Bottom of the Barrel: Lots of Dough, No Debt for Bridgford Foods

With a little patience, here's a company that could make you a lot of dough. Literally.

Looking for morsels at the bottom of the barrel this week led us to Bridgford Foods (BRID), an Anaheim, Calif., food processor. Among other things, Bridgford is a leader in frozen bread and dried and cured meats, including beef jerky. The company dates back to 1932, when Hugh Bridgford opened the family's retail meat market in San Diego.

At a Glance Bridgford Foods (BRID:Nasdaq)
Current Price	$13.23
52-week Range	$11.88-$14.10
Price-Earnings Ratio	18.85
Market Cap	$139.1 million
Avg. Daily Volume	2,800
Inst. Ownership	7.70%
Dividend Yield	2.10%
Beta	0.1
Source: Market Guide, Zacks, Company Reports

The company pioneered the retail frozen bread dough market in 1962 from its plant in Anaheim. Since then, the company has added processing plants in Dallas, Chicago and Statesville, N.C.

Food and Fundamentals

In a difficult economic environment, investors look for companies that peddle staples, have clean balance sheets and provide downside protection from dividends. Bridgford, while small and mundane, provides some food for thought and a potential catalyst to nudge its share price higher.

Bridgford's staples are food items like bread and meats, and the company has developed volume that gives it the advantage of scale.

Bridgford's distribution network is impressive. The company sells its products through 37,000 retail food stores in 49 states and Canada as well as to another 23,000 retail outlets and 22,000 restaurants and institutions. Its growth in prepackaged products for the convenience store market -- including lunch packs with drinks, cookies and chips -- provides additional marketing opportunities for Bridgford.

The Dough, Not the Debt

The company's balance sheet is pristine, operating without debt for 14 consecutive years. While conservative, that type of discipline is exactly what risk-averse investors are seeking, especially in today's market environment. The company also has taken a proactive stance by continuing a million-share buyback program.

The stock currently yields 2.1%, and the company is committed to continuing and increasing the payout. Over the past five years, Bridgford has increased its dividend an average of 9% annually.

Sales Environment Softens

While Bridgford's financials look solid, recent data suggest the company's sales and earnings momentum is slowing. During the past 10 years the company has posted sales growth of more than 5% annually and earnings growth of nearly 8%, however, both sales and profits momentum has recently slowed.

Falling Dough Can Bridgford Rise to the Occasion?
Year	Sales (millions)	EPS
1998	$134.80	$0.77
1999	138.70	0.88
2000	156.30	0.80
2001*	156.60	0.70
2002*	158.90	0.84
*Estimates Source: Company Reports, Thomson Financial, TSC Research

While sales in the first three quarters of 2001 increased at a 4% pace, profits declined by 22% for the same period. "Higher costs for commodities, labor, fuel and utilities, combined with lower demand in a weakened economy and lower interest income on investments, were primarily responsible for the significant decrease in earnings," the company said in its September earnings release. Bridgford estimates that since 1999, both meat and energy costs have increased by more than 40%.

While recent weakness raises concern, and a slowing economy is likely to continue to impact earnings in the short term, the company is well-positioned to weather the economic storm. Moreover, with its continued stock-buyback program, the company appears determined to provide price support for its shareholders.

Risks and Opportunities

While Bridgford is a solid, basic company, its small-cap nature creates a number of risks, foremost of which is liquidity. The average daily volume of just over 2,000 shares makes for a choppy market. Before leaping in, check historic sales and pick your entry points. This is the kind of stock for which, as an individual investor, patience and limit orders make a real difference.

Also, while the diversity of the company's distribution and client network is solid, a long recession would continue to pressure sales and profit trends. Conversely, costs for raw materials and energy appear to be coming off recent highs, which should help improve margins.

Finally, a potential catalyst: Bridgford remains a family-run business, with the Bridgford family owning nearly 70% of the stock. While the family continues to be involved in the business, Bridgford Chairman Allan Bridgford is 66 and Hugh Bridgford, chairman of the executive committee, is 69. Both have been on the company's board since 1952.

Not Too Jerky Food company family run and well done

If the right offer to monitize the family holdings came along, it would be hard for the elder Bridgfords not to consider a deal. While no suitor appears in the wings, a number of food conglomerates could get a whiff of Bridgford's value and add a very nice business to their nest. Such a deal could provide a yeastlike rise in the stock.

This is a company with a solid financial picture operating in an uncertain economic environment. While there is no reason to rush to purchase Bridgford shares, it is a good example of a defensive small-cap. And, with a 2%-plus yield and its core business, it's a company worth knowing about.

We give it one barrel.

(For an explanation of our rating system, see our recent description.)

Do you have candidates for Bottom of the Barrel? If so, shoot me an email with the company name, why you think it qualifies and your full name and hometown. If we profile your suggestion, we'll send you a TSC gift to commemorate your pick.

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