National Beverage Corp. — Q2 FY2023 Form 10-Q
Reporting period: Quarter ended October 29, 2022; comparisons are with the quarter ended October 30, 2021. Six-month results cover the first half of fiscal 2023. Amounts below are in millions except per-share data.
Business context
The company develops, produces, markets and sells beverages, primarily in the United States and Canada. Its portfolio includes LaCroix sparkling water, juices, energy drinks and Shasta and Faygo soft drinks. Sales are seasonal, generally stronger in summer.
Financial performance
| Metric | Q2 FY2023 | Q2 FY2022 | First half FY2023 | First half FY2022 |
|---|---|---|---|---|
| Net sales | $299.6 | $283.2 | $617.8 | $594.9 |
| Gross profit | $100.0 | $101.5 | $199.4 | $226.3 |
| Gross margin | 33.4% | 35.8% | 32.3% | 38.0% |
| Operating income | $46.9 | $51.6 | $93.4 | $121.9 |
| Net income | $36.0 | $39.3 | $71.5 | $93.1 |
| Diluted EPS | $0.39 | $0.42 | $0.76 | $0.99 |
| Operating cash flow | Not separately reported | Not separately reported | $82.2 | $86.0 |
- Q2 sales rose 5.8%, primarily from a 10.3% increase in average selling price per case, while total volume fell 4.1%. First-half sales increased 3.8%; average selling price rose 10.3% and volume declined 5.8%. Power+ brands and carbonated soft drinks both had volume declines.
- Cost of sales per case increased 2.7% in Q2 and 6.4% in the first half. Management attributed lower gross profit to increased packaging, ingredient and freight costs in Q2, and packaging, ingredient and labor costs in the first half; higher prices partly offset these pressures.
- Q2 SG&A was $53.1 million, or 17.7% of sales, versus $49.9 million, or 17.6%. First-half SG&A was $106.0 million, or 17.2% of sales, versus $104.4 million, or 17.5%. Higher shipping and administrative costs were partly offset by lower marketing costs.
Liquidity, debt and cash flow
- Cash and equivalents were $92.6 million at October 29, 2022, compared with $48.1 million at April 30, 2022. Working capital was $151.0 million versus $129.2 million; the current ratio was 2.0 to 1 versus 1.9 to 1.
- The company generated $82.2 million of operating cash in the first half and spent $8.0 million on capital expenditures. Cash increased $44.6 million after financing activity, including repayment of $30.0 million of debt.
- No borrowings were outstanding at period-end. The filing describes $100 million of unsecured revolving credit facilities, with $97.5 million available after $2.5 million reserved for letters of credit, and a separate $50 million loan facility with no outstanding balance. The company was in compliance with loan covenants.
- Total liabilities were $205.0 million, including $40.8 million of present-value operating lease obligations ($12.0 million current and $28.8 million non-current). Management said existing capital resources should meet liquidity and capital requirements for the next 12 months.
Material changes, outlook and risks
- Despite sales growth from pricing, lower volume and higher input costs reduced profitability: first-half gross profit fell $26.9 million and net income fell $21.6 million year over year.
- Cash flow hedge losses were a significant unusual item: accumulated other comprehensive loss from cash flow hedges increased by $16.5 million, net of tax, in the first half. The company had $83.5 million of aluminum swaps outstanding; assuming no commodity-price change, $12.1 million of unrealized pre-tax losses was expected to be reclassified into earnings over the next 12 months.
- Management anticipated fiscal 2023 capital expenditures would be comparable to fiscal 2022 levels, with production-capacity and efficiency projects in progress. The filing provides no specific sales, earnings or margin guidance.
- Risks highlighted include raw-material and packaging cost and availability, the ability to pass through cost increases, consumer demand and preferences, retailer support, competition, labor interruptions, regulation and taxes, and unfavorable weather. Management reported no material changes to the risk factors or market risks described in the prior annual report.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Investor verification points
- Check whether pricing can continue to offset cost inflation without further volume deterioration, and whether gross margins recover.
- Review subsequent aluminum hedge settlements and the timing and earnings impact of the $12.1 million expected reclassification.
- Confirm the precise availability, maturity and terms of the two borrowing facilities, including the filing’s references to $150 million of facilities in total and $97.5 million available under the $100 million credit facilities.
- Track operating cash conversion, working-capital movements, capital spending and the company’s progress on capacity and efficiency projects.