Bridgford Foods Corporation — Q1 FY2019 Form 10-Q
Reporting period: Twelve weeks ended January 25, 2019; comparisons are with the twelve weeks ended January 26, 2018. Dollar amounts are in thousands unless stated otherwise. The company processes and distributes frozen foods and snack foods.
Financial performance
- Net sales: $45,041, up $3,849 (9.3%) year over year. Management attributed the increase mainly to higher volume, with higher selling prices also contributing.
- Gross profit and margin: Gross margin was $15,654, up 12.1%; gross margin rate improved to 34.8% from 33.9%.
- Expenses and earnings: SG&A rose 10.2% to $13,087. Income before taxes increased to $2,567 from $2,095. Net income was $1,876, or $0.21 per share, compared with a net loss of $1,627, or $0.18 per share.
- Cash flow: Operating cash flow was $713, versus cash used of $1,240 a year earlier. Investing activities used $7,191, primarily for capital expenditures; financing provided $7,500 from equipment borrowing. Cash increased $1,022 to $9,201.
- Liquidity and debt: Current assets were $53,184 and current liabilities $18,408. The company had $7,500 of secured equipment debt ($944 current and $6,556 long-term); it did not draw on its separate $7,500 revolving line of credit. Total liabilities were $40,127 and shareholders’ equity was $67,556.
- Capital spending: Property, plant and equipment additions were $7,191, including $7,004 in projects in process, principally associated with the new Chicago processing facility.
Segment results and changes
- Snack Food Products: Sales rose 8.4% to $33,169; segment income before taxes was $2,457. Growth reflected new products, including smokehouse sausage sticks, and higher direct-store-delivery sales. Returns were higher and warehouse shipments declined.
- Frozen Food Products: Sales rose 12.1% to $11,872; segment income before taxes was $110. Higher shelf-stable sandwich volume drove growth, while retail sales volume declined 14%.
- Consolidated sales growth included an 8.6% contribution from unit volume and 1.6% from selling price, partly offset by returns and promotional activity. Meat commodity costs declined, while higher wages, profit-sharing accruals, advertising, and repairs and maintenance increased costs.
- The prior-year quarter included a $3,200 deferred income tax expense related to the Tax Cuts and Jobs Act and a $1,640 tax expense associated with a land-sale gain. The reported prior-year effective tax rate was 177.68%, versus 26.91% this quarter; this makes the net-income comparison unusually affected by prior-period tax items.
Outlook, risks and other notable matters
- No quantified revenue or earnings guidance was provided. Management stated that financial position and capital resources were sufficient for operating needs and capital expenditures through the remainder of FY2019.
- The company borrowed $7,500 at a fixed 4.13% rate for seven years to finance equipment for its Chicago facility. It reported compliance with the equipment-loan and revolving-credit covenants at quarter-end.
- Management reported a 57-day cash conversion cycle, compared with 67 days in the prior-year quarter, and expected positive first-quarter operating cash flow historically from seasonal liquidation of inventory and receivables.
- Key exposures include commodity and labor costs, customer concentration, pension and employee-benefit estimates, and execution of capital projects. Wal-Mart represented 35.6% of sales and 33.4% of receivables; Dollar General represented 9.7% of sales and 23.6% of receivables. The company does not hedge commodity exposure.
- Ordinary-course legal matters were not expected by management to materially affect financial position or results. No material changes to previously disclosed risk factors were reported. Management said disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Progress, timing, total cost, and expected operating benefits of the Chicago facility project, along with remaining financing needs.
- Whether sales-volume growth and improved gross margin are sustainable, particularly given higher SG&A and the decline in frozen-food retail volume.
- Customer concentration and the potential effect of changes in purchasing, payment behavior, or commercial terms at major customers.
- Future cash generation and capital spending, including the effects of commodity, labor, and pension-related costs.
- Share-count disclosures: the balance sheet reports 9,078,832 issued and outstanding shares, while the filing reports 9,076,832 shares for EPS and outstanding as of March 8, 2019.