Seeking Alpha
Long/short equity
Profile| Send Message|
( followers)  

Snack food and frozen bread dough purveyor Bridgford Foods (NASDAQ:BRID) executed its Fiscal year 2008 report card, capped by the filing of its form 10-K on 1/29.

One notable bright spot: BRID was able to produce fourth quarter revenues which exceeded expectations, generating sales of $37.3 million, versus expectations of $34 million. Sales for the year dipped 4% from $125 million to $121 million, but keep in mind that last year’s results included an additional week. The company posted a fiscal 2008 loss of $12.2 million, but the bulk of the red ink was attributed to “sleight of hand” non cash accounting entries, relating to a $8.6 million charge, termed as a “tax valuation allowance”.

In all, 2008 was a year to forget, including the company’s final grade: C-

Frozen Food segment: this division, enjoyed a 7% increase in sales to $52.8 million. Part of its increase was attributable to a $1.2 million “first strike rations” order delivered to the military, while the balance of its gains, resulted in price increases of 6.3%, partially offset by a 2.9% unit volume decrease. Cost of goods sold, skyrocketed $4.8 million or 16% to $34.5 million, due to record high flour commodity prices.

Refrigerated & snack foods segment: Sales in this category slumped about 10%, from $77.5 million to $69.6 million. The loss of sales was due to lower unit volume. There were no price increases available to mitigate the impact of the lower unit volumes. The division’s “cost of goods sold” increased $6 million or 11.3% to $46.8 million. This segment was clearly BRID’s “problem child”, but it also provides the biggest opportunity for improvement, through unit sales growth (its poor comp’s will be easier to beat).

Overall analysis: The fact the company’s gross profit margin fell only 150 basis points, from 35.1% to 33.6%, in the midst of one of the worst economic downturns ever encountered, speaks volumes of management’s aptitude to execute effectively.

The company’s SG&A costs, on the other hand, could have been better managed, as they expanded a disturbing 280 basis points from 32.9% to 35.7% of sales. Factors contributing to this spike include: a $411,000 drop in interest income, a 30% rise in fuel costs, from $3.15 to $4.1 million, and a 24% increase in employee worker’s comp and benefit contributions to $6.4 million. While some of these factors were out of management’s control, this cost center remains a target rich location, “chock full” of potential cuts, as the company evolves in its quest to get -”leaner and meaner”.

Positive cash flow: Although it was nothing to "write home about", the 'King" of frozen bread dough , still managed to squeeze out, positive cash flow for the year. Uses of cash were : (1) $1.9 million in property and equipment expenditures, up 19% from fiscal 2007 (2) $3 million utilized to repurchase stock (3) $2.5 million contribution to its frozen defined benefit pension plan (what a mouthful).

Looking forward: First quarter earnings are due out on 3/15, and should show some improvement, as the cost of flour and fuel continue to moderate. In addition, BRID’s annual shareholder’s meeting, scheduled for March 18th, ought to provide further insight to its overall turnaround plans. Its valuation remains cheap, selling at a multiple of only 6 times FY2009 EBITDA estimates of $5.7 million.

Bottom line: Despite the fact that the company was able to produce "semi" satisfactory results, in the midst of a horrible economy, the natives are starting to get restless. Even the company’s most avid backers would have to admit that they are glad 2008 is now firmly in the record books. The good news is, more improvement is obtainable going from a “C-“ to an “A”, than from a “B” to an “A”. I’ll take a 30% gain over a 20% gain, any day of the week.

Disclosure: Long BRID

Source: Bridgford Foods Squeaks by with a Passing Grade