.0% of Q1 sales and 29.7% of receivables at April 1.
- The company reported ordinary-course legal claims and did not expect pending matters to materially affect its financial position, results or liquidity. It also reported that disclosure controls were effective and no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- Whether pricing and cost-saving measures continue to offset inflation without further damaging unit volumes or brand sales.
- Debt repayment capacity, refinancing options ahead of the substantial 2025 maturities, variable-rate exposure and future covenant headroom as leverage limits tighten.
- The cash-flow outlook after considering seasonal working-capital needs, interest payments, capital expenditures and the reduced—but continuing—dividend.
- The tax consequences of the Back to Nature divestiture, including the valuation allowance, and whether future tax deductions or interest-deduction limits affect cash taxes.
- Sales trends in Green Giant, Crisco and Ortega, customer concentration—especially Walmart—and any potential impairment of goodwill or intangible assets.
Non-GAAP measures, including adjusted EBITDA and adjusted net income, are management-defined and should be considered alongside GAAP results and cash flows.