B&G Foods, Inc. — Q3 2021 Form 10-Q
Reporting period: The quarter ended October 2, 2021; filed November 4, 2021. The quarter comprised 13 weeks versus 14 weeks in the prior-year quarter. Year-to-date comparisons cover 39 weeks versus 40 weeks. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions.
Business context and performance
B&G Foods manufactures and distributes branded shelf-stable and frozen foods in the U.S., Canada and Puerto Rico. Its portfolio includes Green Giant, Ortega, Crisco and numerous other brands. The Crisco business, acquired in December 2020 for approximately $539 million, contributed $71.2 million of Q3 sales and $187.7 million for the first three quarters of 2021.
| Metric | Q3 2021 | Q3 2020 | First 39 weeks 2021 | Prior comparable period |
|---|---|---|---|---|
| Net sales | $515.0m | $495.8m | $1,484.5m | $1,457.7m (40 weeks) |
| Gross profit / margin | $105.7m / 20.5% | $136.0m / 27.4% | $335.0m / 22.6% | $375.0m / 25.7% |
| Operating income / margin | $53.9m / 10.5% | $87.9m / 17.7% | $175.0m / 11.8% | $233.1m / 16.0% |
| Net income | $20.7m | $46.8m | $72.2m | $119.8m |
| Diluted EPS | $0.32 | $0.72 | $1.10 | $1.86 |
| Net interest expense | $26.6m | $26.4m | $80.3m | $77.3m |
Q3 sales rose 3.9%, but base-business sales declined 10.5% to $443.7 million. For the first three quarters, sales rose 1.8%, while base-business sales fell 11.1% to $1,296.6 million. Management attributed the base-business declines chiefly to comparisons with pandemic-related pantry loading in 2020 and, for Green Giant, supply constraints and product allocation. Sales remained above pre-pandemic 2019 levels.
Cash flow and liquidity: Net cash provided by operating activities was $12.8 million for the first 39 weeks, down from $232.3 million in the prior 40 weeks. Working-capital outflows included a $177.8 million inventory increase and a $46.7 million increase in receivables. Cash and equivalents were $27.1 million at October 2, 2021, compared with $52.2 million at fiscal year-end. Capital expenditures were $31.7 million in cash; dividends paid were $92.1 million. The filing’s reconciliation reports Q3 operating cash used of $53.2 million, compared with $14.1 million used in the prior-year quarter.
Debt: Long-term debt, net of financing costs and discounts, was $2.407 billion; net of cash, debt was $2.380 billion. Debt included $305 million of revolver borrowings, $671.6 million of term loans due 2026, and $1.45 billion of 5.25% senior notes due 2025 and 2027. Revolver availability, net of letters of credit, was $490.1 million. The company reported compliance with its debt covenants. A 1 percentage-point interest-rate change was estimated to affect annual interest expense by approximately $9.8 million.
Material changes and unusual items
- Cost of goods sold rose faster than sales. Management cited significant raw-material and freight inflation, contributing to lower gross margins and operating income.
- Q3 results included a $14.1 million accrual for estimated withdrawal liability to a multi-employer pension plan following the planned Portland facility closure, plus $2.2 million of severance and other costs. The withdrawal liability is expected to be paid over 20 years in installments of approximately $0.9 million annually.
- Adjusted EBITDA, a non-GAAP measure, was $96.4 million in Q3 versus $104.6 million; adjusted EBITDA before COVID-19 expenses was $96.4 million versus $109.4 million. For the first 39 weeks, adjusted EBITDA before COVID-19 expenses was $277.2 million versus $297.1 million. These measures exclude specified costs and should not be viewed as substitutes for GAAP results or cash flow.
- Inventories increased to $670.3 million from $492.8 million at fiscal year-end, including increases in work-in-process and finished goods.
- The company entered an agreement to sell its Portland, Maine facility and property; closing was expected in Q1 2022, subject to customary conditions. Manufacturing of affected brands is planned to transition to co-manufacturers and other company facilities.
Outlook, risks and contingencies
Management expected strong demand and sales above pre-pandemic 2019 levels to continue through the rest of 2021, while expecting full-year base-business sales to decline from 2020’s exceptional pandemic-driven levels. It forecast materially higher input-cost inflation in Q4 2021 and continued significant industry-wide inflation in 2022. Price increases, lower promotions, supply contracts and cost-saving initiatives were intended to mitigate costs, but management said they were not expected to fully offset inflation; pricing typically lags cost increases. The filing provides no clear numerical full-year earnings or sales guidance.
Management believed cash, operating cash flow and available revolver capacity would fund operations, debt service, capital spending, potential acquisitions and anticipated dividends for the foreseeable future. It expected approximately $42.5 million of fiscal 2021 capital expenditures. The annual dividend rate was $1.90 per share; expected aggregate fiscal 2022 dividends were approximately $123.3 million, subject to board discretion. The first-three-quarter operating cash flow of $12.8 million was substantially below dividends paid of $92.1 million.
Key risks include substantial leverage; continued commodity, packaging, labor and freight inflation; supply-chain and labor disruptions, including COVID-19 effects; the ability to implement pricing and savings; consumer and channel shifts; customer concentration; foreign-exchange movements; acquisition integration; and potential impairment of goodwill or intangible assets. Walmart represented approximately 28.0% of first-three-quarter sales. The company reported no material change to previously disclosed risk factors and did not expect currently pending legal matters to materially affect its financial position, results or liquidity.
Investor verification priorities
- Track whether pricing and cost actions recover input and freight inflation, and whether margins stabilize.
- Assess operating cash flow and working-capital trends, especially inventory growth, against dividend and capital-spending commitments.
- Monitor leverage, revolver usage, borrowing costs and continued covenant compliance.
- Verify completion and economics of the Portland sale, production transition, severance costs and final pension withdrawal liability.
- Separate Crisco acquisition contributions from underlying sales trends, and monitor Green Giant supply recovery and customer concentration.