National Beverage Corp. — Form 10-Q Summary
Business and reporting period: National Beverage develops, manufactures, markets and sells beverages, primarily in North America, including LaCroix, Rip It, Everfresh, Shasta and Faygo. This report covers the third quarter and first nine months of fiscal 2015, ended January 31, 2015; the comparable prior-year periods ended January 25, 2014. Results are seasonal, with sales typically highest in summer.
Financial performance
| Metric | Q3 FY2015 | Q3 FY2014 | Nine months FY2015 | Nine months FY2014 |
|---|---|---|---|---|
| Net sales | $143.0m | $136.8m | $481.2m | $476.8m |
| Gross profit / margin | $46.1m / 32.2% | $44.7m / 32.7% | $163.7m / 34.0% | $162.3m / 34.0% |
| Income before taxes | $13.3m | $10.3m | $56.3m | $47.7m |
| Net income | $8.8m | $7.1m | $37.1m | $31.7m |
| Diluted EPS | $0.19 | $0.15 | $0.79 | $0.67 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $36.7m | $32.3m |
Q3 sales increased 4.6%, reflecting 3.3% higher case volume and 1.2% higher average selling price per unit. Branded volume rose 5.4%, including 20.1% growth in Power+ Brands, partly offset by lower Allied Brands volume. For the nine months, sales rose 0.9%: case volume increased 2.1%, while average selling price per unit declined 1.1%. Power+ case volume grew 17.5%.
Q3 gross margin declined 0.5 percentage points, attributed to product mix; cost of sales per unit rose 1.9%. Nine-month gross margin was unchanged, with cost of sales per unit down 1.1%, primarily due to mix. SG&A fell to $32.6m from $34.5m in Q3 and to $108.2m from $114.2m for nine months, mainly due to lower marketing and selling costs. Nine-month other income included a $1.3m gain on property sale.
Cash, debt and liquidity
- Cash and equivalents were $40.4m at January 31, 2015, up $10.5m from May 3, 2014. Nine-month operating cash flow was $36.7m; investing cash use was $5.3m, including $7.2m of capital expenditures and $1.8m of property-sale proceeds. Financing cash use was $20.9m, including $15.0m of debt repayments and a $6.0m preferred-stock redemption.
- Working capital increased $17.7m to $96.3m; the current ratio improved to 2.8 from 2.2. Receivables declined $6.9m, and days sales outstanding fell to 32.6 from 34.7. Inventory increased $2.6m, primarily to support new products and Power+ growth.
- Long-term debt was $15.0m, down from $30.0m at May 3, 2014. The $100m revolving facilities had $82.8m available after borrowings and letter-of-credit reserves. The company reported compliance with loan covenants.
Outlook, risks and notable items
Management gave no specific sales or earnings guidance, but said existing capital resources should meet liquidity and capital needs for the next 12 months. It cited raw-material costs, consumer preferences, competitive pricing, weather and seasonality as factors affecting results. Other identified uncertainties include retailer support, new-product success, regulation and execution of business strategies. Management reported no material changes in risk factors or market risks from the prior annual report.
The company uses aluminum swaps to partially mitigate can-cost exposure. At January 31, 2015, outstanding swap notional was $44.9m; an estimated $424,000 pre-tax unrealized loss was expected to be reclassified to earnings over the next 12 months, assuming commodity prices did not change. The company also guaranteed up to $5.0m of leased equipment residual value; it expected no loss. It redeemed half of its Series D preferred shares for $6.0m during the period.
Disclosure controls were assessed as effective, with no reported material changes in internal control over financial reporting.
Investor verification priorities
- Verify whether strong Power+ volume growth continues and offsets declines in Allied Brands and the nine-month selling-price/mix pressure.
- Track gross margin and unit costs, including the effect of aluminum prices and cash-flow hedges.
- Assess whether lower selling and marketing expenses are sustainable and how they affect future growth.
- Review cash conversion and working-capital movements, particularly inventory growth and payments to suppliers.
- Confirm debt-facility availability, covenant compliance, and the company’s ability to fund capital needs and preferred obligations.
- Monitor the equipment residual-value guarantee and the timing and income-statement effect of hedge losses.