Bridgford Foods Corporation — Q2 FY2015 Form 10-Q
Business context and period: The filing covers the 12 and 24 weeks ended April 17, 2015, compared with the periods ended April 18, 2014. Bridgford operates frozen food and snack food businesses. Results are unaudited; amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | 12 weeks ended Apr. 17, 2015 | 12 weeks ended Apr. 18, 2014 | 24 weeks ended Apr. 17, 2015 | 24 weeks ended Apr. 18, 2014 |
|---|---|---|---|---|
| Net sales | $26.696 | $31.243 | $61.407 | $63.709 |
| Gross margin | $10.277 (38.5%) | $8.935 (28.6%) | $19.894 (32.4%) | $19.203 (30.1%) |
| Income (loss) before taxes | $2.202 | $(1.280) | $2.669 | $(1.046) |
| Net income (loss) | $2.202 | $(1.280) | $2.669 | $(1.046) |
| Basic and diluted EPS | $0.24 | $(0.14) | $0.29 | $(0.11) |
- Cash flow: For the 24 weeks, operating cash flow was $7.893, versus cash used of $0.511 in the prior period. Investing used $0.264 and financing used $0.222. Cash increased $7.407 to $7.599.
- Liquidity: Current assets were $33.874 and current liabilities $13.001 at April 17, 2015. The company reported no fiscal 2015 borrowings on its $4.0 million revolving credit line; it was in covenant compliance. Management said resources were sufficient for operating needs and capital expenditures through the rest of fiscal 2015.
- Debt and obligations: Remaining capital lease obligation was $0.796, including after return of five leased tractors with a $0.656 remaining liability. Total liabilities were $30.594. The filing does not identify a separate total for interest-bearing debt.
- No income tax provision or benefit was recorded. A full valuation allowance remained against deferred tax assets; federal and state NOL carryforwards were approximately $6.160 million and $4.006 million, respectively.
Material changes and management commentary
- Quarterly sales fell 14.6% year over year; 24-week sales fell 3.6%. Management attributed the decline largely to a prior-year seasonal, low-margin customer program that did not recur and to discontinuation of the loss-making Refrigerated Deli Products Division at fiscal 2014 year-end.
- Quarterly gross margin rose to 38.5% from 28.6%; the 24-week margin rose to 32.4% from 30.1%. Management cited a more favorable product mix and the absence of prior-year low-margin beef sales, along with lower overhead. Snack-segment meat commodity costs increased about $2.912 million over 24 weeks.
- 24-week SG&A declined 14.9% to $17.225 million, partly reflecting the discontinued deli division and lower advertising, fuel and workers’ compensation costs. Wages and bonuses increased.
- Operating cash flow benefited from a $5.595 million inventory reduction, mainly tied to shipments for large warehouse-customer orders. Capital expenditures were $0.293 million, versus $2.163 million in the prior period.
- Management provided no quantified earnings or sales guidance. It cautioned that interim results may not indicate full-year results and cited commodity, labor, competition, customer demand, economic, regulatory and other risks.
Risks, contingencies and unusual items
- A workers’ compensation estimate change reduced the liability by $0.264 million and increased quarterly net income by $0.264 million, or $0.03 per share. Management also cited other favorable workers’ compensation adjustments in its cost explanations.
- The company recorded a $0.075 million gain on disposal associated with returning leased tractors. Net income included non-taxable life-insurance gains of $0.070 million for the quarter and $0.136 million for the 24 weeks; these gains depend on underlying investment performance.
- Wal-Mart represented 28.4% of 24-week sales and 32.3% of receivables at April 17, 2015. Dollar General accounted for 21.8% of receivables. The company notes that deterioration in major customers’ operations could pose material risk.
- The company participates in multiemployer pension plans and previously recorded an estimated $0.798 million withdrawal liability related to a 2014 withdrawal; the final amount may differ. It continues participating in other plans, and a future withdrawal could have a material effect.
- Ordinary-course claims and legal actions were not expected by management to materially affect financial position or results. No significant flour purchase contracts remained unfulfilled; the company does not hedge commodity exposure.
Investor verification priorities
- Assess whether higher margins and profitability can persist without the prior-year low-margin program, and whether sales volumes and pricing stabilize.
- Track meat commodity inflation, workers’ compensation estimate changes, and the degree to which cash generation depends on inventory liquidation and seasonal working-capital movements.
- Review concentration in Wal-Mart and other major customers, pension-plan obligations, and the final tractor-lease and pension-withdrawal liabilities.
- Confirm the basis for the full deferred-tax valuation allowance and monitor the company’s ability to meet the revolving-credit covenants.