National Beverage Corp. — FY2012 Form 10-K
Business context and reporting period. National Beverage develops, manufactures, markets and sells branded beverages, including Shasta, Faygo, Rip It and LaCroix. Its U.S.-focused business uses 12 manufacturing facilities and a hybrid distribution network. This annual report covers the 52-week fiscal year ended April 28, 2012; it also reports quarterly results, including the fourth quarter. Amounts below are in millions except per-share data.
Financial performance
| Metric | FY2012 | FY2011 |
|---|---|---|
| Net sales | $628.9 | $600.2 |
| Gross profit / gross margin | $213.3 / 33.9% | $218.7 / 36.4% |
| SG&A / percent of sales | $146.2 / 23.2% | $155.9 / 26.0% |
| Operating income* | $67.1 | $62.8 |
| Net income / diluted EPS | $44.0 / $0.95 | $40.8 / $0.88 |
| Cash from operating activities | $37.7 | $55.3 |
| Capital expenditures | $9.9 | $11.4 |
| Cash and equivalents at year-end | $35.6 | $7.4 |
*Operating income calculated as gross profit less SG&A. Sales rose 4.8%, reflecting Power+ Brands case-volume growth of 9.9%, carbonated soft-drink volume growth of 1.4%, and 1.3% higher unit pricing. Cost of sales increased 5.3% per case. Management attributed lower gross margin to higher raw-material costs and product mix, as well as a return to more typical margins after higher-margin overseas sales benefited FY2011. No debt was outstanding at year-end. The $75 million revolving facilities had $2.4 million committed to standby letters of credit, leaving $72.6 million available. Working capital was $69.8 million and the current ratio was 1.9, compared with $30.9 million and 1.4 a year earlier.
Fourth-quarter results
Fiscal Q4 net sales were $165.4 million versus $152.1 million in Q4 FY2011; gross profit was $52.8 million versus $54.3 million; net income was $11.5 million versus $11.1 million; diluted EPS was $0.25 versus $0.24. The filing does not provide standalone quarterly cash-flow or margin figures.
Changes, outlook and risks
- Year-over-year: Net income increased 7.9%, while gross profit declined despite higher sales; lower SG&A helped offset gross-margin pressure. Operating cash flow fell $17.6 million, primarily due to increases in receivables and inventory and lower accrued liabilities. Inventory rose $7.5 million and receivables $5.7 million, partly reflecting a new Strategic Alliance that began late in the year.
- Cash returns and capital allocation: No dividend was paid in FY2012; special dividends of $106.3 million and $62.3 million were paid in FY2011 and FY2010, respectively. In April 2012, the board expanded the buyback authorization to 1.6 million shares; 1,097,940 shares remained available, and no shares were purchased during the prior three fiscal years.
- Outlook: The filing gives no numerical earnings or sales guidance. Management said existing capital resources should meet foreseeable requirements and described continued evaluation of capacity, packaging and efficiency investments. It reported no material capital-expenditure commitments.
- Key risks: Commodity and energy price volatility and limits on passing costs through; competition and customer bargaining power; changing consumer preferences, including health and wellness trends; supply interruptions; weather-related seasonality; and possible regulatory changes, including taxes on sweetened beverages.
- Commitments and unusual items: Contractual obligations totaled $119.2 million, including $102.8 million of purchase commitments. The company guaranteed up to $7.1 million of leased-equipment residual value, due to expire July 31, 2012, and expected no loss. Aluminum swaps had a $503,000 year-end liability; approximately that amount of pretax unrealized loss was expected to be reclassified into earnings over the following 12 months, assuming commodity prices did not change. Unrecognized tax benefits were $4.5 million. A management agreement with an entity owned by the CEO generated $6.3 million of FY2012 fees, with $3.0 million payable at year-end.
Management and the independent auditor reported effective internal control over financial reporting. The auditor issued an unqualified opinion on the financial statements and controls. Ordinary-course litigation was not expected to materially affect financial position or results.
Important facts for investors to verify
- Whether volume, pricing and the new Strategic Alliance can sustain sales growth without further margin deterioration.
- Whether operating cash flow recovers as receivables, inventory and accrued liabilities change; review the working-capital build and inventory turns.
- Current commodity-swap positions, raw-material purchase commitments and the effect of commodity costs on future cost of sales.
- Terms and governance of the related-party management agreement and the board-authorized share repurchase program.
- Resolution and potential cash or earnings effects of uncertain tax positions, the equipment residual-value guarantee and pension-plan exposure.