B&G Foods, Inc. — Q1 2013 Form 10-Q
Reporting period: Thirteen weeks ended March 30, 2013; filed April 25, 2013. Unaudited consolidated results. B&G Foods manufactures and distributes branded shelf-stable foods and household products.
Financial results
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Net sales | $171.2 million | $157.3 million | +8.8% |
| Gross profit / margin | $58.8 million / 34.4% | $56.8 million / 36.1% | Profit +3.5%; margin -1.7 pts |
| Operating income / margin | $40.2 million / 23.5% | $38.2 million / 24.3% | Income +5.4%; margin -0.8 pts |
| Net income | $19.6 million | $16.8 million | +17.0% |
| Diluted EPS | $0.37 | $0.35 | +5.7% |
| EBITDA (non-GAAP) | $45.7 million | $42.6 million | +7.2% |
| Operating cash flow | $23.1 million | $21.0 million | +$2.1 million |
Net interest expense fell 18.5% to $9.8 million, mainly reflecting the December 2012 redemption of $101.5 million of senior notes, lower Tranche B loan pricing and scheduled term-loan repayments. The effective tax rate was 35.6%, versus 35.9%. Cash capital expenditures were $1.7 million; dividends paid were $15.2 million.
Balance sheet and liquidity
- At March 30, 2013, cash was $16.1 million; current assets were $160.4 million and current liabilities $93.4 million.
- Total debt, net of discount, was $631.1 million, including $37.9 million current debt; net debt after cash was $615.0 million. Debt comprised $25.0 million revolving borrowings, $138.8 million Tranche A, $222.2 million Tranche B and $248.5 million senior notes.
- Revolver availability, net of letters of credit, was $174.5 million. The company reported compliance with all debt covenants. Stockholders’ equity was $363.8 million.
- Cash declined by $3.1 million during the quarter, to $16.1 million, as $24.5 million of financing outflows—principally debt payments, dividends and employee tax withholding—exceeded operating cash generation less capital spending.
Changes versus the prior period
- Sales increased $13.9 million. The New York Style and Old London brands, acquired October 31, 2012, contributed $11.3 million; base-business sales rose $2.6 million, or 1.6%, principally from higher unit volume.
- Gross margin declined 1.7 percentage points: the acquired brands accounted for 0.8 points, increased trade spending 0.3 points and product mix 0.6 points.
- SG&A decreased slightly to $16.5 million, and declined as a share of sales from 10.6% to 9.6%. Higher selling and warehousing costs were offset mainly by lower consumer marketing costs.
- Average basic shares increased to 52.7 million from 48.0 million, affecting per-share comparability.
Outlook, risks and notable items
- Management said cash on hand, operating cash flow and revolver capacity should be sufficient for foreseeable operating needs, debt service, capital spending, potential acquisitions and anticipated dividends. It expected approximately $12 million of fiscal 2013 capital expenditures.
- The intended annual dividend rate was $1.16 per share; management estimated fiscal 2013 aggregate dividends of approximately $61.3 million. The board may change the dividend policy. Quarterly dividends declared were $0.29 per share, versus $0.27 a year earlier.
- Management expected minimal market-wide raw-material cost decreases in 2013; it had locked in supply and pricing for most major commodities, excluding maple syrup, at an estimated cost decrease of approximately $1.0 million. Cost inflation, limits on price increases, commodity volatility and Canadian-dollar exposure remain risks.
- Other disclosed risks include substantial leverage and variable interest rates, retailer consolidation and inventory reductions, competition and changing consumer preferences, food safety and product liability, acquisition integration, and customer concentration. Walmart represented 19.5% of quarterly sales; the top ten customers represented 50.6%.
- The Bakery and Confectionary Union pension fund was in critical status; the company expected fiscal 2013 surcharges of less than $0.1 million, assuming consistent hours worked. Approximately 34.4% of employees were covered by collective bargaining agreements; one agreement covering 50 employees was due to expire within 12 months. Management did not expect negotiations to have a material adverse effect but cited possible production interruptions.
- Management said pending ordinary-course legal matters were not expected to materially affect financial position, results or liquidity. No material changes to previously disclosed risk factors or off-balance-sheet arrangements were reported. Disclosure controls were deemed effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether sales growth from the acquired brands and base business continues, and whether gross-margin pressure from mix and trade spending persists.
- Debt repayment, covenant headroom and refinancing exposure, including sensitivity to interest-rate increases; the filing estimates a 1-point rate increase would raise annual interest expense by approximately $2.1 million.
- Cash generation relative to debt service, seasonal working-capital needs, capital spending and the approximately $61.3 million estimated annual dividend commitment.
- Commodity and foreign-exchange assumptions, particularly maple syrup costs and the company’s ability to pass cost increases through to customers.
- Final purchase-price allocation for the New York Style and Old London acquisition, which remained preliminary, and the continuing impact of that acquisition on reported comparability.