B&G Foods, Inc. — Q3 2022 Form 10-Q
Reporting period: Thirteen and thirty-nine weeks ended October 1, 2022; filed November 9, 2022. Fiscal 2022 has 52 weeks. B&G Foods manufactures and distributes branded shelf-stable and frozen foods and household products in the U.S., Canada and Puerto Rico.
Financial performance
| Metric | Q3 2022 | Q3 2021 | First 39 weeks 2022 | First 39 weeks 2021 |
|---|---|---|---|---|
| Net sales | $528.4 million | $515.0 million | $1,539.8 million | $1,484.5 million |
| Gross profit / margin | $105.8 million / 20.0% | $105.7 million / 20.5% | $283.5 million / 18.4% | $335.0 million / 22.6% |
| Operating income (loss) | $(50.8) million | $53.9 million | $32.5 million | $175.0 million |
| Net income (loss) | $(59.6) million | $20.7 million | $(35.7) million | $72.2 million |
| Diluted EPS | $(0.83) | $0.32 | $(0.51) | $1.10 |
| Adjusted EBITDA (non-GAAP) | $80.2 million | $96.2 million | $207.3 million | $272.9 million |
Sales growth reflected higher pricing and favorable mix, partly offset by lower unit volumes from price elasticity and supply-chain challenges. For the first 39 weeks, pricing and mix added $132.2 million to base-business sales, while unit volume declined $74.5 million and foreign currency reduced sales by $1.9 million. Crisco sales increased; Green Giant shelf-stable and spices and seasonings declined.
Gross margin pressure reflected higher raw-material and transportation costs. Q3 operating loss included a $103.6 million non-cash impairment related to the planned Back to Nature divestiture. Adjusted net income was $22.3 million, or $0.31 per diluted share, in Q3 and $47.3 million, or $0.67 per diluted share, for the first 39 weeks; these are non-GAAP measures and exclude specified items.
Cash flow, debt and liquidity
- Operating cash flow was $(48.4) million for the first 39 weeks, versus $12.8 million provided a year earlier. The filing cites lower gross profit and working-capital effects, including a $206.7 million cash use from inventory growth.
- Investing cash use was $34.3 million, including $27.3 million for the Yuma acquisition; financing provided $109.4 million, including net revolving-credit borrowings and $65.2 million of net common-stock proceeds. Cash ended at $60.1 million.
- Long-term debt, net, was $2.418 billion; cash-adjusted debt was approximately $2.358 billion. Revolver borrowings were $312.5 million, with $482.7 million of available capacity after letters of credit. Net interest expense was $31.9 million in Q3 and $88.6 million year to date.
- Variable-rate debt was $984.1 million. The company estimated a 1 percentage-point rate change would affect annual interest expense by approximately $9.8 million. It reported compliance with debt covenants at quarter-end; the maximum consolidated leverage covenant was temporarily raised to 8.0x through the quarter ending September 30, 2023. The filing does not provide a clear actual covenant leverage ratio.
- Inventories rose to $805.2 million from $609.8 million at fiscal 2021 year-end. Current assets were $1.149 billion and current liabilities $351.0 million.
Material changes, outlook and risks
- Back to Nature was classified as held for sale following the decision to divest it as non-core. Assets initially totaling $157.9 million were written down by $103.6 million; remaining assets held for sale were $54.2 million. The filing does not state completed-sale proceeds or a closing date.
- The Yuma frozen-vegetable operations acquisition closed May 5, 2022 for $27.3 million. Purchase accounting remained preliminary, with finalization expected in fiscal 2023.
- Management anticipated continued significant input-cost and freight inflation through the rest of fiscal 2022 and into fiscal 2023. Price increases and cost-saving actions had not fully offset inflation; pricing may lag cost increases. The company said most significant raw-material supply and prices were locked in through the remainder of fiscal 2022.
- Management expected fiscal 2022 capital expenditures of about $35 million; $18.6 million had been incurred in the first 39 weeks. It stated cash, operating cash flows and available revolver capacity were expected to fund foreseeable needs, debt service, capital spending, potential acquisitions and dividends.
- The intended annual dividend rate was cut from $1.90 to $0.76 per share beginning with the dividend declared November 8, 2022, payable January 30, 2023. The company estimated fiscal 2023 aggregate dividends of about $54.5 million. First-39-week dividends paid were $99.3 million, despite negative operating cash flow.
- Key risks include substantial leverage and higher variable-rate interest costs; commodity, packaging, labor and freight inflation; supply-chain disruption and price elasticity; customer concentration (Walmart represented 27.6% of year-to-date sales); and foreign-exchange exposure. The Cincinnati facility’s collective bargaining agreement covering about 120 employees was due to expire April 30, 2023. Management did not expect pending ordinary-course litigation or environmental matters to have a material adverse effect.
Most important facts for investors to verify
- Whether pricing and cost savings can recover gross margin as inflation, freight costs and volume declines continue.
- Back to Nature sale timing and proceeds relative to the $54.2 million carrying value after impairment.
- Debt covenant headroom, refinancing needs and the effect of variable rates on cash interest and liquidity.
- Working-capital requirements, particularly whether elevated inventories convert to sales and cash.
- Whether reduced dividends, operating cash generation and available borrowing capacity support capital needs without further dilution or increased debt.