National Beverage Corp. — Form 10-Q Summary
Reporting period: Quarter and six months ended October 31, 2015. The quarter is the second quarter of fiscal 2016; comparisons are to the periods ended November 1, 2014. The company develops, manufactures, markets and sells beverages, including LaCroix, Rip It, Everfresh, Shasta and Faygo.
Financial results
Amounts are in millions except per-share data.
| Metric | Three months ended Oct. 31, 2015 | Prior-year quarter | Six months ended Oct. 31, 2015 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $178.7 | $163.6 | $364.1 | $338.2 |
| Gross profit | $60.6 | $57.7 | $123.5 | $117.6 |
| Gross margin | 33.9% | Approximately 35.3% | 33.9% | Approximately 34.8% |
| SG&A | $37.2 | $38.0 | $74.1 | $75.6 |
| Net income | $15.3 | $13.0 | $32.4 | $28.3 |
| Diluted EPS | $0.33 | $0.28 | $0.69 | $0.60 |
- Quarterly sales rose 9.2%, driven by 9.6% higher case volume; Power+ Brands volume grew 25.3%, while branded carbonated soft drinks grew 2.6%. Average selling price was approximately unchanged. For the six months, sales rose 7.6% on 6.6% volume growth and a 1% increase in average selling price.
- Gross profit increased, but gross margin fell to 33.9%. Management attributed pressure to product mix; cost of sales per case rose 1.8% in the quarter and 2.2% year to date.
- SG&A declined, primarily due to lower marketing costs. SG&A was 20.8% of quarterly sales and 20.3% of six-month sales, versus 23.2% and 22.4%, respectively, in the prior-year periods.
- Effective income tax rates were 34.2% for both current periods, versus 34.0% in the comparable prior-year periods. Interest expense was $0.1 million for the six months, down from $0.2 million.
Cash flow, debt and liquidity
- Six-month operating cash flow was $37.2 million, compared with $31.2 million a year earlier. Capital expenditures were $4.4 million; investing cash outflow was $4.4 million.
- Cash increased $23.3 million during the six months to $75.8 million. Financing cash outflow was $9.4 million, including $10.0 million of credit-facility repayments.
- At October 31, 2015, the company had no borrowings outstanding, compared with $10.0 million of long-term debt at May 2, 2015. Its $100 million unsecured revolving facilities had $97.8 million available after $2.2 million reserved for letters of credit. The company reported compliance with covenants.
- Working capital was $123.3 million, up $21.9 million from fiscal year-end; the current ratio was 2.8, versus 2.5. Receivables declined $2.7 million, and days sales outstanding improved to 29.2 from 33.1. Inventory increased $5.8 million, which management linked to higher sales and new product introductions.
Changes, outlook and risks
- Power+ Brands continued to be the principal volume-growth engine. Six-month growth in those brands was 26.4%, partly offset by declines in branded carbonated soft drinks and Allied Brands.
- Six-month other income in the prior-year period included a $1.3 million gain on property sale; current-period other expense was $0.1 million. The prior-year six-month results also included a $6 million Series D preferred-stock redemption.
- Aluminum swap contracts had a $25.6 million notional amount. The filing estimates that $6.4 million of unrealized losses before tax would be reclassified from accumulated other comprehensive loss into earnings over the following 12 months, assuming commodity prices did not change. Management uses the contracts to partially mitigate aluminum-cost exposure, not for speculation.
- The company provided no specific earnings or revenue guidance. Management said existing capital resources should meet liquidity and capital needs for the next 12 months. It noted seasonal sales, typically highest in summer, and cited raw-material costs, consumer preferences, competitive pricing and weather as factors affecting results.
- A $4.7 million guarantee of leased-equipment residual value may require payment if equipment-sale proceeds fall short when the lease ends August 1, 2017; management expected no loss. The filing reported no material changes in risk factors or market risks from the prior annual report.
- Disclosure controls were assessed as effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Power+ Brands volume growth can continue and offset weakness in carbonated soft drinks and Allied Brands.
- Whether product mix and input-cost pressures continue to weigh on gross margin, and how aluminum hedge losses flow through cost of sales.
- Whether the higher inventory balance supports sales growth without creating excess-stock or working-capital pressure.
- Available credit, covenant compliance and the company’s liquidity position as seasonal needs and capital spending evolve.
- The outcome of the leased-equipment residual-value guarantee and the timing and earnings effect of hedge-loss reclassification.