Bridgford Foods Corporation — Q1 FY2022 Form 10-Q
Reporting period: Twelve weeks ended January 21, 2022; comparative period ended January 22, 2021. Unaudited figures are in thousands of dollars, except per-share data, percentages, and where otherwise noted.
Business context and results
Bridgford processes and distributes frozen foods and snack foods. Net sales rose 17.2% to $64.086 million, driven by higher selling prices and a 3.1% increase in unit volume. Frozen Food Products sales grew 33.5% to $12.366 million, primarily as foodservice demand recovered; Snack Food Products sales grew 13.8% to $51.720 million, primarily from price increases despite lower unit volume.
| Metric | Q1 FY2022 | Prior-year quarter |
|---|---|---|
| Net sales | $64.086 million | $54.693 million |
| Gross margin | $16.393 million; 25.6% | $14.551 million; 26.6% |
| Operating income | $1.680 million | $0.649 million |
| Income before taxes | $0.373 million | $1.857 million |
| Net income / basic EPS | $0.307 million / $0.03 | $1.464 million / $0.16 |
| Operating cash flow | $(1.337) million | $4.793 million |
Cost of products sold increased 18.8% to $47.693 million, faster than sales, reducing gross margin by 1.0 percentage point. Commodity costs increased approximately $6.364 million year over year, including about $5.928 million for significant meat commodities and $0.436 million for purchased flour. SG&A increased 5.4% to $14.731 million. Net income declined substantially despite improved operating income, in part because cash surrender value of life insurance was a $1.010 million loss, versus a $1.525 million gain in the prior-year quarter; interest expense was $0.297 million.
Financial position, liquidity, and debt
At January 21, 2022, cash and cash equivalents were $1.832 million and restricted cash was $0.150 million. Working capital was approximately $49.961 million. Current assets totaled $77.043 million and current liabilities $27.082 million. Inventories were $39.233 million, up from $36.771 million at October 29, 2021; accounts receivable was $26.594 million.
Total debt was $40.453 million, including $16.000 million drawn on the revolving facility and $13.106 million on the bridge loan; $0.449 million was classified as current. Total debt increased from $37.069 million at fiscal year-end. The revolving facility was temporarily expanded to $25 million through June 15, 2022, then reverts to $15 million; the company reported $9 million available at January 21. The facility matures March 1, 2023. The bridge loan is due March 1, 2023, or earlier following closing of the contemplated property sale.
Operating cash use reflected working-capital demands, including a $3.226 million increase in receivables and a $2.462 million increase in inventories, partly offset by a $1.722 million increase in accounts payable. The cash conversion cycle increased to 72 days from 47 days. Investing cash use was $0.363 million, while financing provided $3.307 million. Capital expenditures were $0.381 million, compared with $3.148 million in the prior-year quarter.
Material changes and management outlook
- Management cited recovering foodservice demand, especially in frozen foods, while snack-food unit volume declined. Price increases supported sales, but did not fully offset higher input and operating costs.
- Management expects inflation in commodities, labor, freight, and materials to continue through the remainder of FY2022. The company cautioned that price increases may not be timely or sufficient to offset costs and could reduce demand.
- Management stated it expects sufficient liquidity for at least the next twelve months, considering operating cash generation and $6.091 million of income tax refunds due. It also said capital resources should cover operating needs and capital expenditures for the rest of FY2022. These are forward-looking statements, not guarantees.
- The company reported a $6.091 million refundable income tax asset. It also reported approximately $0.758 million of deferred employer Social Security taxes due December 31, 2022.
Risks, contingencies, and unusual items
- Debt covenant: The company failed the quarterly minimum net-income covenant requiring at least $0.500 million; it reported $0.307 million of net income. Wells Fargo subsequently waived the violation by letter dated March 2, 2022. The company said it complied with the other covenants.
- Chicago property sale: A subsidiary’s proposed sale of a Chicago property for $60 million remains contingent on zoning and other conditions. The closing timetable had been extended, with a stated closing date of April 29, 2022, subject to approvals and further terms. The filing reports $1.650 million in earnest money deposits through January 21, of which $1.500 million was non-refundable; additional extension payments were received after quarter-end. Proceeds are not assured until the transaction closes.
- COVID-19, supply, and labor: Management described continuing risks from channel shifts, worker availability, facility disruptions, and supply-chain and commodity volatility. The filing’s characterization of the quarter’s COVID-19 impact varies: an accounting note says the impact was minimal, while risk disclosures describe business disruptions and potential impacts.
- Customer concentration: Walmart represented 32.1% of sales and Dollar General 15.8%; Dollar General accounted for 40.6% of receivables. The company notes reliance on large customers and monitors their credit risk.
- Other exposures: The company maintains a $0.344 million inventory net-realizable-value reserve for certain meat products. It reported ordinary-course claims and legal actions that management does not expect to materially affect results. It does not hedge commodity exposure using futures.
Important facts for investors to verify
- Whether the $60 million Chicago property transaction receives approvals and closes, and the timing and net proceeds.
- Whether Bridgford sustains positive operating cash flow and manages the longer cash conversion cycle and inventory build.
- Whether product pricing keeps pace with commodity, labor, freight, and other cost inflation without materially weakening volumes.
- Debt balances, borrowing availability after the temporary revolver increase expires, and compliance with financial covenants after the waiver.
- Collection and concentration trends for major customers, particularly Dollar General receivables.
- The filing gives no specific sales or earnings guidance; assess management’s liquidity and FY2022 capital-resource statements as outlook rather than formal numerical guidance.