BellRing Brands, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2022. The company sells convenient nutrition products, principally Premier Protein and Dymatize shakes, beverages, powders and bars.
Financial performance
| Metric | Three months ended June 30, 2022 | Prior-year quarter | Nine months ended June 30, 2022 | Prior-year period |
|---|---|---|---|---|
| Net sales | $370.6 million | $342.6 million | $992.3 million | $907.1 million |
| Gross profit | $120.2 million | $111.3 million | $299.5 million | $290.2 million |
| Operating profit | $67.5 million | $51.5 million | $151.3 million | $114.9 million |
| Net earnings available to common stockholders | $39.1 million | $9.5 million | $48.6 million | $17.9 million |
| Diluted EPS | $0.29 | $0.24 | $0.61 | $0.45 |
| Operating cash flow | Not separately provided for the quarter | $11.4 million | $145.9 million |
Quarterly sales rose 8%; nine-month sales rose 9%. Gross margin was approximately 32.4% for the quarter (32.5% prior year) and 30.2% for the nine-month period (32.0% prior year). Operating margin increased to approximately 18.2% for the quarter from 15.0%, and to 15.2% for nine months from 12.7%. Higher input costs weighed on gross margin; lower prior-year accelerated amortization and reduced advertising helped lift operating profit. Nine-month earnings comparisons also reflect the spin-off and related changes in noncontrolling-interest allocation and taxes.
Quarterly Premier Protein sales increased 7%, primarily from higher prices, partly offset by a 9% volume decline. Dymatize sales increased 17%, with a 28% volume decline partly offset by higher prices and favorable mix. For nine months, Premier Protein sales increased 6% with volume down 7%; Dymatize sales increased 36% on flat volume.
Liquidity, debt and cash flows
- At June 30, 2022, cash was $34.7 million, current assets $423.1 million and current liabilities $177.0 million. Cash declined $117.9 million from fiscal year-end.
- Debt principal totaled $924.0 million: $840.0 million of 7.00% senior notes due March 2030 and $84.0 million drawn under a $250.0 million revolving facility. The balance-sheet carrying value of long-term debt was $914.2 million; $166.0 million of revolver capacity remained available.
- The new credit agreement requires a total net leverage ratio no greater than 6.00 to 1.00. The company reported compliance at June 30 and said it did not believe noncompliance was reasonably likely in the foreseeable future.
- Nine-month operating cash flow fell to $11.4 million, mainly due to $128.9 million of unfavorable working-capital changes, including inventory growth and timing of trade-payable payments. Investing cash outflow was $1.2 million; financing cash outflow was $127.7 million.
- The company said its cash, expected operating cash flows and possible future credit facilities should meet foreseeable requirements. It planned no significant capital expenditures for the remainder of fiscal 2022.
Material changes, outlook and risks
- Post completed the spin-off in March 2022. The company issued $840.0 million of 7.00% senior notes as part of the transaction, repaid its former Term B facility and entered into a new revolving credit agreement. It recorded a $17.6 million loss on debt extinguishment and refinancing during the nine months.
- Management cited inflation in raw materials, packaging, freight and labor, plus constrained contract-manufacturing capacity, low shake inventories, below-normal service levels and product allocation. Pricing actions were taken on nearly all products. Management expected supply constraints to persist through fiscal 2022 and into fiscal 2023, subject to manufacturers’ ability to restore capacity, staffing and inventory.
- No quantified financial guidance is provided in the filing. Management’s outlook includes expectations of positive operating cash flow and sufficient liquidity for the foreseeable future, but notes that these depend on economic conditions, competition and other risks.
- A voluntary recall was initiated after quarter-end by a contract manufacturer for products made April 1–July 15, 2022 at one facility. The company was assessing the impact and did not expect a material adverse effect on financial condition, results or cash flows.
- In Joint Juice litigation, a New York jury found for plaintiffs in June 2022; the court had not yet entered judgment. Other class actions remained pending. The company intends to defend and appeal adverse outcomes; it had an $8.5 million accrual and said it did not expect the litigation to materially affect results.
- Key risks include reliance on a limited number of contract manufacturers and suppliers, especially for RTD shakes; input-cost volatility; demand and pricing pressures; leverage and interest rates; litigation; and risks associated with the spin-off and tax-free treatment. Management reported no material changes to previously disclosed risk factors.
Investor facts to verify
- Whether contract manufacturers restore production and inventory levels as expected, and whether the post-quarter recall affects sales, costs or customer relationships.
- Whether price increases offset inflation without further damaging volumes, particularly for Premier Protein and Dymatize.
- Working-capital trends, especially inventory levels and operating cash conversion.
- Debt service capacity, revolver usage and continued compliance with the 6.00-to-1.00 leverage covenant.
- Developments in the Joint Juice cases, including entry of judgment in the New York matter, and any change to the $8.5 million accrual.
- Effects of the spin-off on comparable earnings, taxes and ongoing obligations or transactions with Post.