B&G Foods, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended January 2, 2021, filed March 2, 2021. Fiscal 2020 included 53 weeks versus 52 weeks in fiscal 2019; the filing also reports fourth-quarter results. B&G Foods sells branded shelf-stable and frozen foods and household products. Results reflect pandemic-related demand and recent acquisitions, including Crisco.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $1,967.9 million | $1,660.4 million |
| Gross profit / margin | $481.7 million / 24.5% | $383.1 million / 23.1% |
| Operating income / margin | $276.4 million / 14.0% | $203.8 million / 12.3% |
| Net income | $132.0 million | $76.4 million |
| Diluted EPS | $2.04 | $1.17 |
| Cash from operating activities | $281.5 million | $46.5 million |
| Capital expenditures | $26.7 million | $42.4 million |
| Cash and cash equivalents at year-end | $52.2 million | $11.3 million |
| Total debt at year-end | $2,354.4 million | $1,900.7 million |
- Net sales rose 18.5%. Base-business sales, excluding acquisition-related sales, increased 14.7%; volume contributed $209.8 million and pricing and mix contributed $35.8 million, partly offset by $1.1 million of foreign-exchange impact.
- Adjusted EBITDA, a non-GAAP measure, was $361.2 million, up from $302.5 million. Adjusted EBITDA before $13.5 million of COVID-related expenses was $374.8 million. These measures exclude specified items and are not substitutes for GAAP results or cash flow.
- Net debt was approximately $2,281.9 million. Senior debt was 6.9x reported EBITDA, or 6.5x adjusted EBITDA. Cash interest coverage was 3.5x on EBITDA and 3.7x on adjusted EBITDA.
- Available revolving-credit capacity was $563.1 million, net of letters of credit. The company reported compliance with debt covenants at year-end. Debt includes $900 million of 5.25% notes due 2025, $550 million of 5.25% notes due 2027, $671.6 million of term loans due 2026, and $235 million of revolver borrowings.
- Quarterly dividends were $0.475 per share, or $1.90 for the year; cash dividends paid were $121.9 million. Management expected approximately $122.8 million of aggregate 2021 dividends at the then-current rate, subject to board discretion and debt restrictions.
Material changes and notable items
- COVID-19-related pantry loading and increased at-home consumption materially boosted sales and cash generation. Growth in retail, mass merchant, club, wholesale and e-commerce sales more than offset lower foodservice sales. Supply constraints prevented the company from fully meeting demand for some products.
- Acquisitions contributed $63.0 million of FY2020 sales, primarily additional Clabber Girl sales and one month of Crisco sales. Crisco was acquired December 1, 2020 for approximately $539.3 million in cash and contributed $27.8 million of reported FY2020 sales. Its purchase-price allocation was preliminary.
- Fiscal 2020 net income and cash flow comparisons also benefited from the prior-year comparison: fiscal 2019 operating cash flow included the cash-tax impact of the 2018 Pirate Brands sale. The CARES Act generated a $7.2 million tax refund in FY2020.
- Fourth-quarter sales were $510.2 million versus $470.2 million; net income was $12.2 million versus $10.3 million; diluted EPS was $0.19 versus $0.16.
- Management reported a $4.2 million charge related to the former CEO’s separation. Fiscal 2020 cost of goods sold included $5.0 million of specified non-recurring items; SG&A included $13.6 million of acquisition-related and other non-recurring expenses.
Outlook, risks and contingencies
- Management said cash, operating cash flow and available revolver capacity should fund foreseeable operations, debt service, capital expenditures, potential acquisitions and anticipated dividends. It expected approximately $50 million of FY2021 capital expenditures.
- Management anticipated higher raw-material cost increases in FY2021 and elevated freight rates. Most significant commodity needs, except certain items including maple syrup, and most oil needs through the first half of 2021 were contracted or otherwise locked in. Price increases and savings may not fully offset inflation.
- COVID-19’s future effect on demand, supply availability, manufacturing operations and consumer behavior was uncertain; management could not reasonably estimate the financial impact. The favorable FY2020 demand effect may change as restrictions and shopping patterns evolve.
- Key risks include substantial leverage and covenant limitations; customer concentration (Walmart represented 26.5% of FY2020 sales); competition and private-label pressure; dependence on co-packers and single-site production for many products; commodity, freight and currency exposure; and integration and valuation risks from acquisitions.
- The multi-employer pension plan covering some Portland employees was in critical and declining status and severely underfunded; withdrawal could trigger additional liability. Two union agreements were due to expire in March 2021, though management did not expect negotiations to materially affect results.
- The company reported no material expected adverse effect from currently pending legal claims. Annual impairment testing found no impairment, but the filing highlights sensitivity to brand performance, forecasts and market capitalization. KPMG issued unqualified opinions on the financial statements and internal controls; Crisco was excluded from the 2020 internal-control assessment.
Important facts for investors to verify
- How much FY2020 demand and margin growth persists after pandemic-driven purchasing, and whether supply constraints ease.
- Whether Crisco integration delivers expected performance and whether its preliminary purchase-price allocation changes materially.
- Debt repayment capacity, variable-rate exposure, covenant headroom and the sustainability of dividends alongside acquisition and capital-spending plans.
- Whether pricing and productivity measures offset rising raw-material and freight costs without weakening volume or brand position.
- Potential pension contribution or withdrawal liabilities, and results of the pending labor negotiations and New York tax examination.