B&G Foods, Inc. — Q1 2020 Form 10-Q
Reporting period: Thirteen weeks ended March 28, 2020; filed May 6, 2020. B&G Foods manufactures and distributes branded shelf-stable and frozen foods and household products in the U.S., Canada and Puerto Rico.
Financial results
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Net sales | $449.4 million | $412.7 million | +8.9% |
| Gross profit / margin | $104.9 million / 23.3% | $88.1 million / 21.3% | Margin +2.0 pts |
| Operating income / margin | $60.2 million / 13.4% | $45.3 million / 11.0% | +33.0% |
| Net income | $28.1 million | $16.8 million | +67.3% |
| Diluted EPS | $0.44 | $0.26 | +$0.18 |
| Operating cash flow | $57.6 million | $50.3 million | +$7.3 million |
Adjusted EBITDA, a non-GAAP measure, was $80.7 million versus $75.8 million; adjusted diluted EPS was $0.46 versus $0.44. The filing reports a 2.0-point increase in gross margin, but excluding identified acquisition and non-recurring expenses, gross margin was 23.9% versus 24.5%.
Liquidity, debt and capital
- Cash and equivalents were $127.1 million at quarter-end, up from $11.3 million at fiscal 2019 year-end. Current assets were $771.7 million and current liabilities $209.3 million.
- Long-term debt, net of financing costs and excluding current maturities, was $1.975 billion. The company reported debt net of cash of $1.848 billion. It drew $100 million on its $700 million revolver in March as a precaution; $598.4 million remained available after letters of credit.
- Cash from operations was $57.6 million; investing used $9.6 million, including $3.4 million for the Farmwise acquisition; financing provided $68.5 million, mainly reflecting net revolver borrowings. Dividends paid were $30.4 million.
- Quarterly dividend declared was $0.475 per share. Management estimated fiscal 2020 dividends of approximately $121.8 million at the then-current annual rate of $1.90 per share.
- Fiscal 2020 capital expenditures were expected to total $40–$45 million; $6.5 million had been spent in Q1. The company reported compliance with debt covenants at March 28, 2020.
Changes and management commentary
- Reported sales rose 8.9%; base-business sales, excluding recent acquisitions, increased 4.3% to $430.5 million. Base-business growth included $9.2 million from pricing and trade-spend optimization, $8.2 million from volume and $0.4 million from foreign currency.
- Management attributed growth to the Clabber Girl acquisition, completed in May 2019, and sharply higher March demand during the COVID-19 pandemic. Farmwise was acquired February 19, 2020. Acquisition sales contributed $18.9 million in Q1 2020.
- Green Giant shelf-stable sales increased 42.3%, and Green Giant frozen sales increased 7.2%. Spices & Seasonings declined 18.1% and Back to Nature declined 18.5% on a base-business basis.
- January and February sales were lower year over year, partly reflecting industry softness and trade-spend optimization; the March surge more than offset those declines. April 2020 sales were reported as more than $70 million, or more than 60%, above April 2019.
- COVID-19 demand shifts toward grocery, mass-market, club, wholesale and e-commerce customers more than offset foodservice declines through the period discussed. The company said operations had not been materially disrupted to date and described employee safety, sanitation, screening and other continuity measures.
- Management could not estimate the pandemic’s full-year impact. Demand could weaken as restrictions ease; further risks include supply-chain or plant disruption, subsequent waves of infection and economic effects on consumer behavior. No formal earnings guidance is provided in the supplied filing text.
- Raw-material costs rose moderately in Q1; management anticipated higher increases for the remainder of fiscal 2020, while noting that most significant commodity costs were locked in through year-end. Freight costs were expected to remain elevated.
Risks, contingencies and unusual items
- The company cited substantial leverage, interest-rate and foreign-exchange exposure, commodity and freight inflation, customer and supplier concentration, food-safety and labeling risks, competition, and acquisition and integration risks. Walmart represented 25.6% of Q1 sales and 26.3% of receivables at quarter-end.
- A $2.3 million tax benefit from the CARES Act was recorded in Q1, related to increased interest-deduction limits and a 2019 net operating loss carryback.
- Foreign currency translation reduced other comprehensive income by $14.3 million; comprehensive income was $14.0 million compared with $18.4 million in Q1 2019.
- The company described ordinary-course legal claims and environmental obligations and did not expect currently pending matters to materially affect financial position, results or liquidity. A multi-employer pension plan remained in critical and declining status.
- Approximately 61.8% of employees were covered by collective bargaining agreements. Negotiations at the Ankeny facility were postponed due to COVID-19; management did not expect negotiations to have a material adverse effect but noted possible production interruptions.
Key facts for investors to verify
- How much of the sales and earnings increase reflects temporary pantry loading and how demand evolves after restrictions ease, including foodservice recovery.
- Whether supply-chain continuity, elevated freight and input costs, and the ability to pass costs through to customers affect future margins.
- Debt levels, interest expense, covenant headroom and revolver usage; fixed-rate debt was $1.450 billion and variable-rate debt $548.9 million. A 1-point rate change was estimated to affect annual interest expense by about $5.5 million.
- The sustainability of dividends and planned capital spending given leverage, cash needs and potential acquisition activity.
- Acquisition performance and integration, including Farmwise and Clabber Girl, and the comparability of reported results with base-business and other non-GAAP measures.