B&G Foods, Inc. — Fiscal 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011 (52 weeks); filed February 28, 2012. This is an annual report, not a stand-alone fourth-quarter filing. B&G Foods manufactures and distributes branded shelf-stable food and household products.
Financial performance
| Metric | Fiscal 2011 | Fiscal 2010 | Change |
|---|---|---|---|
| Net sales | $543.9 million | $513.3 million | Up 6.0% |
| Gross profit / margin | $177.8 million / 32.7% | $167.7 million / 32.7% | Gross profit up 6.0%; margin unchanged |
| Operating income / margin | $113.5 million / 20.9% | $104.7 million / 20.4% | Up 8.4% |
| Net income / net margin | $50.2 million / 9.2% | $32.4 million / 6.3% | Up 55.2% |
| Diluted EPS | $1.04 | $0.67 | Up 55.2% |
| Cash from operations | $72.0 million | $98.9 million | Down $26.8 million |
| Capital expenditures | $10.6 million | $11.0 million | Down $0.4 million |
| Cash and cash equivalents, year-end | $16.7 million | $98.7 million | Down $82.0 million |
| Total debt, face amount | $725.0 million | $480.0 million | Up $245.0 million |
- Sales growth reflected $29.6 million of unit-volume gains and $1.7 million of pricing gains, partly offset by higher coupon and slotting costs. The Don Pepino and Sclafani brands contributed $12.5 million to the increase; the November 2011 Culver Specialty Brands acquisition contributed $6.5 million.
- Gross margin held at 32.7% as pricing and a mix shift toward higher-margin products were offset by higher input and distribution costs. Operating margin improved as SG&A declined to 10.6% of sales from 11.0%.
- Net income benefited from higher operating income, lower interest expense and no debt-extinguishment loss (versus $15.2 million in 2010). Fiscal 2011 interest expense was $36.7 million, down from $40.3 million; income tax expense rose to $26.6 million from $16.8 million.
- Operating cash flow declined mainly because of the $12.4 million interest-rate-swap termination payment, acquisition-related working capital and increased inventory. Investing cash use was $336.6 million, including $326.0 million for the Culver acquisition.
- Fiscal fourth-quarter sales were $150.0 million versus $141.9 million; gross profit was $49.3 million versus $47.1 million. Fourth-quarter net income was $12.3 million versus $14.3 million, and diluted EPS was $0.25 versus $0.29.
Acquisition, debt and liquidity
- On November 30, 2011, B&G acquired Mrs. Dash, Sugar Twin, Baker’s Joy, Molly McButter, Static Guard and Kleen Guard from Unilever for $326.0 million in cash. The preliminary purchase-price allocation included $278.4 million of indefinite-lived trademarks, $30.8 million of customer-relationship intangibles and $9.1 million of goodwill; allocation procedures were expected to be completed in the second quarter of 2012.
- The acquisition was financed in part through a new credit agreement: $150.0 million of Tranche A loans, $225.0 million of Tranche B loans and a $200.0 million revolving facility. At year-end, revolver borrowings were repaid and available capacity, net of letters of credit, was $199.5 million.
- Year-end debt was $725.0 million face value ($720.1 million carrying value, net of discounts); cash was $16.7 million, giving net debt of approximately $708.3 million on a face-value basis. Stockholders’ equity was $235.5 million. Management reported compliance with debt covenants at year-end. The credit agreement includes leverage and interest-coverage tests and restricts dividends and other payments.
- Management said cash, operating cash flow and available revolver capacity should fund operations, debt service, capital spending, potential acquisitions and anticipated dividends for the foreseeable future. This assessment is subject to execution, market and covenant risks.
Outlook, risks and other matters
- Management expected significant market-wide raw-material cost increases in 2012, but said it had locked in supply and pricing for most major commodities other than maple syrup, at an expected increase below 2% of projected 2012 cost of goods sold. Management expected pricing actions and savings to offset inflation; results depend on its ability to execute and on competitive conditions.
- Expected 2012 capital expenditures were approximately $12.0 million and defined-benefit pension contributions approximately $4.2 million. B&G expected to benefit from tax amortization deductions on approximately $531.1 million of acquired intangibles through 2026.
- The board raised the intended quarterly dividend from $0.23 to $0.27 per share, or $1.08 annualized, beginning with the dividend payable April 30, 2012. The company estimated 2012 aggregate dividends of approximately $50.2 million. Dividends are discretionary and constrained by debt covenants and cash needs.
- Principal risks include substantial leverage and floating-rate exposure; commodity, packaging, labor and distribution cost inflation; customer and retailer concentration (Wal-Mart represented 17.5% of 2011 sales); competitive pricing and private-label pressure; acquisition integration and valuation; reliance on co-packers; food safety, regulatory and product-liability exposure; Canadian-dollar costs for maple syrup; pension underfunding; and Portland labor negotiations for an agreement due to expire April 28, 2012.
- The company reported no material pending legal claims expected by management to adversely affect its financial position or results, and no material environmental compliance expenditures in the last three fiscal years. No goodwill or indefinite-lived intangible impairment was recorded in 2011. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Key investor verification points
- Track the acquired brands’ sales, profitability, integration costs and final purchase-price allocation; reported 2011 contribution covered only the final month.
- Assess operating cash-flow conversion, inventory growth and the sustainability of dividends relative to cash generation, capital needs and debt service.
- Monitor leverage and covenant headroom following the acquisition, including variable-rate exposure and refinancing needs.
- Test whether pricing and cost savings can offset 2012 commodity inflation, especially maple syrup, without weakening volumes or margins.
- Follow the Portland labor negotiations, pension funding position and customer concentration.