Bridgford Foods Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter, the 12 weeks ended April 14, 2023, and year to date, the 24 weeks ended April 14, 2023. Comparisons are with the corresponding periods ended April 15, 2022. Dollar amounts below are in thousands unless stated otherwise.
Business context
Bridgford manufactures and distributes frozen food products and snack foods, including biscuits and dough items, jerky, meat snacks, sausage, and pepperoni. The Frozen Food Products segment serves retail and foodservice channels; Snack Food Products is primarily a retail business using direct-store-delivery and customer warehouses.
Financial performance
| Metric | 12 weeks ended Apr. 14, 2023 | 12 weeks ended Apr. 15, 2022 | 24 weeks ended Apr. 14, 2023 | 24 weeks ended Apr. 15, 2022 |
|---|---|---|---|---|
| Net sales | $55,510 | $59,986 | $117,132 | $124,072 |
| Gross margin | $15,457 | $16,682 | $32,523 | $33,075 |
| Gross margin percentage | 27.8% | 27.8% | 27.8% | 26.7% |
| Operating income | $284 | $1,504 | $1,628 | $3,184 |
| Net income | $149 | $805 | $1,081 | $1,112 |
| Basic EPS | $0.02 | $0.09 | $0.12 | $0.12 |
| Operating cash flow | Not presented separately | Not presented separately | $1,297 | $2,273 |
Quarterly sales fell 7.5%; year-to-date sales fell 5.6%. Lower pound volume was the principal consolidated sales headwind, partly offset by higher prices. Quarterly cost of products sold declined 7.5%, matching the sales decline; year-to-date it fell 7.0%, and the gross margin percentage improved by 1.1 percentage points.
Quarterly SG&A decreased 1.6% to $14,941, while year-to-date SG&A increased 2.8% to $30,735. The quarterly income-tax provision was $164; year-to-date it was $562. Quarterly pre-tax income was $313.
Segments and changes versus prior year
- Frozen Food Products: Quarterly sales declined 4.6% to $11,904, with lower volume partly offset by higher prices; segment operating result shifted to a loss of $848 from income of $542. Year-to-date sales rose 5.9% to $26,303, but operating result shifted to a loss of $838 from income of $970. Management cited stronger institutional demand and pricing, alongside higher production and input costs.
- Snack Food Products: Quarterly sales declined 8.2% to $43,606, and segment operating income rose to $1,132 from $962. Year-to-date sales declined 8.5% to $90,829, while operating income increased to $2,466 from $2,214. Lower volume, particularly through direct-store-delivery, drove the sales declines; lower meat commodity costs helped reduce product costs.
- Management attributed weaker demand largely to inflation’s effect on consumer spending. Promotional allowances and returns also reduced sales. Quarter-to-quarter comparisons show price increases partly offsetting volume declines.
Cash, debt, and liquidity
- Cash and cash equivalents were $15,751 at April 14, 2023, down from $16,333 at October 28, 2022. Net working capital was reported as $67,920.
- Year-to-date operating cash flow was $1,297, versus $2,273 a year earlier. Investing used $1,132, including $1,293 of property, plant, and equipment additions; financing used $747. Cash declined by $582 over the period.
- Total debt was $4,423, comprising $1,023 current and $3,400 long-term equipment notes. The revolving facility had no balance and provided $15,000 of availability; it was scheduled to expire August 31, 2023. The company reported $492 of bank-borrowing repayments year to date.
- The company breached its quarterly after-tax net-income covenant at April 14, 2023; Wells Fargo subsequently waived the breach by letter dated May 23, 2023. The company reported compliance with its other listed covenants.
- Management said it expected operating cash generation to support liquidity for at least the next 12 months and believed resources were sufficient for remaining fiscal 2023 operating needs and capital expenditures. It also noted real estate could be mortgaged as a potential liquidity source if needed.
Outlook, risks, contingencies, and unusual items
- Management expected inflationary pressures, including labor, freight, and materials costs, to continue through the remainder of fiscal 2023. It cautioned that raw-material cost or availability volatility and limits on passing through price increases could adversely affect results and demand. No quantified earnings or revenue guidance was provided.
- Customer concentration is significant: for the 24-week period, Walmart accounted for 30.4% of sales and 27.3% of receivables; Dollar General accounted for 16.2% of sales and 27.1% of receivables. Walmart’s receivables share increased after the company stopped accelerated payments on those balances in July 2022.
- The company does not hedge commodity exposure through futures. It reported a $258 inventory net-realizable-value reserve on certain meat products at April 14, 2023. Inventory demand and obsolescence, commodity prices, labor availability, customer concentration, and consumer sensitivity to prices remain risks.
- Quarterly results included a $232 loss on sale of property, plant, and equipment. Year-to-date other income included a $240 cash-surrender-value gain, compared with a $1,000 loss in the prior-year period; this helped offset weaker operating income.
- Management stated ordinary-course legal matters were not expected to have a material adverse effect, though legal costs and management distraction remain possible. No material subsequent event was reported other than a two-year box-truck lease entered into April 17, 2023, for $27.
- Disclosure controls were reported ineffective due to a previously identified material weakness involving failure to timely communicate a change in lease terms. Remediation steps were underway, with management expecting completion before fiscal year-end 2023; remediation was not yet considered complete.
- The filing’s tax-rate disclosures are inconsistent: the income statement figures imply a quarterly effective rate of approximately 52.4% ($164 provision on $313 pre-tax income), and MD&A reports 52.4%, while a note describes the second-quarter rate as 34.2%. The filing reports the year-to-date effective rate as 34.2%.
Most important facts for investors to verify
- Whether declining unit volumes, especially in Snack Food Products and direct-store-delivery, persist and whether pricing can offset them.
- The resolution and ongoing status of the waived income covenant breach, and the revolving facility’s renewal or replacement before its August 31, 2023 expiration.
- Cash conversion cycle deterioration to 80 days from 72 days, working-capital needs, and the sustainability of operating cash flow.
- Customer concentration and collection timing, particularly Walmart receivables after accelerated payments ended.
- The conflicting quarterly tax-rate disclosures and the progress and testing of internal-control remediation.