Bridgford Foods Corporation — Q3 FY2022 Form 10-Q
Reporting period: Twelve and thirty-six weeks ended July 8, 2022; comparisons are to the corresponding periods ended July 9, 2021. Dollar amounts below are in millions unless noted. The filing is unaudited. Bridgford operates Frozen Food Products and Snack Food Products segments.
Financial performance and position
| Metric | 12 weeks ended July 8, 2022 | Prior-year 12 weeks | 36 weeks ended July 8, 2022 | Prior-year 36 weeks |
|---|---|---|---|---|
| Net sales | $59.5 | $56.5 | $183.6 | $161.7 |
| Gross margin | $17.0; 28.6% | $12.0; 21.2% | $50.1; 27.3% | $37.1; 23.0% |
| Operating income (loss) | $59.4 | $(1.8) | $62.6 | $(3.5) |
| Net income (loss) | $41.3 | $(1.4) | $42.4 | $(1.7) |
| Basic earnings (loss) per share | $4.55 | $(0.16) | $4.67 | $(0.19) |
- Revenue and segments: Q3 sales rose 5.3%. Frozen Food sales increased 40.8% to $11.7 million, largely on foodservice volume recovery; Snack Food sales fell 0.9% to $47.8 million as lower volume offset price increases. For the 36-week period, sales rose 13.5%; Frozen Food increased 38.3% to $36.6 million and Snack Food increased 8.7% to $147.0 million.
- Profitability: Gross margin improved, although the reported operating and net income figures were dominated by a one-time property-sale gain. Excluding the $57.6 million gain mechanically, operating results were a loss of about $1.8 million in Q3 and income of about $5.0 million year to date; these are calculated adjustments, not company-reported non-GAAP measures.
- Cash flow: Operating activities used $5.0 million in the 36 weeks, versus $0.6 million used a year earlier. Investing activities provided $56.9 million, primarily from the property sale, while financing activities used $32.2 million, primarily for debt repayment. Cash and cash equivalents were $20.1 million at period end, versus no cash and $0.4 million restricted cash at October 29, 2021.
- Liquidity and debt: Current assets were $99.9 million and current liabilities $40.2 million; management reported net working capital of $60.0 million. Debt was $5.2 million, including $1.0 million current, compared with $37.1 million at October 29, 2021. The $18.0 million revolving balance and $18.7 million bridge loan were repaid with sale proceeds. The $15.0 million revolver remained available through March 1, 2023; the company reported compliance with loan covenants.
- Other balance-sheet items: Inventory was $42.0 million, up from $36.8 million at fiscal year-end. Income taxes payable were $17.3 million; refundable income taxes were $5.5 million. The company received $5.1 million of tax refunds on July 19, 2022, after quarter-end.
Material changes and unusual items
- On June 1, 2022, the company sold its Chicago property, including an approximately 156,000-square-foot industrial food-processing building, for a stated purchase price of $60.0 million, subject to adjustments. It recorded a $57.7 million gain and reported $55.4 million net proceeds. The sale drove reported quarterly and year-to-date profits and funded substantial debt repayment.
- Quarterly sales pricing increased 10.8% overall while volume declined 4.8%. For the 36 weeks, pricing increased 11.8% and volume increased 2.1%. Management attributed Snack Food volume weakness in part to inflation pressures on consumer spending.
- Management reported commodity costs increased approximately $13.0 million over the 36-week comparable period, including meat commodity costs of approximately $11.8 million and purchased flour costs of approximately $1.2 million. Labor, fuel, freight, and other input costs also pressured operations. Price increases may not fully or promptly offset cost inflation and could reduce demand.
- The company paid $1.2 million in sale-related broker commissions, including $0.3 million to an entity controlled by a board member. Management said ordinary-course legal claims are not expected to have a material adverse effect. No significant flour purchase contracts remained unfulfilled at July 8.
Outlook, risks, and controls
- Management expects inflationary pressures on labor, freight, and materials to continue through the remainder of FY2022. It said financial position and capital resources should cover operating needs and capital expenditures for the remainder of the fiscal year, and anticipated sufficient liquidity for at least the next 12 months, including expected operating cash flow and tax refunds.
- No specific revenue or earnings guidance was provided. Management cautioned that COVID-19-related demand shifts, supply constraints, worker availability, and volatility in commodity costs may affect sales, costs, liquidity, and operations. The filing reported minimal COVID-19 impact on the financial statements during the period, while noting future effects remain uncertain.
- Customer concentration remains significant: Walmart represented 30.8% of year-to-date sales and 19.8% of receivables; Dollar General represented 18.2% of sales and 32.3% of receivables. Walmart receivables rose as a share of sales after accelerated payments ended July 1.
- The company disclosed $0.8 million of deferred employer Social Security taxes due December 31, 2022, and approximately $10.3 million of federal and $8.1 million of state NOL carryforwards. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Confirm the property-sale terms, final adjustments, tax consequences, and whether any operational capacity or costs were affected by the Chicago disposition.
- Assess underlying segment profitability and cash generation apart from the one-time gain, particularly Frozen Food overhead and Snack Food volume trends.
- Track commodity, labor, fuel, and freight inflation against pricing actions, consumer demand, and gross margins.
- Monitor liquidity conversion: operating cash use, receivable and inventory levels, the tax refund balance, and the company’s ability to fund operations after the sale proceeds and debt repayments.
- Review customer concentration and the effect of ending accelerated Walmart payments, along with remaining debt, covenant compliance, and revolver availability.