National Beverage Corp. — FY2015 Form 10-K
Business context and period. The filing covers the fiscal year ended May 2, 2015 (52 weeks); the prior fiscal year ended May 3, 2014 included 53 weeks. National Beverage develops, manufactures, markets and sells flavored beverages, including LaCroix sparkling water, Rip It energy drinks, Everfresh juices, and Shasta and Faygo soft drinks. It operates 12 U.S. manufacturing facilities and uses a mix of warehouse and direct-store delivery distribution.
Financial performance
| Metric | FY2015 | FY2014 | Change / context |
|---|---|---|---|
| Net sales | $645.8 million | $641.1 million | Up 0.7% |
| Gross profit / margin | $219.1 million / 33.9% | $217.7 million / 33.9% | Margin approximately unchanged |
| SG&A | $145.2 million (22.5% of sales) | $153.2 million (23.9%) | Down $8.1 million, mainly lower selling and marketing costs |
| Income before taxes | $74.7 million | $63.1 million | Up 18.4% |
| Net income | $49.3 million | $43.6 million | Up 13.0% |
| Diluted EPS | $1.05 | $0.92 | Up 14.1% |
| Operating cash flow | $58.0 million | $52.4 million | Up $5.6 million |
| Capital expenditures | $11.6 million | $12.1 million | Investing cash outflow was $9.7 million, net of property-sale proceeds |
Sales growth reflected a 1.1% increase in case volume, including 15.3% growth in Power+ Brands and 2.9% growth in branded volume, partly offset by declining Allied Brands. Average selling price per unit fell 0.4%, primarily from product mix. The effective tax rate rose to 34.0% from 30.9%; the prior-year rate benefited from resolution of certain tax years. FY2015 other income included a $1.3 million gain on sale of property.
Fourth quarter: Net sales were $164.6 million versus $164.3 million, and net income was $12.2 million versus $11.9 million. The comparison is affected by FY2014’s 14-week fourth quarter versus 13 weeks in FY2015.
Financial position and liquidity
- Cash and equivalents were $52.5 million at year-end, up from $29.9 million. Working capital was $101.5 million, up from $78.6 million; the current ratio improved to 2.5 from 2.2.
- Long-term debt was $10.0 million, down from $30.0 million. The company had $100 million of unsecured revolving facilities, with $87.8 million available after borrowings and letters of credit. Borrowings bore a 1.0% weighted-average rate; the company reported compliance with covenants.
- Financing cash outflow was $25.8 million, including $20.0 million of debt repayments and $6.0 million to redeem Series D preferred shares. No common dividends were paid in FY2015.
- Contractual obligations totaled $86.2 million: $10.0 million debt, $22.2 million operating leases, and $54.0 million purchase commitments, all due within one year for the purchase commitments. Management said available resources should meet liquidity and capital needs for the next 12 months.
Outlook, risks and notable matters
No quantified revenue or earnings guidance is provided. Management’s stated strategy emphasizes healthier and functional beverages, product and flavor innovation, regional brands, and value-oriented products. Results are seasonal, with sales generally highest in summer.
- Key risks include changing consumer tastes, intense competition, retailer bargaining power, commodity and energy costs, weather, regulation and employee-benefit costs. The company may not be able to pass higher input costs on to customers.
- Aluminum swap contracts had a $38.0 million notional amount. Assuming commodity prices did not change, $3.0 million of pre-tax unrealized loss was expected to be reclassified into earnings over the next 12 months.
- A multi-employer pension plan reported a mass withdrawal and issued a withdrawal-liability notice. The company disputes aspects of the calculation and expects any liability, if applicable, not to be material.
- The company guaranteed up to $4.9 million of leased-equipment residual value, with the lease ending in August 2017; management expected no loss. Ordinary-course litigation was not expected to materially affect results or financial position.
- Related-party management fees to Corporate Management Advisors, Inc., owned by the Chairman and CEO, were $6.5 million in FY2015; $1.6 million was payable at year-end. The agreement bases the annual fee on 1% of consolidated net sales.
- The auditor gave an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Whether Power+ Brand growth, particularly LaCroix, can continue to offset softness in carbonated soft drinks and Allied Brands.
- How the aluminum hedge losses and commodity-price movements may affect future cost of sales and margins.
- The outcome and potential financial exposure from the disputed pension withdrawal-liability notice and uncertain tax positions.
- The terms, duration and oversight of the related-party management agreement and its fees.
- The comparability of quarterly trends given seasonal demand and the prior year’s extra fiscal week.