BellRing Brands, Inc. — Q3 FY2021 Form 10-Q
Reporting period: Quarter and nine months ended June 30, 2021; filed August 6, 2021. BellRing sells convenient nutrition products, primarily Premier Protein and Dymatize, in one reportable segment. The nine-month 2020 comparison includes pre-IPO results of Post Holdings’ active nutrition business, so period comparisons and ownership-related earnings require context.
Financial performance
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Net sales | $342.6 million, up 68% from $204.2 million | $907.1 million, up 29% from $705.7 million |
| Gross profit / margin | $111.3 million / 32.5%; prior year $68.7 million / 33.6% | $290.2 million / 32.0%; prior year $248.2 million / 35.2% |
| Operating profit / margin | $51.5 million / 15.0%; prior year $30.6 million / 15.0% | $114.9 million / 12.7%; prior year $115.0 million / 16.3% |
| Net earnings including redeemable noncontrolling interest | $38.5 million; prior year $14.2 million | $73.9 million; prior year $64.6 million |
| Net earnings available to Class A stockholders; diluted EPS | $9.5 million; $0.24, versus $3.3 million; $0.08 | $17.9 million; $0.45, versus $13.5 million; $0.34 |
| Operating cash flow | Not separately provided for the quarter | $145.9 million, versus $27.2 million |
For the quarter, Premier Protein sales rose 65% and Dymatize sales rose 99%; for the nine months, they rose 28% and 44%, respectively. Higher volume was the principal sales driver. Quarterly average selling prices benefited from targeted price increases and, for Dymatize, favorable mix and lower promotions. Gross margin and nine-month operating margin fell, reflecting higher product costs and other expenses.
Liquidity, debt and cash flow
- At June 30, cash was $89.4 million, versus $48.7 million at September 30, 2020. Current assets were $371.9 million and current liabilities $264.4 million.
- Debt principal was $618.7 million, all under the Term B Facility; the company had no revolver borrowings and $200 million of available revolving capacity. Balance-sheet debt, net of issuance costs and discount, was $605.2 million. Term B interest was 4.75% at June 30.
- Nine-month operating cash flow of $145.9 million primarily reflected favorable working-capital changes, including the timing of payables, inventory, sales and receivable collections. Investing cash outflow was $0.8 million; financing cash outflow was $105.0 million, including debt repayments and $17.5 million of net transfers to Post.
- The company repaid $28.8 million of Term B debt as a mandatory excess-cash-flow prepayment, in addition to scheduled payments, and classified an estimated $79.5 million fiscal 2021 excess-cash-flow prepayment as current debt. It reported compliance with the 6.00-to-1.00 maximum net-leverage covenant.
Material changes, outlook and risks
- Management attributed strong sales growth partly to lapping prior-year COVID-19 impacts and said primary categories had returned to pre-pandemic growth rates in Q4 FY2020 and remained strong. No quantified financial guidance was provided.
- Operating profit was nearly unchanged for the nine months despite higher sales. Drivers included $29.9 million of accelerated amortization following the Supreme Protein brand discontinuation, $20.7 million of higher net product costs, $5.6 million of restructuring and facility-closure costs, higher advertising and employee costs, partly offset by sales growth and lower separation costs.
- The February 2021 Term B refinancing reduced the interest margin by 100 basis points; lower debt balances and rates reduced interest expense. Refinancing charges were $1.6 million for the nine months.
- Management expects positive operating cash flow and believes cash, operating cash flow and potential credit facilities will meet foreseeable needs. Annual capital spending averaged less than 1% of sales over the prior three fiscal years; no significant capital spending was planned for the remainder of FY2021. These expectations are subject to business and financing risks.
- Key disclosed risks include dependence on RTD protein shakes, limited contract manufacturers and suppliers, input and freight cost volatility, competition and promotional pricing, and the ability to pass cost increases to customers. Certain products received price increases during Q3.
- Post owned 71.2% of BellRing LLC’s economic interest and controlled BellRing Inc. through its Class B share. The filing notes Post’s proposed distribution of a significant portion of its interest, subject to conditions and approvals; completion is not assured.
- Joint Juice consumer class actions remained pending in several jurisdictions. The company said it did not expect a material adverse effect and had an $8.5 million accrual. Management also identified the tax receivable agreement, under which BellRing Inc. generally owes Post 85% of specified tax savings.
Important facts for investors to verify
- Whether rapid volume growth persists after lapping COVID-related comparisons, and whether price increases offset freight, raw-material and manufacturing inflation.
- How much of the operating cash-flow increase is sustainable, given the filing’s attribution to working-capital timing.
- The amount and timing of mandatory excess-cash-flow debt prepayments and the company’s leverage and liquidity headroom.
- Supply concentration, particularly reliance on a single manufacturer for most RTD protein shakes, and any production or distribution constraints.
- Progress and conditions for Post’s proposed share distribution, related control and tax-agreement implications, and the outcome of pending litigation.