National Beverage Corp. — Form 10-Q Summary
Business and period: National Beverage develops, produces, markets and sells beverages, including LaCroix sparkling water, juices, energy drinks and carbonated soft drinks, primarily in the U.S. and Canada. This unaudited report covers the first quarter of fiscal 2023, the three months ended July 30, 2022, compared with the three months ended July 31, 2021.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Net sales | $318.1 million | $311.7 million |
| Gross profit / gross margin | $99.4 million / 31.2% | $124.8 million / 40.0% |
| Operating income | $46.5 million | $70.3 million |
| Net income | $35.5 million | $53.8 million |
| Diluted earnings per share | $0.38 | $0.58 |
| Net cash from operating activities | $40.6 million | $56.7 million |
| Capital expenditures | $2.6 million | $4.8 million |
Margins: Operating margin was approximately 14.6%, versus 22.6% a year earlier; net margin was approximately 11.1%, versus 17.3%. SG&A was $52.9 million, or 16.6% of sales, compared with $54.4 million, or 17.5%.
Balance sheet and liquidity: At July 30, 2022, cash and equivalents were $56.1 million, working capital was $121.8 million and the current ratio was 1.9 to 1. Long-term debt was zero after repayment of $30 million during the quarter. The company reported $150 million in aggregate unsecured revolving facilities; no borrowings were outstanding, and $2.5 million was reserved for letters of credit. The specific $100 million bank facilities had $97.5 million available. Total lease liabilities were $40.6 million, including $11.9 million current.
Changes and drivers
- Sales rose 2.1%, primarily because average selling price per case increased 10.2%, partly offset by a 7.4% decrease in case volume. Power+ Brands volume declined 9.7%, mainly reflecting weakness in sparkling water and reduced consumer promotions.
- Cost of sales per case increased 26.3%, with higher packaging costs, particularly aluminum, as well as ingredient and labor costs. Gross profit fell despite higher selling prices.
- Operating cash flow decreased to $40.6 million from $56.7 million. Cash increased $8.0 million after the $30 million debt repayment; investing cash outflow was $2.6 million.
- Receivables increased $6.7 million from April 30, while days sales outstanding improved to 28.7 from 30.0. Inventory declined $13.0 million; inventory turns remained 9.9 times.
Outlook, risks and notable items
- No specific revenue or earnings guidance was provided. Management said it expects fiscal 2023 capital expenditures to be comparable to fiscal 2022 levels; production capacity and efficiency projects are underway.
- Management said existing capital resources should meet liquidity and capital requirements for the next 12 months. The company was in compliance with its loan covenants.
- Identified risks include raw-material and packaging cost and availability, the ability to pass cost increases to customers, consumer demand and preferences, retailer support, labor interruptions, competition, regulation, taxes, weather and seasonality. Beverage sales are typically higher in summer.
- Aluminum swap contracts had a $99.6 million notional amount. Their fair value shifted from an $8.8 million asset at April 30 to a $5.7 million liability at July 30. The quarter included a $11.0 million after-tax cash-flow-hedge loss in other comprehensive income; management expected $4.7 million of unrealized pretax losses to be reclassified to earnings over the next 12 months, assuming commodity prices do not change.
- The filing reported no material changes to market risks or risk factors from the prior annual report. Management concluded disclosure controls were effective and reported no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether price increases can offset continued input-cost inflation without further weakening case volumes or consumer demand.
- Whether sparkling-water and broader Power+ Brands volume trends improve, and how promotional activity affects results.
- The timing and earnings impact of hedge-loss reclassification, along with aluminum and other packaging costs.
- Current borrowing availability, facility terms and future capital-spending needs; confirm the company’s liquidity position as operating conditions evolve.