National Beverage Corp. — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2014, ended January 25, 2014; comparisons are to the periods ended January 26, 2013. National Beverage develops, manufactures, markets, and sells flavored beverages, primarily in North America. Figures below are in millions of dollars unless otherwise noted.
Financial performance
| Metric | Quarter 2014 | Quarter 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Net sales | $136.8 | $144.7 | $476.8 | $494.1 |
| Gross profit | $44.7 | $46.4 | $162.3 | $159.2 |
| Gross margin | 32.7% | 32.0% | 34.0% | 32.2% |
| SG&A | $34.5 | $33.9 | $114.2 | $106.3 |
| Income before taxes | $10.3 | $12.3 | $47.7 | $52.6 |
| Net income | $7.1 | $8.4 | $31.7 | $34.8 |
| Basic and diluted EPS | $0.15 | $0.18 | $0.67 | $0.75 |
Quarterly sales declined 5.5%; nine-month sales fell 3.5%. Quarterly carbonated soft drink volume decreased 8.8%, while Power+ Brands case volume grew 9.2%. For nine months, carbonated soft drink volume fell 8.2%, partly offset by 7.1% Power+ Brands case growth and a 0.5% improvement in unit pricing. Gross margin improved in both periods, while SG&A rose due to higher selling and marketing expenses. Cost of sales per unit declined 2.6% in the quarter and 2.2% year to date.
Cash flow, balance sheet, and liquidity
- Nine-month operating cash flow was $32.3 million, versus $27.0 million a year earlier. Capital expenditures were $8.0 million, versus $6.0 million; operating cash flow less capital expenditures was $24.3 million.
- Cash increased $8.8 million over the first nine months to $27.1 million. The company repaid $15.0 million of credit-facility borrowings and paid $0.45 million in preferred dividends.
- At January 25, 2014, debt was $35.0 million, down from $50.0 million at April 27, 2013. The company had $100 million of revolving facilities, with $62.7 million available after borrowings and standby letters of credit. It reported compliance with all loan covenants.
- Current assets were $132.1 million and current liabilities $48.5 million; working capital was $83.6 million and the current ratio was 2.7 to 1. Management said existing resources should meet liquidity and capital needs for the next 12 months.
- Inventories increased $3.2 million, primarily for new products and planned promotions. Trade receivables declined, and days sales outstanding improved to 34.1 from 34.7 at fiscal year-end.
Outlook, risks, and notable items
Management provided no specific earnings or sales guidance. It cited unfavorable weather and an industry-wide consumption decline as factors pressuring carbonated soft drink sales; seasonality typically makes summer the highest-volume period. Other stated risks include raw-material cost fluctuations, competitive pricing, changing consumer preferences, retailer support, weather, and the success of new products and business strategies. The filing reported no material change in risk factors or market risks from the prior annual report.
The company uses aluminum swaps to partially hedge can-cost exposure through April 2014. At January 25, the swap notional was $8.2 million; assuming no change in commodity prices, $356,000 of unrealized loss before tax was expected to be reclassified to cost of sales over the next three months. A guarantee of leased equipment residual value totaled $5.7 million; the company expected no loss. The prior-year comparison includes a $118.1 million special common dividend paid in December 2012, which affected prior-period financing cash flow and the cash balance.
Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- Whether Power+ Brands growth and improved product mix can offset continued weakness in carbonated soft drink volume.
- Whether higher selling and marketing costs can be contained while maintaining product growth and gross-margin gains.
- Current borrowing availability, covenant compliance, and the effect of interest rates on revolving-credit costs.
- Future aluminum and other raw-material costs, including the timing and income-statement impact of hedge reclassifications.
- Seasonal sales trends and the effects of weather, consumer demand, and planned promotions on inventory and cash flow.