National Beverage Corp. — Form 10-Q Summary
Reporting period: Quarter ended October 26, 2013, the second quarter of fiscal 2014; comparisons are with the quarter ended October 27, 2012. The filing also reports six-month results. National Beverage develops, manufactures, markets and sells beverages, primarily in North America. Figures below are in millions except per-share amounts and percentages.
Financial performance
| Metric | Three months ended Oct. 26, 2013 | Year-over-year change | Six months ended Oct. 26, 2013 | Year-over-year change |
|---|---|---|---|---|
| Net sales | $167.7 | +0.7% | $340.0 | -2.7% |
| Gross profit / margin | $58.8 / 35.1% | Margin +2.3 percentage points | $117.6 / 34.6% | Margin +2.3 percentage points |
| SG&A | $39.7 / 23.7% of sales | $36.1 / 21.7% in prior year | $79.8 / 23.5% of sales | $72.4 / 20.7% in prior year |
| Net income | $12.5 | +$0.5 | $24.6 | -$1.8 |
| EPS, basic and diluted | $0.27 | vs. $0.26 | $0.52 | vs. $0.57 |
| Operating cash flow | Not reported by quarter | $23.5 | vs. $16.1 |
Quarterly income before taxes was $19.0 million and income tax expense was $6.5 million; the effective tax rate was 34.1%. For the six months, income before taxes was $37.4 million, tax expense $12.8 million, and the effective rate 34.3%. Interest expense was $0.2 million for the quarter and $0.4 million for six months, up from $0.03 million and $0.06 million, respectively.
Cash, debt and liquidity
- Cash and equivalents were $27.1 million, up from $18.3 million at April 27, 2013. Six-month cash increased $8.8 million, versus a $13.1 million increase in the comparable prior-year period.
- Six-month operating cash flow of $23.5 million was offset by $4.4 million of investing outflows, primarily capital expenditures, and $10.4 million of financing outflows, including $10.0 million of debt repayment and $0.3 million of preferred dividends.
- Long-term debt declined to $40.0 million from $50.0 million. The company had $100 million in revolving facilities, $2.3 million used for letters of credit, and $57.7 million available. It reported compliance with all loan covenants.
- Working capital was $82.5 million, up $15.0 million; the current ratio was 2.5 to 1, compared with 2.1 to 1 at fiscal year-end. Receivables declined $8.1 million, and days sales outstanding fell from 34.7 to 30.4 days. Inventories rose $3.7 million.
Material changes and management commentary
- Quarterly Power+ Brands case volume grew 12.5%, while carbonated soft drink volume fell 5.8%. Favorable product mix and 1.5% higher unit pricing helped lift sales and gross margin; cost of sales per unit declined 2.0%.
- For the first six months, Power+ Brands case volume rose 6.3%, but carbonated soft drink volume declined 8.0%, attributed primarily to unfavorable first-quarter U.S. weather and an ongoing industry decline. Unit pricing improved 1.4%.
- Higher advertising and marketing expenses drove increased SG&A. Six-month sales and net income declined despite improved gross margin.
- The company said existing capital resources should meet liquidity and capital requirements for the next twelve months. The filing provides no specific earnings or sales guidance.
Risks, contingencies and unusual items
- Results are seasonal, with sales typically highest in summer. Management cites exposure to weather, raw-material costs, competitive pricing, consumer preferences, retailer support, new-product execution and regulation, among other risks. No material changes to previously disclosed risk factors or market risks were reported.
- Aluminum swaps hedge part of can-cost exposure through April 2014. The outstanding notional was $14.2 million; assuming commodity prices do not change, $0.9 million of unrealized loss before tax was expected to be reclassified to cost of sales over the next six months.
- The company guaranteed up to $5.7 million of residual value on leased equipment; the lease was extended to August 1, 2014. Management expected no loss on the guarantee.
- The company began paying preferred dividends during the period. The statements report $0.3 million of preferred dividends for the six months.
Key facts for investors to verify
- Whether Power+ Brands growth and favorable mix can continue to offset declines in carbonated soft drink volumes.
- Whether higher marketing spending supports growth without further pressure on operating margins.
- Subsequent debt, cash and borrowing availability, including compliance with credit-facility covenants.
- Actual aluminum hedge settlements and their impact on cost of sales, and the outcome of the leased-equipment residual-value guarantee.
- Seasonal and weather effects on results; interim results are not necessarily indicative of full-year performance.