BellRing Brands, Inc. — Q1 Fiscal 2021 Form 10-Q
Reporting period: Three months ended December 31, 2020. BellRing sells convenient nutrition products, primarily Premier Protein and Dymatize. The prior-year comparison is not fully like-for-like: the quarter ended December 31, 2019 includes results before and after the October 2019 IPO.
Financial performance and position
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Net sales | $282.4 million | $244.0 million |
| Gross profit / margin | $91.9 million / 32.5% | $91.3 million / 37.4% |
| Operating profit / margin | $47.8 million / 16.9% | $49.3 million / 20.2% |
| Net earnings, including redeemable noncontrolling interest | $32.9 million | $31.8 million |
| Net earnings available to Class A stockholders; diluted EPS | $7.8 million; $0.20 | $6.0 million; $0.15 |
| Net cash from operating activities | $23.3 million | $(24.9) million |
- Sales rose 16%. Premier Protein sales increased $35.4 million (17%); volume increased 22%, primarily from distribution gains, new products and promotions. Dymatize sales rose $4.4 million (16%), with volume up 10%. Nutrition bar sales declined.
- Gross profit was nearly flat despite higher sales, and gross and operating margins contracted. Operating profit declined 3%.
- Cash and cash equivalents were $50.8 million at December 31, 2020, versus $48.7 million at September 30, 2020. Current assets were $324.6 million and current liabilities $138.3 million.
- Debt principal totaled $686.2 million: $636.2 million under the Term B Facility and $50.0 million under the revolver. Revolver availability was $150.0 million. The Term B interest rate was 6.00%; the drawn revolver rate was 5.25%. The company reported compliance with its maximum 6.00:1.00 total net leverage covenant; the actual ratio is not stated here.
- Redeemable noncontrolling interest was $2,369.6 million. This reflects Post Holdings’ 71.2% economic interest in BellRing LLC; BellRing Inc. owned 28.8%.
Changes, outlook and notable items
- Operating profit was pressured by $6.0 million of higher net product costs, including unfavorable raw-material and freight costs, and $4.7 million of restructuring and facility-closure costs. Higher sales and $1.5 million of lower separation costs related to Post partly offset these impacts.
- Operating cash flow improved by $48.2 million year over year, primarily because of favorable working-capital changes of $46.2 million. Management attributed these changes largely to timing of purchases, payments, sales and receivable collections, and inventory buildup in the prior-year period. Cash flow should therefore be assessed alongside working-capital movements.
- The company announced closures of its Dallas office and downsizing of its Munich location, expected to be completed by the end of fiscal Q3 2021. Expected restructuring charges totaled $4.7 million; $4.5 million had been incurred by quarter-end.
- BellRing discontinued the Supreme Protein brand and related sales. Associated customer-relationship and trademark carrying values of $18.7 million and $11.8 million, respectively, were expected to be fully amortized by June 1, 2021.
- Management expected positive operating cash flow and said cash, operating cash flows and potential future credit facilities should be sufficient for foreseeable needs. No significant capital expenditures were planned for the rest of fiscal 2021; the filing provides no specific revenue or earnings guidance.
- Management said liquid and powder categories had returned to growth broadly in line with pre-pandemic rates, while bars continued to decline. COVID-19 remained a source of uncertainty for demand, operations and supply continuity.
- Joint Juice consumer litigation remained pending in several jurisdictions. The company was vigorously defending the cases, considered a material adverse effect unlikely, and had an $8.5 million accrual at both December 31 and September 30, 2020.
Key investor verification points
- Whether sales growth and volume gains persist, and how promotional spending affects realized prices and margins.
- Whether raw-material, freight and manufacturing costs continue to pressure profitability, and whether restructuring produces expected benefits.
- The sustainability of operating cash flow given the quarter’s material working-capital timing effects.
- Debt repayment, interest-rate exposure, revolver availability and covenant headroom; the filing does not provide the actual leverage ratio.
- COVID-19, third-party manufacturer and supplier concentration, and the bar-category downturn’s effect on sales and supply continuity.
- Developments in Joint Juice litigation, the Supreme Protein discontinuation and related amortization, and BellRing’s obligations and governance relationship with Post.