Bridgford Foods Corporation — Q1 FY2015 Form 10-Q
Reporting period: Twelve weeks ended January 23, 2015; comparisons are with the twelve weeks ended January 24, 2014. Balance-sheet comparisons are with October 31, 2014. Dollar amounts below are in thousands unless noted. Interim results may not indicate full-year performance.
Financial results
| Metric | Q1 FY2015 | Prior-year period | Change |
|---|---|---|---|
| Net sales | $34,712 | $32,466 | Up $2,246, or 6.9% |
| Gross margin | $9,617; 27.7% | $10,268; 31.6% | Margin down 3.9 percentage points |
| SG&A | $9,150 | $10,021 | Down $871, or 8.7% |
| Income before taxes | $467 | $247 | Up $220 |
| Income tax provision | $0 | $13 | |
| Net income | $467 | $234 | Up $233 |
| Diluted and basic EPS | $0.05 | $0.03 | |
| Operating cash flow | $4,891 | $3,727 | Up $1,164 |
| Capital expenditures | $92 | $496 |
Business performance and material changes
- Snack Food Products sales rose 12.8% to $22,059; Frozen Food Products sales fell 2.0% to $12,653. Snack segment income before taxes was a loss of $695, versus a loss of $618; Frozen segment income before taxes increased to $1,162 from $865.
- Management attributed consolidated sales growth to a large seasonal customer program absent in the prior-year quarter, increased snack-food pricing and volume, and lower returns. Continuing-operations sales were up 14.9%; the discontinued Refrigerated Deli Products Division reduced the comparison by $2,503. The division was closed at the end of FY2014 after continued losses.
- Cost of products sold rose 13.0%, faster than sales. Management cited higher meat commodity costs and volume; meat commodity costs increased approximately $2,382. Snack segment gross margin fell to 21.6% from 28.3%, reflecting higher meat costs and high-volume, low-margin sales. Lower flour costs helped lift Frozen segment gross margin to 38.3% from 36.7%.
- SG&A declined primarily because the prior-year period included $1,209 of Refrigerated Deli expenses; continuing-operations SG&A increased $338, including higher wages and other expenses, partly offset by lower advertising.
Cash, liquidity and obligations
- Cash and equivalents were $4,927 at January 23, 2015, up from $192 at October 31, 2014. Operating cash flow benefited from a $6,917 inventory liquidation, mainly shipments for large warehouse-customer orders; receivables increased $2,040, in part due to a delayed payment from a large customer.
- Current assets were $31,692 and current liabilities $13,133. Total liabilities were $31,360; shareholders’ equity was $25,679. Inventory declined to $14,375 from $21,292.
- The company reported no Wells Fargo line-of-credit borrowings during the quarter. Its revolving facility allows borrowings up to $4,000 and expires March 1, 2016; the company reported compliance with covenants. Capital lease obligations totaled $1,290.
- Financing cash outflow was $93, including $38 of share repurchases and $55 of lease payments. No dividends were paid. Management said available financial resources were sufficient for FY2015 operating needs and capital expenditures.
Outlook, risks and unusual items
- No quantitative earnings or revenue guidance was provided. Management cautioned that commodity prices may affect cash balances and identified competition, economic conditions, commodity and labor costs, customer demand, and execution of operating initiatives among forward-looking risks.
- The company maintained a full valuation allowance against deferred tax assets, citing negative evidence and uncertainty about future taxable income. Federal and state net operating loss carryforwards were approximately $6,160 and $4,006, respectively, and expire at various dates from 2018 through 2033.
- Q1 net income included a $66 non-taxable gain on life insurance policies, compared with $149 in the prior-year quarter; management noted future gains or losses may vary with underlying investment performance.
- Bridgford had previously withdrawn from the Western Conference of Teamsters Pension Plan and recorded an estimated $798 pension expense and corresponding liability in FY2014. The ultimate withdrawal liability may differ; the company continues participating in other multiemployer plans and says a future withdrawal could have a material impact.
- Wal-Mart accounted for 35.8% of quarterly sales and 35.4% of receivables, compared with 27.2% and 19.2%, respectively, a year earlier. The company does not hedge commodity exposure; flour purchases may be made under short-term fixed-price contracts, with no significant unfulfilled contracts at quarter-end.
- Management reported no material changes to previously disclosed risk factors, no material control changes, and no material adverse effect expected from ordinary-course claims and legal actions.
Key facts for investors to verify
- Whether snack-segment margins recover as meat commodity costs and product mix change, and whether the seasonal customer program recurs.
- The sustainability of operating cash flow, given its reliance on seasonal inventory liquidation and the reported delayed customer payment.
- Wal-Mart customer concentration and the effect of any changes in its orders or payment patterns.
- The amount and timing of any final multiemployer pension withdrawal liability, and the adequacy of other pension and employee-benefit estimates.
- Whether the full deferred-tax valuation allowance remains appropriate as profitability and taxable-income evidence develops.