National Beverage Corp. — Form 10-Q Summary
Reporting period: Second quarter and first six months of fiscal 2012, ended October 29, 2011; comparisons are with periods ended October 30, 2010. The company develops, manufactures, markets, and distributes beverages, primarily in North America. Amounts below are in U.S. dollars; financial statement amounts are shown in millions unless noted.
Financial performance
| Metric | Q2 FY2012 | Q2 FY2011 | Six months FY2012 | Six months FY2011 |
|---|---|---|---|---|
| Net sales | $158.0m | $151.1m | $327.1m | $316.2m |
| Gross profit | $54.1m | $56.4m | $115.2m | $114.8m |
| Gross margin | 34.2% | 37.3% | 35.2% | 36.3% |
| SG&A | $36.9m | $40.5m | $77.3m | $80.2m |
| Income before taxes | $17.1m | $15.8m | $37.8m | $34.6m |
| Net income | $11.1m | $10.2m | $24.6m | $22.3m |
| Diluted EPS | $0.24 | $0.22 | $0.53 | $0.48 |
- Q2 sales rose 4.5%; premium-brand case volume grew 6.1% and unit pricing increased 5.0%, while total case volume was relatively flat because of declining carbonated soft drink sales.
- For the six months, sales rose 3.4%; premium-brand case volume grew 9.4% and unit pricing increased 4.6%, but total case volume fell 1.1%.
- Higher raw-material costs pressured gross margins: cost of sales per case increased 10.1% in Q2 and 6.4% for the six-month period. Pricing and product mix partly offset the impact.
- Lower marketing and administrative costs reduced SG&A to 23.4% of Q2 sales from 26.8%; for the six months, SG&A was 23.6% of sales versus 25.4%.
Cash flow, liquidity, and financial position
- Six-month operating cash flow was $18.1m, down from $29.9m. Net income and depreciation and amortization supported cash generation; inventory growth of $4.9m, lower accounts payable of $6.5m, and lower accrued and other liabilities also affected cash flow.
- Capital expenditures were $3.8m; investing cash outflow was $3.8m. Cash increased $14.6m to $21.9m from $7.4m at fiscal year-end.
- At October 29, 2011, working capital was $52.6m and the current ratio was 1.8, up from 1.4 at April 30, 2011. Current assets were $118.7m and current liabilities $66.1m.
- The company had unsecured revolving credit facilities totaling $75.0m, with $2.6m supporting standby letters of credit and $72.4m available to borrow. No funded borrowings are listed on the balance sheet. The company reported compliance with loan covenants; approximately $1.3m of retained earnings was restricted from distribution.
Outlook, risks, and notable items
- Management said existing capital resources should meet liquidity and capital requirements for the foreseeable future; the filing provides no specific earnings or sales guidance.
- Results are seasonal, with typically higher sales in summer. Management cited raw-material costs, competitive pricing, consumer preferences, retailer support, new-product execution, regulation, and regional weather among factors that could affect results.
- Aluminum swap contracts partially hedge can-cost exposure through July 2012. Their notional amount was $18.6m; a $1.4m pretax unrealized loss was recorded as a derivative liability, and management expected that amount to be reclassified into earnings over the next 12 months, assuming commodity prices did not change.
- Management reported no material changes in market risks or risk factors from the prior Form 10-K. Disclosure controls were deemed effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether pricing can continue to offset raw-material inflation without further weakening volume or gross margin.
- Whether premium-brand growth and planned convenience-channel expansion can counter declines in carbonated soft drinks and total case volume.
- Drivers of the year-over-year decline in operating cash flow and the sustainability of cash conversion as inventory and supplier-payment balances change.
- Future effects of aluminum swap settlements and raw-material prices on cost of sales and accumulated other comprehensive income.
- Seasonality and the specific risk factors incorporated by reference from the company’s fiscal 2011 Form 10-K.