Bridgford Foods Corporation — Form 10-Q Summary
Reporting period: Third quarter and first 36 weeks of fiscal 2011, ended July 8, 2011. Comparative periods ended July 9, 2010. Amounts are in thousands of dollars except per-share data, percentages, and where noted.
Business context and financial performance
The company manufactures and distributes frozen foods and refrigerated and snack foods through two operating segments. Results reflect higher selling prices but lower unit volumes and sharply higher commodity costs.
| Metric | 12 weeks ended July 8, 2011 | 12 weeks ended July 9, 2010 | 36 weeks ended July 8, 2011 | 36 weeks ended July 9, 2010 |
|---|---|---|---|---|
| Net sales | $26,611 | $26,933 | $80,598 | $83,012 |
| Gross margin | $8,199; 30.8% | $9,844; 36.5% | $26,466; 32.8% | $33,783; 40.7% |
| SG&A | $8,782 | $9,806 | $26,424 | $29,730 |
| Income (loss) before taxes | $(583) | $38 | $42 | $4,053 |
| Net income (loss) | $(477); $(0.05) per share | $(761); $(0.08) per share | $545; $0.06 per share | $2,554; $0.27 per share |
| Operating cash flow | Not reported for the quarter | Not reported for the quarter | $(3,712) | $4,220 |
Liquidity, debt, and cash flows
- At July 8, 2011, cash and cash equivalents were $8,657, down from $15,686 at October 29, 2010. Current assets were $38,160 and current liabilities were $11,769.
- Total liabilities were $23,193; shareholders’ equity was $34,938. The company reported no interest-bearing debt and no borrowings under its $2,000 line of credit, which expires December 15, 2012. It was in compliance with the line’s covenants.
- For the first 36 weeks, investing cash outflow was $1,510, including $1,552 of capital expenditures; financing cash outflow was $1,807, including $875 of share repurchases and $932 of dividends.
- Operating cash flow was reduced by working-capital movements, including increases in receivables and inventories, and a decrease in non-current liabilities. The company contributed $464 to its defined benefit pension plan during the period.
Material changes and management commentary
- Quarterly sales declined 1.2%; year-to-date sales declined 2.9%. Higher prices were offset by lower pound volumes. For the 36-week period, Frozen Food sales rose 2.1% to $37,378, while Refrigerated and Snack Food sales fell 6.9% to $43,220.
- Gross margin contracted materially: quarterly margin fell to 30.8% from 36.5%, and year-to-date margin to 32.8% from 40.7%. Management cited higher flour and meat costs and lower volume; year-to-date flour costs rose about $885 and significant meat commodity costs about $2,716.
- SG&A declined 10.4% for the quarter and 11.1% year to date. Management attributed reductions to lower wages and benefits and restructuring and downsizing of the Refrigerated and Snack Food segment’s direct-delivery system.
- Year-to-date net income included a $669 non-taxable gain on life insurance policies, compared with a $201 gain in the prior-year period. Management cautioned that these gains vary with the performance of underlying equities.
- The company recorded a $503 year-to-date income-tax benefit, including an estimated net-operating-loss carryback benefit and retroactive tax-law effects. A full valuation allowance remained against net deferred tax assets because management concluded realization did not meet the “more likely than not” threshold.
Outlook, risks, and contingencies
- No specific sales, earnings, or margin guidance was provided. Management said financial resources were sufficient for operating needs and capital expenditures for the balance of fiscal 2011.
- Key risks identified include commodity, labor and employee-benefit costs; competition and pricing; customer demand and sales volumes; customer concentration and collections; regulatory changes; and execution of operating initiatives. Dollar General represented 9.1% of year-to-date revenue and 23.6% of accounts receivable.
- Management noted uncertainty in estimates for self-insured workers’ compensation, healthcare and pension liabilities, inventory reserves, and deferred-tax-asset realization. PPACA-related future OPEB effects were not determinable.
- The company reported ordinary-course legal claims that management did not expect to materially affect financial position or results. No significant flour purchase contracts remained unfulfilled, and no off-balance-sheet arrangements were reported.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether pricing can offset continued volume weakness and elevated flour and meat costs, particularly in the Refrigerated and Snack Food segment.
- Whether negative operating cash flow and working-capital needs persist, and the effect on cash, capital spending, and pension funding.
- The assumptions behind the $503 tax benefit, expected tax-loss carryback, and continued full valuation allowance on deferred tax assets.
- Customer exposure and collection risk, including Dollar General’s share of receivables, and the effects of the significant customer bankruptcy referenced by management.
- The sustainability of SG&A savings from the direct-delivery restructuring and the variability of life-insurance policy gains.