National Beverage Corp. — Form 10-Q Summary
Reporting period: Quarter ended November 1, 2014 (the second quarter of fiscal 2015), with six-month results compared with the corresponding prior-year periods. Financial amounts below are in millions unless stated otherwise. The company develops, manufactures, markets and sells beverages, including LaCroix, Rip It, Everfresh, Shasta and Faygo.
Financial performance
| Metric | Three months ended Nov. 1, 2014 | Prior-year quarter | Six months ended Nov. 1, 2014 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $163.6 | $167.7 | $338.2 | $340.0 |
| Gross profit / margin | $57.7 / 35.3% | $58.8 / 35.1% | $117.6 / 34.8% | $117.6 / 34.6% |
| Income before taxes | $19.6 | $19.0 | $42.9 | $37.4 |
| Net income | $13.0 | $12.5 | $28.3 | $24.6 |
| Diluted EPS | $0.28 | $0.27 | $0.60 | $0.52 |
| SG&A | $38.0 (23.2% of sales) | $39.7 (23.7%) | $75.6 (22.4%) | $79.8 (23.5%) |
- Quarterly sales: Down 2.4%; case volume fell 1.3% and average selling price per unit fell 1.2%. Allied Brands declined, partly offset by 1.2% growth in branded volume. Lower selling price reflected product mix.
- Six-month sales: Down 0.5%; average selling price per unit declined 2.1%, partly offset by 1.6% higher case volume. Branded volume rose 4.8%, while Allied Brands declined.
- Profitability: Gross margin improved in both comparison periods, attributed to lower costs for certain raw materials and favorable product mix. Power+ Brands case volume grew 13.4% in the quarter and 16.4% in the six-month period. Cost of sales per unit declined 1.5% and 2.4%, respectively. Lower administrative, marketing and selling expenses also supported earnings.
- Other income: Six-month results included a $1.3 million gain on property disposal; the quarter’s other expense was $23,000. Interest expense was $0.1 million for the quarter and $0.2 million for six months, down year over year primarily due to lower borrowings.
Cash flow, liquidity and capital
- Six-month operating cash flow was $31.2 million, versus $23.5 million a year earlier. Investing cash outflow was $2.7 million, including $4.6 million of capital expenditures and $1.8 million of property-sale proceeds. Financing cash outflow was $16.1 million, including $10.0 million of debt repayments and a $6.0 million preferred-stock redemption.
- Cash increased $12.4 million from May 3, 2014, to $42.3 million at November 1, 2014. Working capital rose $14.4 million to $93.1 million; the current ratio increased to 2.6 from 2.2. Receivables declined $4.3 million and days sales outstanding decreased from 34.7 to 30.0; inventory increased $3.1 million, principally to support new product introductions and Power+ growth.
- Long-term debt was $20.0 million, down from $30.0 million at fiscal year-end. The company had $100 million in unsecured revolving facilities, with $2.2 million reserved for letters of credit and $77.8 million available. Borrowings bore interest at 1.1% at period-end; the company reported compliance with all loan covenants.
- Management stated existing capital resources should be sufficient for liquidity and capital requirements over the next twelve months. No specific earnings or sales guidance was provided.
Notable items, risks and outlook
- On August 1, 2014, the company redeemed half of its outstanding Series D preferred shares—120,000 shares—for $6.0 million plus accrued dividends. The redemption reduced the stated liquidation preference from $12.0 million to $6.0 million.
- Aluminum swap contracts, used to partially mitigate raw-material cost exposure, had a $24.8 million notional amount. The company expected $896,000 of unrealized gains, before tax, to be reclassified into earnings over the next twelve months, assuming commodity prices did not change.
- The company guaranteed up to $5.1 million of residual value on leased equipment; the lease was extended through August 1, 2017. Management expected no loss on the guarantee.
- Management cited risks including raw-material cost changes, competitive pricing, consumer preferences, retailer support, new-product success, weather, regulation and general economic conditions. Beverage sales are seasonal, typically highest in summer; interim results may not indicate full-year performance. No material changes to previously disclosed risk factors or market risks were reported.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether branded and Power+ growth can continue to offset declines in Allied Brands and lower average selling prices.
- Whether improved gross margins and lower SG&A are sustainable as raw-material costs, product mix and marketing needs change.
- How seasonal demand and higher inventory levels affect cash generation and working capital in subsequent periods.
- Whether the $1.3 million property-sale gain is nonrecurring and how results perform excluding that item.
- Availability and terms of revolving credit, covenant compliance, and potential exposure under the equipment residual-value guarantee and commodity hedges.