National Beverage Corp. — Q1 FY2014 Form 10-Q
Reporting period: Three months ended July 27, 2013; comparative period ended July 28, 2012. The company develops, manufactures, markets and sells flavored beverages, including carbonated soft drinks and Power+ active- and health-oriented brands, primarily in North America.
Financial results
| Metric | Q1 FY2014 | Q1 FY2013 |
|---|---|---|
| Net sales | $172.4 million | $182.8 million |
| Gross profit | $58.7 million; 34.1% of sales | $58.3 million; 31.9% of sales |
| SG&A | $40.1 million; 23.3% of sales | $36.3 million; 19.8% of sales |
| Income before taxes | $18.4 million | $22.0 million |
| Net income | $12.1 million | $14.4 million |
| Earnings per common share, basic and diluted | $0.26 | $0.31 |
| Operating cash flow | $18.2 million | $12.3 million |
| Capital expenditures | $2.4 million | $1.4 million |
Cash and equivalents were $28.9 million at July 27, 2013, up from $18.3 million at April 27, 2013. Long-term debt was $45.0 million, down from $50.0 million. The company had $100 million in revolving credit facilities, with $2.3 million supporting letters of credit and $52.7 million available to borrow. Working capital was $74.3 million, up $6.8 million; the current ratio was 2.1 to 1.
Material changes and management commentary
- Sales declined 5.7%; case volume fell 7%, which management attributed primarily to unfavorable U.S. weather and the continuing industry-wide decline in carbonated soft drinks. A 1.4% improvement in unit pricing, reflecting a favorable Power+ brand mix, partly offset lower volume.
- Gross margin rose to 34.1% from 31.9% due to product mix and higher pricing; cost of sales per unit declined 1.9%.
- SG&A increased, mainly from higher advertising and marketing expenses. Net income and EPS fell year over year despite higher gross profit.
- Operating cash flow improved year over year. Seasonal inventory growth partly offset cash generation; receivables declined $1.5 million, and days sales outstanding fell to 33.0 from 34.7.
- The company repaid $5 million under its credit facilities. It reported compliance with loan covenants and stated existing capital resources should meet liquidity and capital needs for the next twelve months.
Outlook, risks and notable items
The filing provides no quantified earnings or sales guidance. Management notes that sales are seasonal, typically strongest in summer, and that quarterly results may not predict full-year results. Identified risks include weather, raw-material costs, competitive pricing, consumer preferences, retailer support, new-product success and broader economic conditions. The company hedges aluminum costs; $1.4 million of unrealized net losses before tax was expected to be reclassified to cost of sales over the next nine months, assuming commodity prices did not change. A $5.9 million residual-value guarantee on leased equipment was outstanding; management expected no loss. The lease was extended to August 1, 2014. No material changes in risk factors or market risks were reported, and disclosure controls were deemed effective.
Investor verification priorities
- Track whether volume weakness persists and whether Power+ mix and pricing continue to support gross margin.
- Assess whether increased marketing and SG&A produce sales growth or further pressure earnings.
- Monitor aluminum costs, hedge losses reclassified to cost of sales, and other raw-material exposure.
- Review seasonal inventory, operating cash conversion, credit-facility borrowings and covenant headroom.
- Confirm performance of the leased-equipment residual-value guarantee and the assumptions behind management’s liquidity outlook.