Bridgford Foods Corporation — Q1 FY2021 Form 10-Q
Business context and reporting period. The filing covers the 12 weeks ended January 22, 2021, compared with the 12 weeks ended January 24, 2020. Bridgford operates Frozen Food Products and Snack Food Products businesses. Amounts below are in thousands of dollars unless otherwise noted.
Financial performance and liquidity
| Metric | 12 weeks ended Jan. 22, 2021 | Prior comparable period | Change |
|---|---|---|---|
| Net sales | $54,693 | $46,642 | +17.3% |
| Gross profit / margin | $14,551 / 26.6% | $15,054 / 32.3% | Profit −3.3%; margin −5.7 percentage points |
| Operating income | $649 | $2,109 | −69.2% |
| Net income | $1,464 | $1,859 | −21.2% |
| Basic earnings per share | $0.16 | $0.20 | −20.0% |
| Operating cash flow | $4,793 | $(3,989) | Improved by $8,782 |
| Capital expenditures | $3,148 | $6,174 | −49.0% |
- Sales growth was driven by Snack Food Products, whose sales rose 28.7% to $45,429; Frozen Food Products sales fell 18.4% to $9,264.
- Cost of products sold increased 27.1%, faster than sales. Management cited higher meat commodity costs, production challenges, and higher depreciation. SG&A increased 7.9% to $13,976.
- Net income included $1,525 of cash surrender value gain, compared with $403 in the prior period. Interest expense was $317 versus $63.
- At January 22, cash and cash equivalents were $7,066 and restricted cash was $900. Working capital was $37,867; current assets were $66,903 and current liabilities $29,036.
- Equipment notes payable totaled $28,029, including $4,471 current; the company also had $2,000 outstanding on its revolving credit line. Total liabilities were $83,899. The company reported compliance with its credit covenants.
- Cash increased by $2,539, to $7,966 including restricted cash, from operating cash flow and financing activity, partly offset by capital expenditures. Operating cash flow benefited from lower accounts receivable; Walmart’s accelerated payments reduced the cash conversion cycle to 47 days from 72 days.
Material changes and management commentary
- COVID-19 shifted demand from foodservice to retail. Snack Food Products benefited from increased retail and direct-store-delivery demand; Frozen Food Products experienced lower institutional and foodservice volumes, which retail growth did not offset.
- Management cited temporary production idling, worker absenteeism, lower productivity, and higher production costs. The company expected these challenges and commodity-cost volatility to continue in the near term.
- Management expected consolidated profitability for the remainder of FY2021, but said commodity costs, operational challenges, and volume impacts would likely weigh on earnings. It anticipated sufficient liquidity to operate and complete the major Chicago plant expansion.
- On February 15, 2021, after period-end, the Wells Fargo revolving credit commitment was increased from $7,500 to $15,000; it expires March 1, 2022. The $2,000 balance outstanding at January 22 remained outstanding.
- A proposed sale of the Chicago property for $60,000 remains conditional on zoning and other approvals. The agreement was amended to extend inspection, zoning, and closing deadlines; the latest stated closing deadline was December 1, 2021. The sale had not closed as of the filing.
Risks, contingencies, and unusual items
- Key uncertainties include pandemic-related demand shifts, production interruptions and labor availability, supply-chain constraints, commodity prices, customer collections, and potential inventory or long-lived-asset impairments.
- Walmart represented 36.5% of sales; Dollar General represented 13.7%. Dollar General accounted for 24.1% of accounts receivable. Walmart’s receivable share was 7.3%, following accelerated payments.
- The company reported ordinary-course legal claims that management did not expect to materially adversely affect its financial position or results. It also disclosed potential multiemployer pension withdrawal liability and estimates for self-insured benefits.
- The CARES Act payroll-tax deferral was approximately $1,511 at January 22, 2021. The filing also describes tax-loss carrybacks and available federal and state net operating loss carryforwards.
- No significant flour purchase contracts remained unfulfilled at quarter-end; the company does not use commodity futures or hedging.
Important facts for investors to verify
- Whether retail and Snack Food Products demand can persist, and whether Frozen Food Products foodservice volumes recover.
- Whether gross margins stabilize as commodity costs, production efficiency, and product mix change.
- Cash generation, receivable collections, debt repayment, and liquidity after the credit-line increase and Chicago expansion spending.
- Whether the conditional $60,000 property sale receives required approvals and closes on the amended timetable.
- The effects of COVID-19, tax refunds and payroll-tax deferrals, pension and self-insurance estimates, and customer concentration on future results.