National Beverage Corp. — Q2 Fiscal 2021 Form 10-Q
Reporting period: Quarter ended October 31, 2020; comparisons are with the quarter ended October 26, 2019. Six-month results are also compared with the prior-year six months. Amounts are in U.S. dollars; financial statement amounts below are in millions unless stated otherwise.
Business context
National Beverage develops, produces, markets, and sells beverages primarily in the United States and Canada. Its portfolio includes LaCroix and other sparkling waters, juices, energy drinks, and Shasta and Faygo soft drinks. Management attributed growth largely to increased take-home-channel demand, particularly for its Power+ Brands.
Key financial results
| Metric | Q2 FY2021 | Q2 FY2020 | First six months FY2021 | First six months FY2020 |
|---|---|---|---|---|
| Net sales | $271.8 | $251.6 | $565.2 | $515.2 |
| Gross profit | $108.0 | $92.8 | $225.3 | $189.4 |
| Gross margin | 39.8% | 36.9% | 39.9% | 36.8% |
| Operating income | $61.6 | $41.6 | $128.3 | $86.2 |
| Net income | $47.2 | $32.7 | $98.3 | $67.2 |
| Diluted earnings per share | $1.01 | $0.70 | $2.10 | $1.43 |
- Quarterly sales rose 8.0%; case volume increased 7.4%, including 11.1% growth in Power+ Brands. Average selling price per case increased slightly.
- For the six months, sales increased 9.7% and case volume rose 9.9%, including 13.6% growth in Power+ Brands; average selling price per case was flat.
- Management cited higher volume and lower raw-material costs for gross-profit growth. Cost of sales per case decreased 3.5% in Q2 and 5.2% for the six-month period.
- SG&A fell to $46.5 million in Q2 and $97.0 million for six months, primarily due to lower marketing and selling costs. SG&A was 17.1% of sales in Q2 versus 20.3%, and 17.2% for six months versus 20.0%.
Cash flow, debt, and liquidity
- Six-month operating cash flow was $110.9 million, up from $87.2 million. Capital expenditures were $10.4 million, compared with $9.6 million; investing cash outflow was $10.4 million.
- Cash increased by $100.9 million during the six months to $405.4 million at October 31, 2020. The company reported no borrowings under its $100 million unsecured revolving facilities; $96.6 million remained available after letters of credit.
- Working capital was $425.3 million, up from $319.0 million at May 2, 2020; the current ratio was 4.0 versus 3.3. The company reported total liabilities of $193.0 million, including operating lease liabilities of $44.5 million. It stated that it was in compliance with credit-facility covenants.
- Management believed existing capital resources would meet liquidity and capital needs for the next 12 months. It expected fiscal 2021 capital expenditures to be comparable to fiscal 2020 as it continued capacity and efficiency projects.
Outlook, risks, and notable items
- No specific sales or earnings guidance was provided. Management noted seasonality, with higher beverage sales generally in summer, and cautioned that quarterly results can be affected by product development, promotional packaging, and weather.
- Forward-looking risks include economic conditions, competitive pricing, new-product performance, raw-material and packaging costs and availability, ability to pass on cost increases, labor interruptions, retailer support, consumer demand and preferences, regulation, taxes, and weather. The company reported no material changes in risk factors or market risks from its prior annual report.
- After quarter-end, the company declared a cash dividend initially at $3.00 per share, then increased it on December 2, 2020 to $6.00 per share, approximately $280 million in aggregate, payable on or before February 2, 2021. This is a significant cash commitment relative to the October 31 cash balance.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether strong volume growth, especially in take-home sales and Power+ Brands, is sustained and broad-based.
- Whether lower raw-material costs and reduced marketing and selling expenses persist, and how they affect margins and future brand investment.
- The timing and funding of the approximately $280 million post-quarter dividend, and its effect on cash, liquidity, and capital plans.
- Actual capital expenditures versus the stated expectation of levels comparable to fiscal 2020, along with evolving commodity, packaging, and operating risks.