Bridgford Foods Delivers In Q4 But Market Is Unmoved (NASDAQ:BRID)

Bridgford Foods (NASDAQ:BRID) just came off its best year in its ninety-year history, despite the lingering effects of Covid, supply chain issues and higher commodity prices such as beef and flour. A company with a micro-cap of a paltry $135 million produced a $50 million earnings improvement, yet Mr. Market failed to mark up the shares even a single penny. This is pure insanity.

Is Mr. Market blind, drunk, or just plain stupid? Could he be the biggest miser in history? How could such a massive successful turnaround produce zero benefit to the share price? No markup to the shares is extremely baffling, especially when considering the float is about as minuscule as possible at a mere 1,750,038 shares (the Bridgford family owns 7,326,444 shares out of 9,076,832 shares outstanding).

What am I missing here? The food processor’s metrics are off the spectrum of the value scale. Its enterprise value is just $121 million (market cap + debt – cash), it sells for 1.16 times book value and just .52 of annual sales. These are screaming bargain signals, yet Wall Street seems absolutely oblivious to them. There is a clear disconnect between valuation and reality when it comes to this equity. The company must believe their shares are undervalued too, or else they would have not been repurchasing their own shares in the open market the past twenty years. To date, they have purchased 1,879,887 shares out of 2,000,000 shares authorized. To say the company is undervalued, is akin to saying there is a lot of water in the oceans.

Digging deeper: we all know that the company was able to sell its outdated downtown Chicago meat processing plant last July for a gain of $57,745,000. If that nonrecurring gain was stripped out of the bottom line, the food processor still earned $6,826,000 versus a $8,743,000 loss, included in its latest 10k ended 10/28/22. That represents a significant positive swing of nearly $16 million. If you include the land sale, the company’s eps were $4.96 vs a loss of 61 cents. Without the land sale, the company would have reported earnings of 75 cents- no slouch either.

The balance sheet: this has been shored up significantly. Despite purchasing a new 8-acre, 177,000 sf beef processing plant located at 1415 West 44th street, Chicago, Illinois, 60609 and updating the facility with the most up to date machinery and equipment (over $30 million invested), net cash improved from a minus $36 million to a positive $10 million (nearly a $50 million positive improvement). The renovation of the new plant will enable Bridgford to more than triple its manufacturing capacity. It is now the second largest beef jerky producer in the country, only behind privately held Jack Links.

The income statement for fiscal 2022: (1) sales rose 10.60% from $240,430,000 to $265,898,000 (2) gross profit margin blossomed 580 basis points from 21.30% to 27.10% (3) SG&A expenses fell from 25% to 24.50% (4) earnings increased from a loss of 61 cents to $4.96

Fourth quarter fiscal 2022 results: (1) Sales rose 5.80% from $78,722,000 to $83,307,000 (2) gross profit Jumped 54% from $14,235,000 to $21,965,000 (gross profit margin grew from 18% to 26.30%) (3) SG&A expenses fell from 24.30% to 24.10% (4) operating earnings went from a net loss of $4,741,000 to a gain of $1,941,000 (a whopping $6.68 million positive reversal).

Going Forward: Now that most of the company’s debt has been paid off, interest expense should fall by about $1,000,000 per year, adding 10 cents per share to the bottom line. In addition, more efficiencies at their new state-of-the-art plant in Chicago could be squeezed out. On the downside, additional increases in the price of wheat and beef could hamper margins.

Real estate holdings: Its real estate footprint is quite impressive, to say the least: What is the market value of this real estate? I can assure you it is far above what Bridgford has recorded in the asset section under “plant, property and equipment” of its balance sheet. That figure is a mere $70,357,000 and reflects a deduction for accumulated depreciation and amortization of $67,657,000. The bottom line? The real estate alone could be worth more than $200 million, which amounts to nearly double the company’s current market cap. It is hidden value on the balance sheet which could always be unlocked and monetized.

Could Bridgford Foods go private? The chances are good. By doing so, BRID could cut its administrative costs and eliminate the burdens imposed on public companies. No more SEC filings, no need to be transparent, no annoying shareholders to deal with. In addition, trade secrets could be easier to shroud. Why is this probable? Because the Bridgford family already controls 80.70% of the 9,076,832 shares outstanding. They are also firmly embedded in leadership with over 15 family members (now 5th generation emerging) holding top positions.

That insinuates only 1,750,388 shares would have to be acquired from outside shareholders. If you place a typical 50% tender offer premium on the shares, that equates to a mere $35 million necessary to pay off the remaining shareholders. The family has the financing abilities, to easily make that happen. A more than realistic undertaking to say the least. A private company once again? Stranger things have happened.

Bridgford has always taken a traditional, extremely conservative approach of doing business. They shy away from debt, don’t play the futures market, avoid issuing press releases, and always buy the real estate on which their processing plants are situated. They pay modest salaries to top management. Their three highest paid officers all earn a modest base salary of $297,050. They also take good care of their employees (most of their 700 employees have been with them, for the long term).

Let’s face it, by the family owning such a large portion of the company, they are laser focused. At the end of the day, it is their own money at risk. To say they don’t have massive “skin in the game” is simply preposterous. It is always a good thing, when the Senior Management team and the Board of Directors’ best interests align with outside shareholders. It is safe to say everybody is on the same team.

Bottom line? It has been a mere seven months since I wrote up an article on these guys the market is still currently blind to Bridgford’s tremendous turnaround and has utterly failed to mark the shares up at all. This is certainly a situation where inefficiencies in an efficient market can be exploited. A tender to take the company private is a possibility, and so is the opportunity the shares will simply challenge their old high of $35 on their own. After all, eventually Mr. Market will wake up from his drunken stupor, see the light and price the shares accordingly.