B&G Foods, Inc. — Q1 2022 Form 10-Q
Reporting period: Thirteen weeks ended April 2, 2022, compared with the thirteen weeks ended April 3, 2021. Filed May 5, 2022. B&G Foods manufactures and distributes branded shelf-stable and frozen foods and household products in the U.S., Canada and Puerto Rico.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $532.4 million | $505.1 million | Up 5.4% |
| Gross profit / margin | $101.3 million / 19.0% | $117.8 million / 23.3% | Margin down 4.3 percentage points |
| Operating income | $56.3 million | $62.0 million | Down 9.1% |
| Net income | $23.7 million | $26.9 million | Down 12.0% |
| Diluted EPS | $0.34 | $0.41 | Down $0.07 |
| Net cash from operations | $25.2 million | $26.0 million | Down $0.8 million |
Sales growth reflected pricing, lower trade promotions and product mix, partially offset by volume declines. Base-business sales rose 5.6%; pricing and mix contributed $36.2 million, while unit volume declined $8.2 million. Gross profit was pressured by raw-material and transportation inflation. SG&A fell 7.0%, primarily reflecting lower acquisition-related and non-recurring costs.
Q1 operating cash flow was slightly below the $32.5 million of dividends paid. Capital expenditures were $7.1 million cash-paid; full-year 2022 capital expenditures were expected to be approximately $50 million. Cash and equivalents were $41.5 million at quarter-end. Long-term debt, net, was $2.281 billion; management reported net debt of $2.240 billion. Revolving-credit availability, net of letters of credit, was $617.9 million. The company reported compliance with its debt covenants.
The quarterly dividend declared was $0.475 per share. At the current annual rate of $1.90 per share, management estimated fiscal 2022 dividends of approximately $130.8 million. Stockholders’ equity was $914.0 million.
Material changes and notable items
- The Portland, Maine facility sale and related equipment sales generated $11.1 million in proceeds and a $7.1 million gain. The quarter also included approximately $2.2 million of closure and manufacturing-transfer costs.
- Net sales of Crisco rose $21.0 million, while Spices & Seasonings sales fell $13.3 million. Walmart represented 28.1% of quarterly sales, versus 29.0% a year earlier.
- Net borrowings under the revolving facility increased during the quarter. The company also sold 112,353 shares through its at-the-market program for $3.3 million gross proceeds. Its stock repurchase authorization expired March 15, 2022.
- On May 5, 2022, after quarter-end, B&G Foods acquired Growers Express frozen-vegetable manufacturing operations and repurchased certain Green Giant Fresh licensing rights. The acquisition was funded with cash and revolving loans.
Outlook, risks and contingencies
Management expected sales to remain above pre-pandemic fiscal 2019 levels through the remainder of 2022. It also anticipated further input-cost and freight inflation through the rest of fiscal 2022 and into fiscal 2023. Price increases and reduced promotional spending were being used to offset costs, but management said these actions had not fully offset inflation and may not do so. Pricing increases may lag cost increases, and higher prices may contribute to volume declines.
Key risks include the war in Ukraine, COVID-19 and supply-chain disruption, labor shortages, commodity and freight inflation, substantial leverage, interest-rate exposure, competition, changing consumer preferences, customer concentration, foreign-exchange movements and the ability to pass through cost increases. A hypothetical 1% interest-rate change was estimated to affect annual interest expense by approximately $8.5 million. Management also cited an expected annual cash-tax increase of approximately $14 million beginning in fiscal 2022 from limits on interest deductions.
The company reported no material expected adverse effect from currently pending legal claims or existing environmental compliance matters. Approximately 61.5% of employees were covered by collective bargaining agreements; one agreement covering about 120 Cincinnati employees was due to expire April 30, 2023. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether pricing actions and cost savings can keep pace with continued input, freight and labor inflation, and the related effect on volume and gross margin.
- Whether operating cash generation can support debt service, capital spending and dividends, given Q1 operating cash flow was below dividends paid.
- Debt and covenant capacity, including the effect of variable rates and the 2025–2027 maturities; the filing reports covenant compliance but does not provide a clear current covenant ratio or headroom value in the supplied text.
- The operating and financing effects of the post-quarter Growers Express acquisition and integration.
- Exposure to Walmart and other major customers, and progress on the Portland facility transition and associated costs.