Bridgford Foods Corporation — Q1 FY2020 Form 10-Q
Reporting period: Twelve weeks ended January 24, 2020; comparable period ended January 25, 2019. Dollar amounts below are in thousands unless stated otherwise. The interim statements are unaudited. Bridgford operates Frozen Food Products and Snack Food Products businesses.
Financial performance
| Metric | Q1 FY2020 | Prior-year period | Change |
|---|---|---|---|
| Net sales | $46,642 | $45,041 | +$1,601 (+3.6%) |
| Cost of products sold | $31,588 | $29,387 | +$2,201 (+7.5%) |
| Gross margin | $15,054 (32.3%) | $15,654 (34.8%) | Down 2.5 percentage points |
| SG&A | $12,618 | $13,087 | −$469 (−3.6%) |
| Income before taxes | $2,449 | $2,567 | −$118 |
| Net income | $1,859 | $1,876 | −$17 |
| Basic earnings per share | $0.20 | $0.21 | −$0.01 |
| Operating cash flow | −$3,989 | $713 | −$4,702 |
| Capital expenditures | $6,174 | $7,191 | −$1,017 |
Sales growth reflected 4.5% higher unit volume, partly offset by a 1.1% decrease in selling price per pound. Snack Food sales rose 6.4% to $35,288, with volume up 9.3%; Frozen Food sales fell 4.4% to $11,354, with volume down 7.8%. Snack Food cost of products sold rose 11.6%, reflecting higher volume, meat commodity costs and production wages. Management attributed lower SG&A in part to lower profit-sharing costs and a $403 non-taxable gain on life-insurance policies; the prior-year period included a $10 loss on those policies.
Liquidity, cash flow and debt
- Cash was $1,246 at January 24, 2020, down from $3,478 at November 1, 2019. Current assets were $53,482 and current liabilities $22,835; the balance sheet reports a $4,500 line-of-credit borrowing.
- Operating cash outflow was $3,989, versus inflow of $713 a year earlier. The company cited working-capital changes, including a $1,482 increase in receivables, profit-sharing payouts, and payments for estimated income taxes. Cash conversion cycle increased to 72 days from 57 days.
- Investing cash outflow was $6,161, primarily capital spending. Financing provided $7,918, including $8,250 of bank borrowings and $319 of repayments. Cash declined by $2,232 over the period.
- Equipment notes payable totaled $17,179, including $2,476 current and $14,703 long-term; equipment loans finance the Chicago processing facility and carry fixed rates of 3.70%–4.13% with seven-year terms. The company also had $4,500 drawn on a $7,500 Wells Fargo revolving credit line, which extends to March 1, 2022.
- Total liabilities were $61,269 and shareholders’ equity was $68,343. The company reported compliance with Wells Fargo loan covenants at quarter-end.
Changes, outlook and risks
- Property, plant and equipment increased to $59,385 from $54,346 at the fiscal-year end, alongside substantial spending on projects and equipment for the Chicago facility.
- Management said its financial position and capital resources were sufficient for operating needs and capital expenditures for the remainder of FY2020. No numerical earnings or sales guidance was provided. The filing cautions that interim results may not indicate full-year results, including because of seasonality.
- After quarter-end, the company entered a fourth Wells Fargo equipment-financing agreement on March 5, 2020 for $7,500, expected to be received during Q2 FY2020.
- The company identified commodity, labor, employee-benefit, customer-concentration, and operating risks. Wal-Mart represented 36.4% of quarterly sales and 34.2% of receivables; Dollar General represented 21.3% of receivables. The company does not hedge commodity exposure.
- Management was monitoring the coronavirus outbreak and possible supply-chain and labor effects. It did not expect a material adverse effect at the time of filing but stated the ultimate impact was uncertain.
- Ordinary-course legal claims were not expected by management to materially affect financial position or results. No significant flour purchase contracts remained unfulfilled at quarter-end. No material changes to previously disclosed risk factors were reported.
- Management reported disclosure controls effective and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Track whether Snack Food volume growth and Frozen Food volume trends persist, and whether pricing and commodity costs stabilize gross margin.
- Monitor operating cash generation, the 72-day cash conversion cycle, receivables and cash levels, especially given the quarter’s operating cash outflow.
- Verify the timing, use and repayment terms of the additional $7,500 equipment financing and the company’s ongoing revolving-credit borrowings.
- Assess concentration exposure to Wal-Mart and Dollar General, and any realized effects from meat and other input costs, labor costs, or coronavirus-related disruptions.
- Consider the $403 life-insurance gain when evaluating reported earnings; it was non-taxable and tied to underlying equity performance.