BellRing Brands, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2023. The quarter’s results are compared with the three months ended June 30, 2022; balance-sheet figures are compared with September 30, 2022. BellRing sells convenient nutrition products, principally Premier Protein and Dymatize ready-to-drink beverages and powders.
Key financial results
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Net sales | $445.9 million, up 20% from $370.6 million | $1,194.2 million, up 20% from $992.3 million |
| Gross profit / margin | $136.0 million / 30.5%; prior year $120.2 million / 32.4% | $374.9 million / 31.4%; prior year $299.5 million / 30.2% |
| Operating profit / margin | $76.0 million / 17.0%; prior year $67.5 million / 18.2% | $209.2 million / 17.5%; prior year $151.3 million / 15.2% |
| Net earnings available to common stockholders | $44.3 million, up 13%; diluted EPS $0.33 | $119.4 million, versus $48.6 million; diluted EPS $0.89 versus $0.61 |
| Interest expense, net | $17.3 million, versus $15.9 million | $50.8 million, versus $32.8 million |
| Cash provided by operating activities | Not separately presented for the quarter | $130.7 million, versus $11.4 million |
| Capital expenditures | Not separately presented for the quarter | $1.0 million |
Financial position and liquidity
- At June 30, cash was $26.1 million, versus $35.8 million at September 30, 2022. Current assets were $450.2 million and current liabilities $167.8 million.
- Long-term debt carrying value was $910.5 million, comprising $840.0 million of 7.00% senior notes due March 2030 and $79.0 million outstanding on the revolving facility, net of debt issuance costs. Principal debt totaled $919.0 million. Cash less principal debt implies net debt of approximately $892.9 million.
- The $250.0 million revolving facility had $171.0 million of available capacity and no outstanding letters of credit. Borrowings were at variable rates; rates on utilized borrowings ranged from 8.18% to 10.25% at June 30. The company complied with its maximum 6.00:1.00 total net leverage covenant.
- Stockholders’ deficit was $364.7 million. During the nine-month period, BellRing repurchased 4.0 million shares for $118.3 million, including commissions and accrued excise tax.
Performance drivers and changes
- Quarterly sales growth reflected higher sales of Premier Protein products (+20%) and Dymatize products (+32%). Premier Protein volumes rose 10%, supported by increased RTD shake production and the return of certain flavors; price increases also lifted average selling prices. Dymatize volumes rose 46%, supported by distribution gains and comparison with prior-year price elasticity, while average selling prices declined on mix and promotional spending.
- For the nine months, Premier Protein sales rose 23%, mainly from higher prices, with volumes up 7%. Dymatize sales rose 15%, supported by pricing, favorable mix and 6% volume growth.
- Quarterly operating profit increased 13%, but gross and operating margins declined year over year. Higher net product costs of $22.4 million—principally raw materials and manufacturing—and $6.7 million more advertising partly offset sales growth. Across nine months, higher product costs of $73.4 million and higher advertising, employee costs and professional fees partly offset sales growth and $12.5 million lower separation-related costs.
- Nine-month operating cash flow improved by $119.3 million, largely because the prior-year period included larger cash outflows rebuilding powder inventories. Higher earnings and favorable receivables timing also helped; higher tax payments and interest payments partly offset the improvement.
- Net earnings comparisons are affected by the prior-year spin-off: the nine months ended June 30, 2022 included $33.7 million attributable to redeemable noncontrolling interest and a $17.6 million loss on extinguishment of debt. The spin-off also changed the company’s tax profile.
Outlook, risks and contingencies
- Management expects positive operating cash flows and believes cash, operating cash flow and potential credit facilities will meet foreseeable requirements. It reported no significant planned capital expenditures for the remainder of fiscal 2023. The filing gives no specific revenue or earnings guidance.
- Management said input-cost inflation, including raw materials, packaging and manufacturing, pressured margins and could continue during fiscal 2023. Price increases may not fully offset costs and could affect demand.
- New raw-material supply and co-manufacturing arrangements include minimum purchase and take-or-pay provisions, adding an estimated $885.0 million of commitments through fiscal 2028, including $177.0 million due within 12 months. A separate five-year milk-protein supply commitment with Fonterra became effective July 1, 2023.
- Legal matters include ongoing Joint Juice advertising litigation, including a $12.9 million judgment in a New York case under appeal; BellRing reported a $16.0 million estimated liability for these matters. A June 2023 putative class action alleges lead-related issues in protein products, and a related California Proposition 65 notice was received. The company intends to defend these matters and does not expect their ultimate resolution to materially affect its financial condition, results or cash flows.
- A contract manufacturer initiated a voluntary RTD shake recall in fiscal 2022; management expects its impact to remain immaterial. Principal broader risks include reliance on a limited number of contract manufacturers and suppliers, input-cost volatility, competition, consumer demand, leverage, regulation and litigation.
Important facts for investors to verify
- Whether pricing and volume growth can continue without greater promotional spending or adverse effects on demand, and whether margins recover as input costs change.
- Execution and financial implications of the $885.0 million supply and co-manufacturing commitments, particularly the $177.0 million due within 12 months.
- Cash conversion and working-capital needs, including inventory growth to $236.2 million from $199.8 million at September 30, 2022.
- Debt service costs, variable-rate exposure, covenant headroom and the company’s capacity to fund repurchases alongside contractual commitments.
- Developments in the Joint Juice cases, protein-products litigation and Proposition 65 matter, including any changes to accruals or management’s assessment of potential exposure.