B&G Foods, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended July 2, 2022 (13 and 26 weeks, respectively). Filed August 4, 2022. Unaudited results; comparisons are with the periods ended July 3, 2021. Amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Net sales | $479.0 | $464.4 | $1,011.4 | $969.5 |
| Gross profit / margin | $76.5 / 16.0% | $111.6 / 24.0% | $177.8 / 17.6% | $229.4 / 23.7% |
| Operating income / margin | $26.9 / 5.6% | $59.1 / 12.7% | $83.3 / 8.2% | $121.1 / 12.5% |
| Net income | $0.3 | $24.6 | $23.9 | $51.4 |
| Diluted EPS | $0.00* | $0.38 | $0.34 | $0.79 |
| Operating cash flow | $(4.1) | $39.9 | $21.1 | $66.0 |
| Adjusted EBITDA (non-GAAP) | $54.1 | $83.8 | $127.1 | $176.7 |
*The filing displays Q2 2022 diluted EPS as a dash; net income and weighted-average shares imply an amount that rounds to $0.00 per share.
- Q2 sales rose 3.1%; first-half sales rose 4.3%. Pricing and product mix added $20.5 million in Q2 and $56.7 million in the first half, while unit volume fell $5.0 million and $13.2 million, respectively. Foreign currency reduced base-business sales by $0.8 million in the first half.
- Input-cost inflation, including raw materials and transportation, materially compressed gross margin. Selling, general and administrative expenses fell 6.1% in Q2 and 6.6% in the first half, but did not offset the gross-profit decline.
- Q2 net interest expense was $29.9 million, up 12.1%; first-half expense was $56.7 million, up 5.7%. Increases reflected higher borrowing costs, additional revolver borrowing and a $1.6 million credit-agreement amendment fee.
- First-half cash from operations fell to $21.1 million. Inventories increased $56.6 million from year-end. Investing cash outflow was $30.1 million, including $27.3 million for the Yuma acquisition; financing provided $18.5 million.
Balance sheet, debt and liquidity
- At July 2, cash was $43.0 million, inventory $667.7 million and current assets $916.8 million; current liabilities were $280.1 million.
- Long-term debt, net, was $2,292.1 million, versus $2,267.8 million at January 1. Net debt after cash was $2,249.1 million. Debt included $187.5 million on the revolver, $671.6 million of term loans due 2026, $900 million of 5.25% notes due 2025 and $550 million of 5.25% notes due 2027. Revolver availability was $607.3 million, net of letters of credit.
- Variable-rate debt was $859.1 million; management estimated a 1 percentage-point rate change would affect annual interest expense by about $8.6 million.
- The company amended its credit agreement to temporarily raise the maximum leverage covenant: 7.5x for Q2 2022, 8.0x from Q3 2022 through Q3 2023, then stepping down to 7.0x from Q1 2024. It reported compliance with covenants at quarter-end.
- Cash dividends paid in the first half were $65.3 million, compared with $21.1 million of operating cash flow. The quarterly dividend remained $0.475 per share; management estimated fiscal 2022 dividends of approximately $133.4 million at the then-current rate and share count.
Material changes, outlook and risks
- On May 5, 2022, B&G acquired Growers Express’s frozen-vegetable operations (Yuma) for $27.3 million, adding assets, leases and approximately 160 employees. The purchase-price allocation remained preliminary.
- The Portland, Maine facility sale closed in Q1 2022. The company recorded a $7.1 million gain, partly offset by approximately $2.2 million of closure and transition costs. It also has a $13.7 million liability for multi-employer pension withdrawal payments, payable over 20 years at approximately $0.9 million annually.
- Management expected sales to remain elevated relative to pre-pandemic 2019 levels through the rest of 2022. It anticipated further significant input-cost and freight inflation through the remainder of 2022 and into 2023; announced price increases and cost savings had not fully offset inflation, and pricing may lag rising costs. The filing provides no clear quantitative full-year revenue or earnings guidance.
- Management expected approximately $40 million of 2022 capital expenditures. It stated that cash, operating cash flow and available revolver capacity should be sufficient for foreseeable needs, including debt service, capital spending, acquisitions and dividends; this depends on operating results and access to financing.
- Key risks include substantial leverage and interest-rate exposure; commodity, packaging, freight and labor inflation; supply-chain disruptions and labor shortages; the war in Ukraine and COVID-19 effects; limits on passing costs through to customers; customer concentration (Walmart was about 28.9% of first-half sales and 32.0% of receivables); currency exposure; and potential brand or goodwill impairment. The company reported ordinary-course legal claims and did not expect currently pending matters to have a material adverse effect.
- The company sold 2.74 million shares through its ATM program in Q2 for $63.2 million gross proceeds, increasing shares outstanding and providing cash used in part to repay revolver borrowings and for general corporate purposes.
Important facts for investors to verify
- Whether further pricing and cost actions can recover gross margin as inflation and freight costs continue.
- Cash conversion, inventory levels and the ability to fund dividends, capital spending and debt service without further equity issuance or borrowing.
- Leverage-covenant headroom and compliance as the temporarily elevated maximum ratio steps down.
- Yuma integration, final purchase accounting and realized operating contribution; Portland transition costs and pension withdrawal obligations.
- Ongoing share issuance under the ATM program, dividend sustainability and any subsequent changes to full-year expectations.