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Bridgford Foods (NASDAQ:BRID) is currently in its "quiet period". This precludes the company from buying back any of its own shares, among other things. The snack food processor must be "chomping at the bit" to acquire additional shares at these "giveaway prices", especially in relation to the large purchase it made last year. The company paid almost twice the current share price to acquire a 402,000 share block in a transaction with its second largest shareholder, Forest Capital Partners, at $6.70 per share. Bridgford still has about 500,000 shares remaining for purchase within its two million share repurchase program..

Poor fourth quarter earnings in the cards: The quiet period will not cease until the company reports fourth quarter results in about thirty days. Speaking of quiet, BRID management takes the cake. When the company reported third quarter results, management didn't even issue a press release. Instead, they simply filed the required 10Q with the SEC. Management seems to be "tight as a drum" in regards to the dissemination of information, and maybe that's a good thing, but it is certainly annoying. I still remember to this day, one of my dad's famous lines: "Keep your mouth shut." I am beginning to appreciate the wisdom in that philosophy.

BRID's fourth quarter should produce anemic results in comparison with last year's revenues of $38.2 million (there are 3-4 extra weeks in the 4th quarter) which generated break even earnings. More than likely, the market, in its infinite wisdom, has already priced the "bad news" into the share price and then some. My guess is BRID reports a loss somewhere in the neighborhood of 10 cents, on a 4% loss in revenues. It should be a non-event for the stock price.

First quarter could be impressive: Last year at this time wheat futures were over $10 a bushel. Since then, they have fallen to the $5 area. BRID purchases a substantial amount of flour to produce its line of frozen bread dough, and the cost of flour directly correlates to the price of wheat. It's a good thing BRID does not hedge. If the company had hedged, it would have missed the immediate benefit of falling prices and been locked in to higher prices. The company refuses to forward purchase (hedge), as management indicated they had already learned the hard way that hedging is not for them.

BRID also employs a delivery fleet of over 500 trucks nationwide, and with gasoline at four year lows, lower fuel costs should fall right to the bottom line. In last year's first quarter, BRID generated sales of $32.3 million, producing a 33.3% gross profit margin. The company proceeded to break even after deducting $10.8 million for SG&A and depreciation expenses. When BRID reports first quarter earnings, its input costs will be much lower, resulting in an improved gross margin. A gross margin improvement of up to 500 basis points is certainly a possibility. If this happens, BRID could report earnings as high as $2.5 million or 25 cents per share before income taxes, a feat which would definitely attract notice on Wall Street.

Bottom line: This could be a nice trade based on the scenario of operational improvement coming to fruition. A significant drop in input costs should be the catalyst to propel gross margins. The icing on the cake is: the stock is in a defensive sector, has no debt, and carries a significant real estate portfolio. You just have to possess the patience to play the "waiting game" on this one, as patience ,has the tendency to pay off in a big way.

Disclosure: Long BRID.

Source: Bridgford Foods: Playing the Waiting Game