BellRing Brands, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended September 30, 2020. The filing also presents unaudited fourth-quarter results. Unless noted otherwise, amounts are in U.S. dollars and millions. Fiscal 2020 includes BellRing as a public company only after its October 21, 2019 IPO; pre-IPO results reflect the active nutrition business as part of Post Holdings. Comparisons of earnings attributable to Class A shareholders therefore are not directly like-for-like.
Business context and key financial metrics
BellRing sells convenient nutrition products, principally Premier Protein, Dymatize and PowerBar. Premier Protein represented 83.7% of FY2020 sales; RTD protein shakes and other RTD beverages represented 82.0%. The U.S. generated 88.9% of sales.
| Metric | FY2020 | FY2019 | Change / context |
|---|---|---|---|
| Net sales | $988.3 | $854.4 | Up $133.9, or 16% |
| Gross profit / margin | $338.0 / 34.2% | $311.8 / 36.5% | Profit increased; margin declined |
| Operating profit / margin | $164.0 / 16.6% | $162.5 / 19.0% | Up 1%; margin declined |
| Interest expense, net | $54.7 | — | Debt issued in connection with IPO |
| Net earnings, including redeemable NCI | $100.1 | $123.1 | Down $23.0 |
| Net earnings available to Class A shareholders | $23.5 | — | FY2020 reflects post-IPO ownership; EPS $0.60 basic and diluted |
| Cash from operations | $97.2 | $98.3 | Down $1.1 |
| Cash / debt principal at year-end | $48.7 / $703.7 | $5.5 / no debt | $170.0 revolving capacity remained available |
Year-end working capital, excluding cash and current debt, was $152.2, compared with $121.3 a year earlier. Balance-sheet total stockholders’ equity was negative $2,182.6, primarily reflecting the accounting for redeemable noncontrolling interest and IPO-related ownership changes; the redeemable NCI was $2,021.6.
Fourth quarter
FY2020 Q4 net sales were $282.6, versus $214.5 in FY2019 Q4. Gross profit was $89.8 versus $76.7; net earnings including NCI were $35.5 versus $26.7. Net earnings available to Class A shareholders were $10.0, with basic EPS of $0.25 and diluted EPS of $0.26. The filing does not provide a clear Q4 year-over-year comparison of Class A earnings because no Class A shares were outstanding in FY2019.
Material changes versus the prior comparable period
- Premier Protein sales rose $148.2, or 22%, driven by RTD shake volumes, distribution gains, the comparison with prior-year capacity constraints, promotions and new products. Dymatize sales declined 4%; PowerBar declined 20%.
- Operating profit was nearly flat despite higher sales. Higher product costs, advertising and promotion, public-company and employee costs, and warehousing expenses offset much of the sales benefit and lower separation costs.
- Gross and operating margins fell year over year. The filing cites unfavorable raw-material costs and increased advertising and other operating costs among the drivers.
- Operating cash flow was broadly stable. Higher interest and income-tax payments were largely offset by favorable working-capital movements.
- Debt was introduced with the IPO financing; BellRing reported $703.7 of aggregate principal debt at year-end, including $673.7 under the term loan and $30.0 drawn on the revolver.
Outlook, risks and unusual items
- COVID-19: Pantry-loading lifted sales in Q2, followed by category-wide slower sales in Q3 amid reduced on-the-go consumption and gym and specialty-store closures. In Q4, liquid and powder categories returned to growth broadly in line with pre-pandemic rates; bars continued to decline, and international Dymatize and PowerBar remained affected by closures. Management said the duration and financial effects remained uncertain.
- Liquidity and outlook: Management expected positive operating cash flow and believed cash, operating cash generation and potential credit facilities would meet foreseeable needs. It planned no significant FY2021 capital expenditures. No quantified sales or earnings guidance is provided in the supplied filing text.
- Leverage: The credit agreement requires a total net leverage ratio no greater than 6.00:1.00; the company reported compliance at September 30, 2020. A $28.8 excess-cash-flow prepayment was classified as current debt. The filing notes substantial debt-service needs and covenant and refinancing risks.
- Concentration: Costco and Walmart, including affiliates such as Sam’s Club, accounted for approximately 67.3% of FY2020 sales. One contract manufacturer supplied 71.3% of Premier Protein RTD shakes; a single supplier provides aseptic packaging for the 11-ounce shakes.
- Ownership and related parties: Post owned 71.2% of BellRing LLC’s economic interests and controlled 67% of BellRing Inc.’s voting power at year-end. Under the tax receivable agreement, BellRing may owe Post 85% of certain realized or deemed tax savings. Post also continued to provide services under a master services agreement.
- Legal contingency: A group of Joint Juice consumer class actions remained pending; BellRing had an $8.5 accrual at year-end and stated it did not expect resolution to materially affect its financial position, results or cash flows. The filing also identifies litigation with a former contract manufacturer.
- Unusual reporting context: BellRing completed its IPO in October 2019 and adopted lease accounting in FY2020. The auditor issued an unqualified opinion on the financial statements; management reported effective disclosure controls and internal control over financial reporting. The auditor did not attest to internal controls.
Investor verification priorities
- Review whether Premier Protein and RTD shake growth, product concentration and the disclosed manufacturer and packaging dependencies remain sustainable.
- Check current debt, cash, scheduled and excess-cash-flow repayments, interest costs, covenant headroom and revolver availability.
- Assess whether margin pressure from input costs, promotions and operating expenses is improving, and whether Q4 category trends persisted.
- Verify the effect of Costco and Walmart exposure and the company’s ability to diversify customers and sales channels.
- Track the Post-controlled voting structure, tax receivable agreement obligations, and any changes in Post’s ownership or plans.
- Follow the Joint Juice and former-manufacturer litigation, including accrual adequacy and any material developments.