National Beverage Corp. — Form 10-Q Summary
Business context and reporting period
The filing covers the unaudited three months ended August 1, 2015, the first quarter of fiscal 2016, compared with the three months ended August 2, 2014. National Beverage develops, manufactures, markets and sells beverages, primarily in North America, including Power+ brands, carbonated soft drinks and Allied Brands. Management notes that sales are seasonal, with the highest volume typically in summer.
Key financial results
| Metric | Q1 FY2016 | Comparable period |
|---|---|---|
| Net sales | $185.4 million | $174.6 million |
| Gross profit / gross margin | $62.9 million / approximately 34% | $59.8 million / approximately 34% |
| SG&A | $36.8 million; 19.9% of sales | $37.6 million; 21.6% of sales |
| Income before taxes | $26.0 million | $23.3 million |
| Net income | $17.1 million | $15.4 million |
| EPS, basic and diluted | $0.37 | $0.33 |
| Operating cash flow | $20.6 million | $18.2 million |
Sales increased 6.2%, reflecting 3.9% higher case volume and a 2.2% increase in average selling price, primarily from product mix. Power+ Brands volume grew 27.3%, partly offset by declines in carbonated soft drinks, including Allied Brands. Cost of sales per unit rose 2.7%, while gross margin remained approximately flat. Lower marketing costs helped reduce SG&A; higher selling costs partly offset the reduction.
Cash and equivalents were $66.3 million at August 1, 2015, up from $52.5 million at May 2, 2015. Working capital was $112.5 million, up $11 million during the quarter; the current ratio was 2.5 to 1. Trade receivables were $66.0 million and inventories were $46.6 million. Capital expenditures were $2.0 million. The company repaid $5.0 million of credit-facility borrowings; debt outstanding was $5.0 million, with $92.8 million available under its $100 million revolving facilities after letters of credit. It reported compliance with loan covenants.
Material changes and unusual items
- Other expense was $35,000 in Q1 FY2016, compared with $1.2 million of other income in the prior-year quarter, which included a $1.3 million gain on property sale.
- SG&A declined by $0.8 million, and interest expense declined to $51,000 from $124,000, primarily due to lower average borrowings.
- Cash-flow hedge activity produced a $2.3 million after-tax other comprehensive loss, versus $0.4 million of income in the prior-year quarter. Outstanding aluminum swaps had a $29.3 million notional amount; assuming commodity prices do not change, $6.1 million of pre-tax unrealized loss was expected to be reclassified to earnings over the next 12 months.
- Operating cash flow benefited from net income and accrued and other liabilities, partly offset by seasonal increases in receivables and inventory. Cash increased $13.8 million, compared with a $7.4 million increase in the prior-year quarter.
Outlook, risks and contingencies
No specific sales or earnings guidance is provided. Management believes existing capital resources will meet liquidity and capital requirements for the next 12 months. Risks cited include raw-material cost fluctuations, competitive pricing, consumer preference changes, new-product execution, retailer support, weather, regulation and broader economic conditions. Management reported no material changes in risk factors or market risks from the prior annual report. The company guaranteed up to $4.8 million of residual value on leased equipment terminating in August 2017 and expected no loss. Disclosure controls were deemed effective, with no material quarter changes to internal control over financial reporting.
Important facts for investors to verify
- Whether strong Power+ growth continues and offsets declines in carbonated soft drinks and Allied Brands.
- How aluminum costs and hedge losses affect future cost of sales and earnings.
- Whether receivables and inventory normalize after seasonal and new-product-related increases.
- The terms, covenant requirements and availability of the revolving credit facilities.
- Whether the $4.8 million equipment residual-value guarantee results in any payment at lease termination.