National Beverage Corp. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2020, the three months ended July 27, 2019; comparative income and cash-flow figures are for the three months ended July 28, 2018. Amounts below are in millions except per-share data and ratios.
Financial results
| Metric | Q1 FY2020 | Q1 FY2019 | Change |
|---|---|---|---|
| Net sales | $263.6 | $292.6 | Down 9.9% |
| Gross profit | $96.6 | $115.7 | Down 16.5% |
| Gross margin | 36.6% | 39.5% | Down 2.9 percentage points |
| Income before taxes | $45.3 | $63.8 | Down 29.0% |
| Net income | $34.5 | $48.8 | Down 29.3% |
| Diluted EPS | $0.74 | $1.04 | Down $0.30 |
| Operating cash flow | $50.6 | $59.3 | Down 14.6% |
| Capital expenditures | $4.2 | $6.2 | Down $2.1 |
SG&A was $52.0 million, down from $52.7 million, but increased to 19.7% of sales from 18.0%. Cost of sales per case rose 2.1%. The effective tax rate was 23.8%, versus 23.4%. Interest expense was $0.05 million in both periods.
Business performance and material changes
Sales fell primarily because case volume declined 10.6%, partly offset by a 0.9% increase in average selling price. Power+ Brands volume decreased 16.2%, primarily reflecting increased competition in sparkling water; Carbonated Soft Drinks volume grew 3.6%. Gross profit declined due to lower volume and higher manufacturing costs. Management attributed the higher average selling price to earlier price increases related to aluminum costs.
Cash, debt and liquidity
Cash and equivalents were $202.7 million at July 27, 2019, up from $156.2 million at April 27, 2019. The company generated $50.6 million of operating cash flow and spent $4.2 million on capital expenditures; cash increased $46.5 million during the quarter. Working capital was $249.3 million, versus $222.4 million at fiscal year-end, and the current ratio was 3.12, compared with 3.3.
No borrowings were outstanding under the company’s $100 million unsecured revolving credit facilities; $96.8 million was available after $3.2 million reserved for letters of credit. The company reported compliance with all loan covenants. Separately, operating lease liabilities totaled $52.4 million, including $8.9 million current and $43.6 million long-term. Adoption of the new lease accounting standard at the start of the fiscal year recognized lease assets and liabilities; management said adoption did not affect income or cash flows.
Outlook, risks and other notable items
No specific revenue or earnings guidance was provided. Management expects to continue production-capacity expansion projects in fiscal 2020, while capital expenditures are expected to decline from fiscal 2019 levels. It stated that existing capital resources should meet liquidity and capital requirements for the next 12 months.
Management cautioned that quarterly comparisons can be affected by seasonality, weather, holiday and promotional activity, and product-development timing. Forward-looking risks include competition and pricing, consumer preferences, new-product success, raw-material and packaging costs, ability to pass cost increases to customers, retailer support, labor disruptions, regulation, taxes and unfavorable weather. The filing reported no material changes to previously disclosed risk factors or market risks.
The company had aluminum swap contracts with a $35.7 million notional amount. Assuming no change in commodity prices, $2.0 million of unrealized losses before tax was expected to be reclassified from accumulated other comprehensive income into earnings over the next 12 months. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting.
Key facts for investors to verify
- Whether the sharp Power+ Brands volume decline, particularly in sparkling water, continued or stabilized after the quarter.
- Whether price increases and cost actions offset manufacturing-cost inflation without further pressure on gross margin.
- How sales, volume, and inventory trends developed after the reported 10.6% volume decline and lower inventory turns.
- Whether planned capacity expansion and lower expected capital spending align with demand and operating cash generation.
- The timing and earnings impact of the $2.0 million pretax hedge loss expected to be reclassified, and ongoing lease commitments.