Bridgford Foods Corporation — Q3 2021 Form 10-Q
Business context and reporting period
The filing covers the 12 and 36 weeks ended July 9, 2021; comparisons are with the corresponding periods ended July 10, 2020. Bridgford manufactures and distributes frozen food products and snack foods. Unless stated otherwise, amounts below are in millions of dollars; the filing reports financial statements in thousands.
Financial results and liquidity
| Metric | 12 weeks ended July 9, 2021 | 12 weeks ended July 10, 2020 | 36 weeks ended July 9, 2021 | 36 weeks ended July 10, 2020 |
|---|---|---|---|---|
| Net sales | $56.538 | $41.660 | $161.708 | $131.301 |
| Gross margin | $12.011 (21.2%) | $12.032 (28.9%) | $37.149 (23.0%) | $39.996 (30.5%) |
| Operating income (loss) | $(1.837) | $1.000 | $(3.498) | $3.330 |
| Net income (loss) | $(1.410) | $3.133 | $(1.719) | $5.419 |
| Basic earnings (loss) per share | $(0.16) | $0.35 | $(0.19) | $0.60 |
- Q3 sales rose 35.7%; YTD sales rose 23.2%. Snack Food Products drove growth: sales increased 43.8% for the quarter and 31.5% YTD. Frozen Food Products sales rose 2.2% for the quarter but fell 7.0% YTD.
- Gross margin contracted as product costs rose faster than sales. YTD cost of products sold increased 36.4%, including a $6.687 increase in significant commodity costs, primarily meat. The company recorded a $1.561 inventory net realizable value reserve YTD, including $0.995 in the quarter.
- YTD operating cash flow was $(0.571), versus $7.921 provided in the prior-year period. Investing cash outflow was $6.714, including $6.842 of capital additions; financing provided $2.458. Cash and restricted cash totaled $0.600 at July 9, with no unrestricted cash reported.
- At July 9, current assets were $65.956 and current liabilities $34.964; management reported net working capital of approximately $30.992. Equipment notes totaled $25.898 ($4.553 current and $21.345 long-term). The Wells Fargo revolving line had $6.000 outstanding against a $15.000 limit; an additional $3.000 was borrowed July 19, after quarter-end.
- Total assets were $157.157 and shareholders’ equity $69.527 at July 9. SG&A increased 11.8% YTD to $41.025.
Material changes, outlook, and risks
- Management attributed sales growth largely to stronger snack-food volumes, pandemic-related shifts toward retail, and higher selling prices. Frozen-food foodservice demand remained affected by school and restaurant disruptions; the company said retail gains had not offset foodservice declines for that segment YTD.
- Management said it did not expect the company to be profitable for the remainder of fiscal 2021, citing exceptionally high meat commodity costs. It expected inflation in labor, freight, and materials to continue through the rest of the year, while anticipating sufficient liquidity to operate for a reasonable period and complete the Chicago plant expansion.
- COVID-19 risks included channel shifts, worker availability and absenteeism, temporary production interruptions, higher costs, and supply-chain and commodity volatility. Management also warned that selling-price increases may not fully offset input-cost increases and could reduce demand.
- The company violated the minimum quick-ratio covenant on its Wells Fargo credit arrangements as of July 9; the lender waived the violation by letter dated August 12, 2021. Management reported compliance with other covenants.
- A proposed sale of the Chicago property for $60.000 remained conditional on approvals and other conditions. The July 30, 2021 amendment extended the zoning deadline to March 30, 2022 and the closing deadline to April 29, 2022. The sale was not completed as of the filing.
- Other notable items: $7.084 of refundable income taxes was recorded at quarter-end; the company also reported a $1.511 deferred employer Social Security tax liability, with payments due in December 2021 and December 2022. Management said ordinary-course legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether elevated meat and other input costs persist, and whether pricing can recover the gross-margin decline.
- Whether operating cash flow, tax refunds, and available credit are adequate for operations, debt service, and the Chicago expansion.
- Current borrowing, covenant status, and the terms and remaining availability of the Wells Fargo line after the subsequent $3.000 draw.
- Progress, approvals, deposits, and final closing terms for the proposed $60.000 Chicago property sale; proceeds are contingent and should not be treated as completed liquidity.
- The filing reports a cash conversion cycle of 98 days versus 65 days in the comparable prior-year period, while attributing a decrease to accelerated customer payments; this description appears inconsistent and warrants clarification.