Bridgford Foods: The Dough Finally Rises

Mar.10.09 | About: Bridgford Foods (BRID)

Shareholders may soon see their wallets get fatter. BRID reported spectacular first quarter earnings that blew away even the most optimistic expectations. The company reported earnings of 16 cents versus a 3 cent loss. Sales were up about 1% to $31.5 million.

Expectations were annihilated: The consensus of analysts expected BRID to report sales of $30.4 million and earnings of 6 cents. BRID’s top line of $31.5 million exceeded expectations by 4%, but the bottom line (where it counts) is where the fireworks were apparent, as the company was able to produce a very impressive 166% earnings beat.

How they did it: It’s all about the gross margin baby. I had expected improvement - due to the fall of wheat and fuel prices, but I never imagined the progress would be so great. BRID’s gross profit margin rose 17% or 558 basis points from 33.02% to 38.60%. Management was also effective, keeping its overall cost structure in check, as its SG&A costs, fell 40 basis points, from 32% to 31.6%. The company’s stock repurchase plan also helped drive its bottom line. Its share count dropped about 5% from 9.9 million to 9.4 million shares, and when you allocate your earnings through fewer shares, earnings per share are guaranteed to rise. BRID's cash position also stacked up favorably, as it grew at brisk 67% clip within the last three months, from $6.1 million to $10.2 million.

Bottom line: BRID just produced one of its best quarters in several years, despite a woefully poor economic climate. I would expect the market to greet the news with exuberance and reward the share price accordingly. A doubling of the stock price would not surprise me at all, especially with some very nervous shorts jumping on the buy side to avoid a sure squeeze. If you annualize the current quarter’s earnings, you will come up with a dirt cheap forward multiple of only 4. Most food companies sell at a multiple of 10 or higher, resulting in a reasonable target share price of about $7.

If BRID can build on this momentum, a resumption of its cash dividend is inevitable, as well as a vastly improved share price. Even though I had faith this company would finally pull through, I admit I was very near the end of my rope. Thanks to the Bridgford Team for more rope, and a job well done!!

Disclosure: Long.