National Beverage Corp. — FY2019 Form 10-K
Reporting period: Fiscal year ended April 27, 2019 (52 weeks). The filing also reports fourth-quarter results. The company develops, manufactures and sells beverages, led by LaCroix sparkling water and other “Power+” brands, primarily in the U.S. and Canada.
Financial performance
| Metric | FY2019 | FY2018 |
|---|---|---|
| Net sales | $1,014.1 million | $975.7 million |
| Gross profit / gross margin | $384.4 million / 37.9% | $391.1 million / 40.1% |
| SG&A | $204.4 million | $186.9 million |
| Income before taxes | $183.9 million | $205.5 million |
| Net income | $140.9 million | $149.8 million |
| Diluted EPS | $3.00 | $3.19 |
| Cash from operations | $139.4 million | $154.7 million |
| Capital expenditures | $38.3 million | $32.0 million |
| Cash and equivalents at year-end | $156.2 million | $189.9 million |
FY2019 sales grew 3.9% (6.2% excluding discontinued private-label carbonated soft drinks). Branded case volume rose 5.0%; Power+ volume increased 8.9%, while branded carbonated soft-drink volume declined 3.0%. Higher aluminum and manufacturing costs raised cost of sales per case 7.7%; production interruptions during capacity projects also affected manufacturing costs. SG&A rose with shipping and marketing expenses. The effective tax rate was 23.4%, versus 27.1%, reflecting the lower federal tax rate; FY2018 included a one-time $4.3 million deferred-tax remeasurement benefit.
Fourth quarter: Net sales were $239.9 million, gross profit $84.6 million, net income $26.1 million and diluted EPS $0.56. In FY2018’s fourth quarter, these were $244.3 million, $99.4 million, $36.4 million and $0.78, respectively.
Liquidity, debt and capital allocation
Working capital was $224.4 million, down from $248.3 million; the current ratio was 3.3, versus 3.4. Inventory increased 16.1% to $70.7 million and inventory turns fell to 8.8 from 9.5. The company had no borrowings and maintained $100 million in unsecured revolving facilities, with $97.9 million available after letters of credit. Management said existing resources should meet liquidity needs for the next 12 months. FY2019 financing cash outflow included a $135.2 million special dividend ($2.90 per share). Operating cash flow less capital expenditures was approximately $101.1 million.
Outlook, risks and notable items
- Management planned to continue production-capacity expansion in FY2020 but expected capital spending to decline from FY2019’s level in the near term; no specific sales or earnings guidance was provided.
- Key risks include intense competition, shifts in consumer preferences and brand reputation, retailer bargaining power, commodity and energy cost volatility, weather and seasonality, labor and benefit costs, and changing regulation or beverage taxes. Passing higher input costs to customers may be difficult.
- LaCroix-related derivative and class-action complaints allege synthetic ingredients and violations of consumer-protection laws. The company says it is vigorously defending the matters and does not expect a material financial impact.
- Aluminum swaps had a $41.5 million notional amount and a $2.0 million fair-value liability at year-end; assuming unchanged commodity prices, $2.0 million of unrealized loss was expected to enter cost of sales over the following 12 months.
- The company paid $10.2 million in FY2019 management fees to Corporate Management Advisors, Inc., which is owned by the chairman and CEO. Operating lease obligations totaled $52.0 million; purchase commitments totaled $19.9 million.
- Management anticipated that the new lease accounting standard would add right-of-use assets and lease liabilities approximating 10% of total assets, subject to final assessment, with no material income-statement impact expected.
Important facts for investors to verify
- Whether Power+ growth and new LaCroix products can sustain sales growth as branded carbonated soft-drink volume declines.
- Whether aluminum, manufacturing and freight costs ease, and whether margins recover after FY2019’s decline.
- Progress, costs and production benefits from capacity projects, including the expected FY2020 reduction in capital spending.
- Developments in LaCroix litigation, aluminum hedges, and the recognition of operating lease liabilities.
- The terms and governance of the related-party management agreement and the sustainability of large special dividends.
The independent auditor issued an unqualified opinion on the financial statements and reported effective internal control over financial reporting as of April 27, 2019.