Bridgford Foods Corporation — FY2019 Form 10-K
Reporting period: Fiscal year ended November 1, 2019 (52 weeks), compared with the 52 weeks ended November 2, 2018. This filing reports annual results, not standalone fourth-quarter results; the “2019 Q4” reference does not provide a separate quarterly income statement.
Business and financial performance
Bridgford manufactures, markets and distributes frozen and snack foods in the United States. Snack Food Products represented 73% of sales and Frozen Food Products 27% in both years. Unless noted otherwise, amounts below are in millions of dollars.
| Metric | FY2019 | FY2018 | Change / context |
|---|---|---|---|
| Net sales | $188.785 | $174.257 | Up 8.3%; higher volume and selling prices, partly offset by increased promotions |
| Gross margin | $61.664 | $56.506 | Gross margin rate rose to 32.7% from 32.4% |
| SG&A | $52.837 | $49.929 | Up 5.8%, including higher wages, insurance and healthcare costs |
| Income before taxes | $8.537 | $12.813 | Lower principally because FY2018 included a $5.977 gain on land sale |
| Net income | $6.484 | $6.517 | Down slightly; diluted EPS is not presented, basic EPS was $0.71 vs. $0.72 |
| Operating cash flow | $7.247 | $8.265 | Down $1.018, with inventory growth a significant use of cash |
| Capital expenditures | $25.739 | $18.147 | Included substantial investment in the new Chicago facility |
Snack Food Products sales increased 8.3% to $137.551 million; segment income before taxes was $5.610 million versus $4.546 million. Frozen Food Products sales increased 8.4% to $51.234 million; segment income before taxes was $2.927 million versus $2.290 million. Snack growth was driven mainly by new products, including smokehouse sausage sticks, and direct-store delivery. Frozen growth included higher shelf-stable sandwich volume; retail sales volume declined 4%.
Cash, liquidity and debt
At year-end, cash was $3.478 million versus $8.179 million; current assets were $52.768 million and current liabilities $19.940 million. Total assets were $123.456 million and total liabilities $56.972 million. Equipment notes payable were $13.747 million, comprising $1.943 million current and $11.804 million long-term, at fixed rates of 4.13% and 3.98%, secured by equipment and repayable over seven years. The company generated $7.247 million in operating cash flow, used $25.678 million in investing activities and received net financing cash of $13.730 million.
The $7.5 million Wells Fargo revolving credit facility was due to expire March 1, 2020. The company violated its capital-expenditure covenant at year-end; the lender waived that violation by letter dated December 16, 2019. It reported compliance with the other facility covenants and with covenants on its equipment loans. Subsequent to year-end, Bridgford borrowed $3.75 million under a new equipment loan agreement. The filing also reports later draws on the revolving line, but one stated amount is textually unclear (“2.500,000”); verify the precise amount in the filed financial statements.
Changes, outlook and principal risks
- Revenue growth was volume-led, while gross margin improved modestly as lower commodity costs partly offset higher labor, insurance, healthcare and facility costs. SG&A rose more slowly than sales.
- Net income was nearly flat despite lower pretax income, reflecting a lower effective tax rate: 24.0% versus 49.1% in FY2018. The prior-year rate included the effect of tax reform and the prior-year land-sale gain.
- Other comprehensive income swung to a $5.680 million loss, net of tax, from $3.125 million income, largely reflecting defined-benefit-plan changes. The defined-benefit pension plan was underfunded by $14.130 million at year-end, compared with $8.053 million in FY2018; management expected no employer contribution in FY2020.
- Management stated that cash resources and capital resources were sufficient for operating needs and capital expenditures in FY2020. No specific sales, earnings or margin guidance was provided. The company disclosed approximately $13.9 million of expected remaining Chicago facility construction-related purchases as of January 8, 2020.
- Major risks include customer concentration (Walmart generated 35.7% of FY2019 revenue; Dollar General 11.1%), commodity price volatility, food-safety and regulatory exposure, competition, labor and benefit costs, multiemployer pension liabilities, and the company’s reliance on key personnel. The Bridgford family beneficially owned more than 80% of shares, giving it substantial control.
- No material legal proceedings were pending as of the filing date. No dividends were promised; future dividends are at the board’s discretion. No shares were repurchased in FY2019. Management considered disclosure controls and internal control over financial reporting effective; the auditor issued an unqualified opinion on the financial statements but did not audit internal-control effectiveness.
Investor verification priorities
- Confirm the precise post-year-end revolving-credit draws, facility expiration or renewal, and the continuing status of the capital-expenditure covenant waiver.
- Track Chicago facility completion, remaining construction commitments, related financing and expected operating contribution.
- Assess customer concentration and payment exposure, particularly Walmart’s share of sales and receivables.
- Review pension assumptions, underfunding and potential multiemployer-plan withdrawal exposure.
- Separate recurring earnings from the FY2018 land-sale gain and monitor whether sales growth and gross-margin improvement persist amid commodity and labor-cost volatility.