B&G Foods, Inc. — Q2 2023 Form 10-Q
Reporting period: Second quarter (13 weeks) and first half (26 weeks) ended July 1, 2023; filed August 3, 2023. B&G Foods manufactures and distributes branded shelf-stable and frozen foods in the U.S., Canada and Puerto Rico.
Key financial results
Amounts in millions, except per-share data. Comparisons are with the corresponding 2022 periods.
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Net sales | $469.6 | $479.0 | $981.5 | $1,011.4 |
| Gross profit / margin | $102.3 / 21.8% | $76.5 / 16.0% | $216.5 / 22.1% | $177.8 / 17.6% |
| Operating income / margin | $49.2 / 10.5% | $26.9 / 5.6% | $111.4 / 11.3% | $83.3 / 8.2% |
| Net income | $10.6 | $0.3 | $14.0 | $23.9 |
| Diluted EPS | $0.15 | $0.00 | $0.19 | $0.34 |
| Net interest expense | $35.8 | $29.9 | $75.2 | $56.7 |
- Sales and margins: Q2 sales fell 1.9%; first-half sales fell 3.0%. Base-business sales were nearly flat in Q2 (+0.1%) and down 0.6% for the first half. Higher pricing and favorable mix were largely offset by lower unit volumes and currency effects. Management attributed stronger gross margins mainly to pricing catching up with input-cost inflation, moderating costs, and lower transportation and warehousing costs.
- Cash flow: First-half operating cash flow was $132.4 million, versus $21.1 million. Capital expenditures were $10.6 million cash-paid; cash from asset sales was $51.5 million. Cash ended at $42.8 million, versus $45.4 million at year-end 2022.
- Debt and liquidity: Long-term debt, net, was $2.246 billion; net debt after cash was approximately $2.203 billion. The company had $515.4 million of available revolver capacity, net of letters of credit. It repaid $121.0 million of term loans in Q1 and repurchased $24.4 million face value of 2025 notes in Q2. It reported compliance with credit-agreement covenants; the filing describes it as highly leveraged.
- Dividends: The declared quarterly dividend was $0.19 per share. The intended annual rate had been reduced from $1.90 to $0.76 per share; management estimated fiscal 2023 aggregate dividends of approximately $54.9 million. The board may change the policy.
Changes, outlook and risks
- The January 2023 sale of Back to Nature reduced comparable sales; the 2022 comparison also includes its sales. The Yuma frozen-vegetable acquisition affects comparability to a lesser extent. First-half 2023 net income included a $14.7 million tax expense impact from a valuation allowance related to the Back to Nature sale. First-half 2022 included a $7.1 million Portland facility-sale gain.
- Interest costs rose, primarily due to higher rates on variable-rate borrowings. A hypothetical 1 percentage-point rate change would affect annual interest expense by approximately $8.3 million, based on debt outstanding at quarter-end. The credit agreement transitioned LIBOR-based terms to SOFR effective July 1, 2023.
- Management expects cash on hand, operating cash flow and revolver capacity to be adequate for foreseeable operating, debt-service, capital-expenditure and dividend needs. Fiscal 2023 capital expenditures are expected to be $35–$40 million. No full-year revenue or earnings guidance is provided in the filing text.
- Management said key raw-material costs were expected to remain elevated in 2023, though most major commodity needs (excluding certain items, including oils) were priced or contracted through year-end, and most oil needs through Q3. Pricing increases may lag costs and competitive pressures may constrain further increases. A stronger Mexican peso—up nearly 14% against the U.S. dollar in the first half—hurt Green Giant frozen results.
- Other risks include substantial leverage, changing consumer demand and customer inventory levels, concentrated retail customers (Walmart accounted for about 29.7% of first-half sales), foreign-exchange exposure, supply-chain and labor disruptions, and potential impairment of goodwill or intangible assets. About 55% of employees were covered by collective bargaining agreements; two agreements were due to expire within 12 months. The company did not expect pending legal matters to have a material adverse effect.
Investor verification priorities
- Check whether pricing can continue to offset lower volumes and any renewed input-cost, freight or labor inflation.
- Monitor variable-rate debt, interest expense, covenant headroom and refinancing needs, particularly the $1.156 billion of contractual debt maturities in 2025.
- Assess the sustainability of operating cash flow and the dividend against debt reduction, capital spending and working-capital needs.
- Review the drivers of the first-half tax charge and the effect of the Back to Nature divestiture on ongoing earnings and comparisons.
- Track Green Giant performance, customer concentration, currency exposure and the scheduled labor-contract negotiations.