Bridgford Foods Corporation — Form 10-Q Summary
Reporting period: Second quarter and first 24 weeks of fiscal 2017, ended April 14, 2017. Comparative periods ended April 15, 2016. Financial statement amounts are in thousands of dollars unless stated otherwise. The company operates Frozen Food Products and Snack Food Products segments. Interim results may not indicate full-year performance.
Financial performance
| Metric | 12 weeks ended Apr. 14, 2017 | 12 weeks ended Apr. 15, 2016 | 24 weeks ended Apr. 14, 2017 | 24 weeks ended Apr. 15, 2016 |
|---|---|---|---|---|
| Net sales | $34,097 | $31,145 | $74,178 | $67,301 |
| Gross margin | $12,957; 38.0% | $12,231; 39.3% | $27,872; 37.6% | $26,010; 38.6% |
| Income before taxes | $2,029 | $2,471 | $5,479 | $5,572 |
| Net income | $1,315 | $1,492 | $3,789 | $3,364 |
| Basic and diluted EPS | $0.15 | $0.16 | $0.42 | $0.37 |
- Sales and segments: Second-quarter sales rose 9.5%, driven by 17.2% higher unit volume, partly offset by lower selling prices and promotional activity. Snack Food sales rose 16.5% to $23,280; Frozen Food sales fell 3.0% to $10,817. For the first 24 weeks, sales rose 10.2%; Snack Food increased 15.6% to $51,647 while Frozen Food decreased 0.5% to $22,531.
- Margins and expenses: Gross margin percentage declined in both comparison periods. Management cited lower selling prices, product mix, and higher costs associated with volume, freight, utilities, pension, workers’ compensation, advertising, and compensation. SG&A rose 12.0% in the quarter and 9.6% year to date.
- Cash flow: Operating cash flow was $14,180 for the first 24 weeks, versus $5,540 a year earlier. The improvement primarily reflected receivables collections and inventory reduction; working-capital changes provided $9,119. Investing outflow was $7,556, including $7,584 of property and equipment additions. Financing outflow was $68. Cash increased by $6,556 to $13,541.
- Balance sheet and liquidity: At April 14, cash was $13,541, current assets $47,378, current liabilities $13,468, total assets $92,601, and total liabilities $49,903. The company reported no borrowings on its Wells Fargo line of credit; it describes itself as generally free of interest-bearing debt other than capital leases. Remaining capital-lease obligation was $485. Shareholders’ equity was $42,698.
Material changes and notable items
- Quarterly net income declined to $1,315 from $1,492 despite higher sales; year-to-date net income increased to $3,789 from $3,364. Lower quarterly pretax income and a lower tax provision contributed to the differing trends.
- Year-to-date capital expenditures rose to $7,584 from $1,015, including approximately $5.6 million for a Chicago-area facility. The company expects to spend approximately $2.0 million on improvements before occupying it in the latter part of fiscal 2017. Chicago zoning approval was obtained in January 2017.
- Year-to-date net income included a $429 non-taxable gain on life insurance policies, compared with an $84 non-taxable loss in the prior-year period. Quarterly results included respective gains of $150 and $238. Management cautions that these gains and losses may vary with underlying investment performance.
- Wal-Mart represented 38.0% of year-to-date sales and 38.8% of receivables, versus 39.1% and 45.7%, respectively, in the prior-year period. No other customer exceeded the stated concentration thresholds.
Outlook, risks, and contingencies
- Management stated that cash resources and capital resources were sufficient for operating needs and capital expenditures for the remainder of fiscal 2017; no specific earnings or revenue guidance was provided.
- The $7.5 million Wells Fargo credit facility expires March 1, 2018. The company violated its capital-expenditure covenant at April 14, 2017; the violation was waived by letter dated May 10, 2017. It reported compliance with the other covenants and no fiscal 2017 borrowings.
- Risks discussed include commodity, labor, employee-benefit and pension costs; customer concentration; competition and pricing; and execution of operating initiatives and construction schedules. The company does not hedge commodity exposure and buys most flour at market prices. Management reported no material changes to the risk factors in its latest Form 10-K.
- The company participates in multiemployer pension plans and may incur withdrawal liability if it ceases participation. It is also involved in ordinary-course claims and legal actions; management does not expect their disposition to materially adversely affect financial position or results.
- The company’s stated effective tax rate was 30.8% for the 24-week period, with domestic production activities deductions among the cited drivers. Management noted uncertainty about possible future changes to health-care law requirements.
Important facts for investors to verify
- Whether higher Snack Food volumes can be sustained without continued selling-price pressure and gross-margin erosion.
- The Chicago facility’s improvement costs, completion and occupancy timing, and expected operating or financial benefits.
- The effect of customer concentration, particularly Wal-Mart’s share of sales and receivables.
- Compliance with the credit facility’s covenants following the capital-expenditure waiver, and the company’s liquidity after planned capital spending.
- The sensitivity of pension costs, insurance-policy gains and losses, and commodity and labor costs to changing market conditions.