B&G Foods, Inc. — Q2 2021 Form 10-Q
Reporting period: Thirteen weeks ended July 3, 2021; filed August 5, 2021. Comparatives are the thirteen weeks ended June 27, 2020. Year-to-date figures cover 26 weeks. B&G Foods manufactures and distributes branded shelf-stable and frozen foods in the U.S., Canada and Puerto Rico. Results include the Crisco business, acquired December 1, 2020; Crisco contributed $58.4 million of Q2 and $116.5 million of first-half 2021 sales.
Financial highlights
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $464.4 million | $512.5 million | $969.5 million | $961.9 million |
| Gross profit / margin | $111.6 million / 24.0% | $134.1 million / 26.2% | $229.4 million / 23.7% | $239.0 million / 24.8% |
| Operating income / margin | $59.1 million / 12.7% | $85.0 million / 16.6% | $121.1 million / 12.5% | $145.2 million / 15.1% |
| Net income | $24.6 million | $44.9 million | $51.4 million | $73.0 million |
| Diluted EPS | $0.38 | $0.70 | $0.79 | $1.14 |
| Net interest expense | $26.7 million | $24.8 million | $53.7 million | $50.9 million |
| Cash provided by operating activities | Not separately stated | Not separately stated | $66.0 million | $246.4 million |
First-half capital expenditures were $22.3 million, including $19.8 million paid in cash. First-half cash dividends paid were $61.3 million; declared dividends were $0.475 per share in each quarter.
Balance sheet and liquidity
- At July 3, 2021, cash was $40.3 million, inventory $533.6 million and total current assets $750.2 million. Current liabilities were $218.4 million.
- Long-term debt, net of financing costs and discounts, was $2.326 billion; management reported debt net of cash of $2.286 billion. Debt includes $225 million drawn on the revolver, $671.6 million of term loans, and $1.45 billion of senior notes. Available revolver capacity, net of letters of credit, was $570.1 million.
- The company was in compliance with its credit agreement and senior-note covenants at quarter-end. Its credit agreement sets a maximum consolidated leverage ratio of 7.00:1.00 and minimum interest coverage ratio of 1.75:1.00.
- Management said cash, operating cash flow and available borrowing capacity should be sufficient for foreseeable needs, including debt service, capital spending, acquisitions and anticipated dividends. This is subject to operating performance and access to financing.
Changes versus comparable periods
- Q2 sales fell 9.4%; first-half sales edged up 0.8%, with the Crisco acquisition substantially offsetting lower base-business sales. Base-business sales declined 20.8% in Q2 and 11.3% for the first half year over year, reflecting comparison with exceptional pandemic-related demand and pantry loading in 2020.
- Despite the year-over-year decline, Q2 sales were 25.1% above Q2 2019; first-half sales were 23.7% above the comparable 2019 period. Base-business sales were also above 2019 levels: 7.1% for Q2 and 5.5% for the first half.
- Profitability weakened: Q2 operating income declined 30.5% and first-half operating income declined 16.6%. Higher input and freight costs, lower volumes against pandemic-driven comparisons, and higher SG&A contributed. Increased average debt following the Crisco acquisition raised interest expense.
- Green Giant sales were particularly affected by both the 2020 demand comparison and supply constraints; the company allocated certain products to customers pending the new pack season. Crisco added $116.5 million of first-half sales.
- First-half operating cash flow fell $180.4 million year over year, primarily due to less favorable working-capital movements, lower net income and higher incentive-compensation payments. Inventory increased to $533.6 million from $492.8 million at fiscal year-end.
Outlook, risks and unusual items
- Management expected sales to remain elevated versus pre-pandemic fiscal 2019 levels through the rest of 2021, while anticipating full-year base-business sales to decline year over year against exceptional 2020 demand. No specific full-year revenue or earnings guidance is provided in the supplied filing text.
- Management anticipated materially higher input-cost inflation in the second half of 2021 than in the second half of 2020, with inflation continuing into 2022. It had announced list-price increases, reduced some trade promotions, locked in prices for many key commodities through the remainder of 2021, and pursued cost savings; it did not expect these actions to fully offset fiscal 2021 cost increases. Price increases may lag inflation.
- Green Giant supply constraints were expected to affect sales through the early part of Q3 2021. COVID-19 effects remained uncertain, including supply-chain continuity, further outbreaks or variants, and changes in consumer behavior.
- Expected fiscal 2021 capital expenditures were approximately $50 million. At the current $1.90 annual dividend rate and share count, management estimated fiscal 2021 dividends of approximately $122.9 million; the board may change its dividend policy.
- Principal risks include substantial leverage, commodity and freight inflation, ability to pass through cost increases, supply disruptions, customer concentration, changing consumer preferences, acquisition integration, foreign exchange, interest rates, and food safety or product liability. Walmart represented 28.8% of first-half sales and 32.5% of receivables at July 3.
- The Bakery and Confectionery Union pension plan remained in critical and declining status. The company estimated a voluntary withdrawal liability of approximately $14.1 million, payable over 20 years; actual exposure could vary. The Portland, Maine collective bargaining agreement covering about 80 employees was scheduled to expire April 30, 2022.
- Legal claims arise in the ordinary course; management did not expect currently pending matters to materially affect financial position, results or liquidity. The Crisco purchase-price allocation remained preliminary, with finalization expected during fiscal 2021.
Key facts for investors to verify
- Whether pricing, cost savings and supply agreements can offset accelerating input and freight inflation, and the timing of price realization.
- Whether Green Giant supply constraints eased as expected and how normalized post-pandemic demand compares with 2019 levels.
- Operating cash flow and working-capital trends, particularly inventory, given first-half operating cash flow of $66.0 million versus $61.3 million of dividends paid.
- Debt, interest costs, covenant headroom and the company’s capacity to sustain dividends while funding capital expenditures and other needs.
- Final Crisco purchase accounting, integration progress, and the resolution of pension, labor and other contingencies.