National Beverage Corp. — Q3 FY2022 Form 10-Q
Business and period: The company develops, produces, markets and sells beverages, including LaCroix sparkling water, juices, energy drinks and carbonated soft drinks, primarily in the U.S. and Canada. This unaudited report covers the third quarter and first nine months of fiscal 2022, ended January 29, 2022; comparisons are with periods ended January 30, 2021. Dollar figures below are in millions unless stated otherwise.
Financial performance
| Metric | Q3 FY22 | Q3 FY21 | Nine months FY22 | Nine months FY21 |
|---|---|---|---|---|
| Net sales | $258.9 | $245.9 | $853.8 | $811.1 |
| Gross profit | $93.8 | $95.7 | $320.1 | $320.9 |
| Gross margin | 36.2% | 38.9% | 37.5% | 39.6% |
| Operating income | $40.7 | $48.2 | $162.6 | $176.4 |
| Net income | $31.1 | $36.7 | $124.2 | $135.0 |
| Diluted EPS | $0.33 | $0.39 | $1.33 | $1.44 |
- Quarterly sales rose 5.3%, driven by a 10.1% increase in average selling price per case, partly offset by a 4.1% decline in case volume. For the nine months, sales also rose 5.3%; average selling price per case increased 6.1%, while case volume decreased modestly.
- Higher packaging, ingredient and freight costs pressured gross profit. Cost of sales per case rose 15.0% in Q3 and 9.8% for the nine-month period; nine-month results also reflected supply-chain disruptions and weaker manufacturing efficiency.
- SG&A increased to $53.1 million in Q3 and $157.5 million for nine months, primarily from higher shipping and marketing costs. SG&A as a share of sales rose to 20.5% from 19.3% in Q3 and 18.4% from 17.8% year to date.
- Operating cash flow was $92.6 million for nine months, down from $145.2 million. Capital expenditures were $16.1 million, versus $17.0 million. Cash declined $153.2 million to $40.4 million.
Financial position and material changes
- At January 29, 2022, the company had $40.4 million in cash, $50.0 million of long-term debt outstanding under a new term loan, and no borrowings on its separate revolving credit facilities. Of $100 million in revolving capacity, $3 million was reserved for standby letters of credit and $97 million remained available.
- Working capital was $117.3 million versus $217.7 million at May 1, 2021; the current ratio was 2.0 versus 2.5. Management attributed the decline primarily to the $280 million cash dividend paid December 29, 2021 ($3.00 per share).
- Inventory increased $17.2 million from fiscal year-end, while inventory turns fell to 8.7 from 9.6. Receivables decreased $4.3 million, and days sales outstanding improved to 28.9 from 30.1.
- The company entered a $50 million unsecured term loan facility in December 2021, with a December 31, 2023 maturity. Its stated rate was 1.11% at quarter-end. The company reported compliance with loan covenants.
- Cash-flow hedge gains increased accumulated other comprehensive income. Aluminum swaps had a $71.2 million notional amount and a $10.5 million fair-value asset; assuming commodity prices do not change, $10.5 million of pre-tax unrealized gain was expected to be reclassified to earnings over the next 12 months.
Outlook, commentary and risks
- Management said existing capital resources should meet liquidity and capital needs for the next 12 months. It expected fiscal 2022 capital expenditures to be comparable to fiscal 2021 as it continued production-capacity and efficiency projects. No specific earnings or sales guidance was provided.
- Management identified raw-material and packaging costs, freight, supply-chain disruptions, labor interruptions, retailer support, consumer preferences, competition, weather and seasonality as factors that could affect results. Beverage sales are seasonal, with higher volumes generally in summer.
- The company reported no material changes in market risks or risk factors from its FY2021 Form 10-K. Management stated that disclosure controls were effective and that there had been no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether price increases can offset continuing packaging, ingredient, freight and shipping-cost inflation without further pressure on case volumes or margins.
- How the $280 million dividend, lower cash balance and $50 million borrowing affect liquidity, capital allocation and covenant headroom.
- Whether supply-chain constraints and weaker manufacturing efficiency improve, and whether inventory growth and slower inventory turns normalize.
- The assumptions and timing behind the expected $10.5 million pre-tax hedge gain reclassification, and the company’s exposure to aluminum and other input-cost changes.