Bridgford Foods Annual Shareholders Meeting: Business Continues to Grow

I just returned from Bridgford Foods' (BRID) annual shareholders meeting and I thought I might record a few observations. After the company read through its standard boiler plate parliamentary procedures, it was time to move on to the nitty gritty: questions and comments, lunch and small talk.

It was an intimate affair, as the meeting was situated in the CEO’s office. Fortunately, it was spacious enough to accommodate the crowd (about fifty of us) because the top three at Bridgford all share it. With three generations of the family represented, the company is no slouch, with plenty of rich history behind it. Management is extremely capable, as they have massive experience under their belt coupled with prestigious Stanford degrees (both Allan and Bill graduated from Stanford). They literally have built the business with their bare hands. The founder opened up a single butcher shop in 1932 that evolved into a slaughterhouse (now the current home offices) in the 1940’s, and ultimately a diverse food processing empire across the USA.

They are not going anywhere soon. When I asked one of the founder’s sons (Allan) what was the highlight of his career, without pause, he responded “the opportunity to work alongside my father”. Now fittingly, Bill’s son has taken over the reins. Sure the family has its fair share of disagreements. Allan indicated that since they all share the same office, they needed to enlarge it. In case fists started flying, they’d have ample room to dodge the punches.

About suitors: Apparently the company has been courted by its fair share of interested parties such as large food companies and private equity firms over the years, but don’t hold your breath. I suppose if somebody made it an offer it couldn’t refuse, it might take the money and run. But I still have my doubts, as the fourth generation of Bridgfords are now taking prominent roles within the company. As the company fast approaches its 100th anniversary, there seems to be no trace of entitlement within this up and coming group (Bill Junior’s son works his summers as a route salesmen). I suppose 80 years from now, somebody else will be writing about eighth generation Bridgfords running the company. I guess the old adage, “The more things change, the more they stay the same” can’t be emphasized enough when it comes to describing this American success story.

Going private talk: The management seems to have no intention of taking the company private any time soon. Their rationale: they think the shares are so undervalued at this juncture, it would be unethical to purchase the shares back from the remaining shareholder base at prices so low.

Sales and marketing update: Good news on the orders front. It was announced that BRID was awarded another 1 million unit “first strike” rations (shelf stable sandwiches with three year expiration dates) order from the US military as well as a go ahead to start offering its dry meat products within 350 CVS Drug Store locations. BRID is also getting additional shelf space in the 8400 unit Dollar General (DG) store chain, and will be doubling its SKUs from 5 to 10. These new sales orders could bode well for the second quarter, as the company could show sales growth as high as 20%, translating into an earnings scenario of almost 20 cents, when they report the first week of June.

The retirees know the game: It is typical that annual meeting attendance is dominated by retirees. It’s their chance to get their fill of good old days talk, a nice lunch and all the sample products they can possibly carry out. It was comical watching a retiree walk by our table, loaded down with two bags chock full of salami, pepperoni, beef jerky and shelf stable sandwiches. It prompted a smile from a Bridgford executive and the following insight “some people own this stock for different reasons”. This was no “Teldar Paper” moment, when Gordon Gecko steps up with his infamous, “Greed is good” speech. This was a harmonious event where family, friends and retirees rejoiced in the moment. It would be nice if more companies were like this!

Disclosure: Long BRID.

Comments

[Veneratio:]

Hey Mark,

Thanks for the review, I found it very insightful. If you don't mind me asking, what price did you buy in at? Looking at the average daily volume, I'm assuming the directors own a significant portion of the stock. Don't you feel this will restrict its future gains?

I would appreciate your thoughts. Thanks, Mark

- Ven

Mar 26 07:06 PM

[robert99:]

I love microcaps, and I've been following your articles for a month or two, but this caught my attention:

"The management seems to have no intention of taking the company private any time soon. Their rationale: they think the shares are so undervalued at this juncture, it would be unethical to purchase the shares back from the remaining shareholder base at prices so low."

What? If I were in control of a prospering company with a bright future and an extremely undervalued stock price (all assumptions in my hypothetical scenario, of course), I'd be buying my stock back hand-over-fist, sellers be damned. If they put it up for sale, I would assume they REALLY wanted to sell it at that price, and I'd buy it. The quoted statement makes no sense.

Mar 26 08:14 PM

[Mark Krieger:]

Robert99: I see where you are coming from, however, Most of the remaining shareholders are friends, retirees and relative of the Bridgford family and they already own 81% of the shares. They have enough ownership and would feel bad for those they bought the stock from at $4 .when a year from now the shares are trading in double digits. They just don't want the perception that they 'took advantage" of others (especially friends-it's a tight knit organization)) for their own gain.


On Mar 26 08:14 PM robert99 wrote:

> I love microcaps, and I've been following your articles for a month
> or two, but this caught my attention:
>
> "The management seems to have no intention of taking the company
> private any time soon. Their rationale: they think the shares are
> so undervalued at this juncture, it would be unethical to purchase
> the shares back from the remaining shareholder base at prices so
> low."
>
> What? If I were in control of a prospering company with a bright
> future and an extremely undervalued stock price (all assumptions
> in my hypothetical scenario, of course), I'd be buying my stock back
> hand-over-fist, sellers be damned. If they put it up for sale, I
> would assume they REALLY wanted to sell it at that price, and I'd
> buy it. The quoted statement makes no sense.

Mar 26 08:48 PM

[Mark Krieger:]

I have bought in at many different prices over the past five years, and I am still buying. My average price is probably close to the mid $5's, so I have a long way to go before the opportunity arises for this investment to be profitable (especially if you factor in the cost of financing the position through margin debt). The fact that mangement owns so many shares is positive for the stock price because it makes the float or trading supply so small, that any incremental buying will have a major impact on the stock price. There simply are no sellers, and when a buyer comes in, he has to pay prices at huge premiuims to the previous close. The other benefit of mangement owning so many shares is they have a vested interst to see the company prosper and the share price appreciate. it is their money, so they will guard it with the utmost attention and detail. The managment team will soon want to pay themselves more, and they will do this by resuming the payment of cash dividends ( the cash dividend was deleted about five years back). Hope that helps!


On Mar 26 07:06 PM Veneratio wrote:

> Hey Mark,
>
> Thanks for the review, I found it very insightful. If you don't mind
> me asking, what price did you buy in at? Looking at the average daily
> volume, I'm assuming the directors own a significant portion of the
> stock. Don't you feel this will restrict its future gains?
>
> I would appreciate your thoughts. Thanks, Mark
>
> - Ven

Mar 26 09:02 PM

[Mr. Monkey ...:]

This annual meeting was a disappointment. In the past management would spend considerable time presenting their business model and describe the challenges of operating a small family-controlled operation in the age of big-box dominance. They saved $25,000 by not meeting at the nearby Crowne Plaza, but lost a lot by skipping the usual presentations from management. Currently Bridgford is in Branch Rickey mode: 'addition by subtraction'.

Shareholder equity has dropped 25% year over year. Revenue is flat. 'Shelf stable' sandwiches were the only gainer for last quarter. They booked one order in Q1 and announced a second in Q2. That appears to be it for this year and perhaps a couple of years. No new products were announced.

They are increasing Dollar General and CVS at the same time their WalMart exposure is declining a lot. Since one of their main variable costs is distribution, you have to wonder if profit margins will suffer.

Commodity prices are flat, but they have little pricing power. With the on-going recession/depression, I doubt that they'll prosper. In the past they have been thought of as a take-over candidate because their real estate liquidation value was worth more than their enterprise value. These days, who knows?

Although the BRID price/sales is attractive, I question the value of their brand. Although they seem to have a large share of the frozen dough market, when was the last time you heard an Applebee customer demand a Bridgford dinner roll? In fact the sit down restaurant market is declining at present, and commodity players like these guys are looking at a steep hill.

The older Bridgfords seemed talented if stodgy. The younger ones, not really.

Their business does well when the economy booms, commodity prices are down, and pork is cheap. None of those elements are in place now. I would expect the stock price to continue to track book value.

Mar 27 09:29 AM

[Mark Krieger:]

(1) there is no evidence they are losing WMT sales (2) Book value decrease is a joke-it is all associated with a tax loss writeoff (accounting entry only) it will have to be reveresed soon and then BRID's shareholder's will then increase 25% (3) their only gainer was not just shelf stable sandwiches-you forgot about Monky bread which was up a staggering 16%-BRID can not make enough of this and they will have to probably produce product in a third shift to help meet demand.About profit margins: they are not suffering but expanding as BRID's first quarter gross profit margin increased from 33% to 38% with the help of higher sales and lower input costs.


On Mar 27 09:29 AM Mr. Monkey Bread wrote:

> This annual meeting was a disappointment. In the past management
> would spend considerable time presenting their business model and
> describe the challenges of operating a small family-controlled operation
> in the age of big-box dominance. They saved $25,000 by not meeting
> at the nearby Crowne Plaza, but lost a lot by skipping the usual
> presentations from management. Currently Bridgford is in Branch Rickey
> mode: 'addition by subtraction'.
>
> Shareholder equity has dropped 25% year over year. Revenue is flat.
> 'Shelf stable' sandwiches were the only gainer for last quarter.
> They booked one order in Q1 and announced a second in Q2. That appears
> to be it for this year and perhaps a couple of years. No new products
> were announced.
>
> They are increasing Dollar General and CVS at the same time their
> WalMart exposure is declining a lot. Since one of their main variable
> costs is distribution, you have to wonder if profit margins will
> suffer.
>
> Commodity prices are flat, but they have little pricing power. With
> the on-going recession/depression, I doubt that they'll prosper.
> In the past they have been thought of as a take-over candidate because
> their real estate liquidation value was worth more than their enterprise
> value. These days, who knows?
>
> Although the BRID price/sales is attractive, I question the value
> of their brand. Although they seem to have a large share of the frozen
> dough market, when was the last time you heard an Applebee customer
> demand a Bridgford dinner roll? In fact the sit down restaurant market
> is declining at present, and commodity players like these guys are
> looking at a steep hill.
>
> The older Bridgfords seemed talented if stodgy. The younger ones,
> not really.
>
> Their business does well when the economy booms, commodity prices
> are down, and pork is cheap. None of those elements are in place
> now. I would expect the stock price to continue to track book value.
>
>
>
>

Mar 27 10:08 AM

[Mark Krieger:]

second quarter earnings note;Second quarter is historically the company's weakest in terms of revenue production. This time around could be different, as sales gains at both CVS and Dollar General could provide BRID with top line growth substantially above meager expectations. Stay tuned, as this turnaround story starts to hit full stride!



On Mar 27 10:08 AM Mark Krieger wrote:

> (1) there is no evidence they are losing WMT sales (2) Book value
> decrease is a joke-it is all associated with a tax loss writeoff
> (accounting entry only) it will have to be reveresed soon and then
> BRID's shareholder's will then increase 25% (3) their only gainer
> was not just shelf stable sandwiches-you forgot about Monky bread
> which was up a staggering 16%-BRID can not make enough of this and
> they will have to probably produce product in a third shift to help
> meet demand.About profit margins: they are not suffering but expanding
> as BRID's first quarter gross profit margin increased from 33% to
> 38% with the help of higher sales and lower input costs.

Mar 27 10:32 AM

[Mr. Monkey ...:]

I suggest that you spend some time on the 10K and recent 10Q.

From the 10Q:

<<Net sales increased by $204 (0.7%) to $31,523 in the first twelve weeks of the 2009 fiscal year compared to the same twelve-week period last year.>>

<<Our new Shelf Stable Sandwich products contributed sales of $965 in the first quarter of the 2009 fiscal year. Except for Shelf Stable Sandwiches, no new products are currently a significant source of revenue in the 2009 fiscal year to date.>>

Which indicates that their legacy products (including Monkey Bread) declined $761,000 yoy. Refrigerated and snack food sales declined $850,000 in the Q yoy. Frozen food (including Shelf Stable Sandwiches) rose $666,0000 (sign of the devil X 1000). Back out those sandwiches and you have a legacy decline in that category of -$299,000 (including "Monky bread which was up a staggering 16%").

Their cash flow statement indicates that they lowered inventory by 1/3 and stopped prepaying expenses. Those are one time gains. On the plus side they habitually over depreciate stuff. They are also trying to reduce route sales costs. Whether sales will decline with fewer route salesman visits remains to be seen. That's where the value the brand comes in.

The WalMart situation is easy. From the Q: <<For the twelve weeks ended January 23, 2009 and January 25, 2008, Wal-Mart® accounted for 8.3% and 13.8%, respectively of consolidated revenues or 16.5% and 20.4% of consolidated accounts receivable.>> That's a serious issue!

Unless you think they are cooking their books, decline in shareholder equity is serious. That's the stuff you're buying when you purchase a share. According to their report the company now has equity of $2.58 per share.

As a going concern if they can replicate Q1 over the next three Quarters, they would have ROE of 25% and a PE of 6.6. Since there appear to be so many one-off items in Q1, I doubt that will be the case. I certainly didn't detect much enthusiasm from management at the meeting.

BRID's results will track the economy. I'd worry about several things when thinking of investing in them. They don't have a premier brand name. They aren't the low cost producer. Their only monopoly appears to be in those sandwiches, which are too expensive to sell to anyone but the government. Management pays itself relatively low salaries. Will they stay low when profitability returns? How will they deal with inflation?

Over the past 10 years their ROE has averaged well below 10%. Their PE is typically >>20. Sales, book value, price/sales, net income, and a host of metrics have declined during the decade.

What's changed now?

Where's the catalyst?




On Mar 27 09:29 AM Mr. Monkey Bread wrote:

> This annual meeting was a disappointment. In the past management
> would spend considerable time presenting their business model and
> describe the challenges of operating a small family-controlled operation
> in the age of big-box dominance. They saved $25,000 by not meeting
> at the nearby Crowne Plaza, but lost a lot by skipping the usual
> presentations from management. Currently Bridgford is in Branch Rickey
> mode: 'addition by subtraction'.
>
> Shareholder equity has dropped 25% year over year. Revenue is flat.
> 'Shelf stable' sandwiches were the only gainer for last quarter.
> They booked one order in Q1 and announced a second in Q2. That appears
> to be it for this year and perhaps a couple of years. No new products
> were announced.
>
> They are increasing Dollar General and CVS at the same time their
> WalMart exposure is declining a lot. Since one of their main variable
> costs is distribution, you have to wonder if profit margins will
> suffer.
>
> Commodity prices are flat, but they have little pricing power. With
> the on-going recession/depression, I doubt that they'll prosper.
> In the past they have been thought of as a take-over candidate because
> their real estate liquidation value was worth more than their enterprise
> value. These days, who knows?
>
> Although the BRID price/sales is attractive, I question the value
> of their brand. Although they seem to have a large share of the frozen
> dough market, when was the last time you heard an Applebee customer
> demand a Bridgford dinner roll? In fact the sit down restaurant market
> is declining at present, and commodity players like these guys are
> looking at a steep hill.
>
> The older Bridgfords seemed talented if stodgy. The younger ones,
> not really.
>
> Their business does well when the economy booms, commodity prices
> are down, and pork is cheap. None of those elements are in place
> now. I would expect the stock price to continue to track book value.
>
>
>
>

Mar 27 02:07 PM

[Mark Krieger:]

Dude; Why bash the company? They put up great first quarter #'s in a dismal economy. Book value is closer to $4, not $2.58!! it's better that they spread their sales around than become too dependant on WMT anyways.

On Mar 27 02:07 PM Mr. Monkey Bread wrote:

> I suggest that you spend some time on the 10K and recent 10Q.
>
> From the 10Q:
>
> <<Net sales increased by $204 (0.7%) to $31,523 in the first twelve
> weeks of the 2009 fiscal year compared to the same twelve-week period
> last year.>>
>
> <<Our new Shelf Stable Sandwich products contributed sales of $965
> in the first quarter of the 2009 fiscal year. Except for Shelf Stable
> Sandwiches, no new products are currently a significant source of
> revenue in the 2009 fiscal year to date.>>
>
> Which indicates that their legacy products (including Monkey Bread)
> declined $761,000 yoy. Refrigerated and snack food sales declined
> $850,000 in the Q yoy. Frozen food (including Shelf Stable Sandwiches)
> rose $666,0000 (sign of the devil X 1000). Back out those sandwiches
> and you have a legacy decline in that category of -$299,000 (including
> "Monky bread which was up a staggering 16%").
>
> Their cash flow statement indicates that they lowered inventory by
> 1/3 and stopped prepaying expenses. Those are one time gains. On
> the plus side they habitually over depreciate stuff. They are also
> trying to reduce route sales costs. Whether sales will decline with
> fewer route salesman visits remains to be seen. That's where the
> value the brand comes in.
>
> The WalMart situation is easy. From the Q: <<For the twelve weeks
> ended January 23, 2009 and January 25, 2008, Wal-Mart® accounted
> for 8.3% and 13.8%, respectively of consolidated revenues or 16.5%
> and 20.4% of consolidated accounts receivable.>> That's a serious
> issue!
>
> Unless you think they are cooking their books, decline in shareholder
> equity is serious. That's the stuff you're buying when you purchase
> a share. According to their report the company now has equity of
> $2.58 per share.
>
> As a going concern if they can replicate Q1 over the next three Quarters,
> they would have ROE of 25% and a PE of 6.6. Since there appear to
> be so many one-off items in Q1, I doubt that will be the case. I
> certainly didn't detect much enthusiasm from management at the meeting.
>
>
> BRID's results will track the economy. I'd worry about several things
> when thinking of investing in them. They don't have a premier brand
> name. They aren't the low cost producer. Their only monopoly appears
> to be in those sandwiches, which are too expensive to sell to anyone
> but the government. Management pays itself relatively low salaries.
> Will they stay low when profitability returns? How will they deal
> with inflation?
>
> Over the past 10 years their ROE has averaged well below 10%. Their
> PE is typically >>20. Sales, book value, price/sales, net income,
> and a host of metrics have declined during the decade.
>
> What's changed now?
>
> Where's the catalyst?
>
>

Mar 27 03:40 PM

[Mark Krieger:]

according to the 10k: Shareholders equity or book value is $32,535,000/ 9491000 shares = $3.42 book value per share


On Mar 27 03:40 PM Mark Krieger wrote:

>
> Dude; Why bash the company? They put up great first quarter #'s in
> a dismal economy. Book value is closer to $4, not $2.58!! it's better
> that they spread their sales around than become too dependant on
> WMT anyways.
>
> On Mar 27 02:07 PM Mr. Monkey Bread wrote:

Mar 27 03:46 PM

[Mr. Monkey ...:]

I'm not bashing the company, I'm calling it as I see it.

I used the numbers from Q1. Equity in Q1 was reported as $2.58 per share. (Why don't we meet in the middle? $2.58 rounds up to $3 and $3.42 rounds down to $3.)

As Graham said 'in the short run the market is a voting machine, in the long run, a weighing machine'.

You vote.
I weigh.


On Mar 27 03:46 PM Mark Krieger wrote:

> according to the 10k: Shareholders equity or book value is $32,535,000/
> 9491000 shares = $3.42 book value per share

Mar 27 05:16 PM

[Veneratio:]

Any reason for huge pop on Thursday...?

Apr 11 08:46 PM