BellRing Brands, Inc. — Q1 Fiscal 2024 Form 10-Q
Period: Three months ended December 31, 2023; comparisons are to the three months ended December 31, 2022 unless otherwise noted. Amounts are in millions, except per-share data. BellRing is a single-segment convenient nutrition company, principally selling Premier Protein and Dymatize products.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Net sales | $430.4 | $362.7 | +$67.7; +19% |
| Gross profit / margin | $148.0 / 34.4% | $121.8 / 33.6% | Margin +0.8 percentage points |
| Operating profit / margin | $73.0 / 17.0% | $75.2 / 20.7% | -$2.2; -3% |
| Net earnings / diluted EPS | $43.9 / $0.33 | $44.2 / $0.33 | Net earnings -1%; EPS unchanged |
| Operating cash flow | $74.2 | $36.3 | +$37.9 |
Sales of shakes and other beverages were $350.2, powders $69.7, and other products $10.5. Premier Protein sales increased 19% on 20% higher volumes, primarily from distribution gains and additional promotions. Dymatize sales rose 21% on 32% higher volumes, reflecting shipment timing and distribution gains, partly offset by lower average selling prices.
Gross profit increased with sales and lower net product costs, though operating profit was pressured by $17.4 of accelerated amortization related to the North American PowerBar discontinuance, higher employee-related expenses of $5.3, and higher professional fees of $2.6. Lower net product costs of $7.4 partly offset these impacts. Net interest expense decreased to $14.9 from $16.7; the effective tax rate was 24.4% in both periods.
Financial position and liquidity
At December 31, 2023, cash and cash equivalents were $85.0, up from $48.4 at September 30, 2023. Current assets were $464.8 and current liabilities $162.5. Long-term debt carrying value was $832.1; principal debt was $840.0, consisting of 7.00% senior notes due March 2030. The $250.0 revolving facility was undrawn, with no letters of credit and $250.0 of available capacity. The company reported compliance with its 6.00:1.00 maximum total net leverage covenant.
Operating cash flow was $74.2; investing cash use was $0.2 and financing cash use was $37.8. Financing included $25.0 of revolver repayments and $9.4 of share repurchases. Cash increased by $36.6 during the quarter. The company reported a stockholders’ deficit of $286.9.
Outlook, risks, and notable items
Management expects positive operating cash flows and believes cash, operating cash flow, and potential future credit facilities will meet foreseeable needs. It reported no significant planned capital expenditures for fiscal 2024. No quantified earnings or sales guidance is provided in this filing.
Management said protein-cost inflation eased in the quarter, while packaging and manufacturing costs continued to face inflationary pressure; it expects that trend to continue during fiscal 2024. Inflation could adversely affect margins if cost increases outpace pricing or savings, or if pricing harms demand. Other cited risks include dependence on third-party manufacturers and suppliers, competition, customer demand, input-cost volatility, and the ability to maintain selling prices.
Litigation includes Joint Juice advertising class actions, for which the company recorded an estimated liability of $21.0; one related judgment of $12.9 is on appeal, and trials in two California matters were anticipated in 2024. A separate class action and a California Proposition 65 notice allege lead-related issues in protein products. The company intends to defend these matters and stated it does not expect their ultimate resolution to materially affect its financial condition, results, or cash flows. These are management assessments, not assurances of outcome.
The company repurchased 0.2 million shares for $9.4 during the quarter. Its $80 million authorization, approved in May 2023 and expiring May 3, 2025, had approximately $13.7 remaining at December 31, 2023. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether strong volume and distribution-led sales growth continues, and how promotional activity affects pricing and margins.
- The duration and financial impact of PowerBar accelerated amortization and ongoing packaging and manufacturing cost inflation.
- Cash generation, debt repayment capacity, and continued compliance with credit-agreement covenants.
- Developments in the Joint Juice litigation and the protein-product lead allegations, including any changes to estimated liabilities or management’s materiality assessment.