National Beverage Corp. — Q2 FY2022 Form 10-Q
Reporting period: Second quarter and first six months ended October 30, 2021; comparisons are to the corresponding periods ended October 31, 2020. Financial amounts below are in millions unless stated otherwise.
Business context
National Beverage develops, produces, markets and sells beverages primarily in the U.S. and Canada, including LaCroix sparkling water, energy drinks, juices and Shasta and Faygo soft drinks. Sales are seasonal, with higher volumes generally in summer.
Financial performance
| Metric | Q2 FY2022 | Q2 FY2021 | First six months FY2022 | First six months FY2021 |
|---|---|---|---|---|
| Net sales | $283.2 | $271.8 | $594.9 | $565.2 |
| Gross profit | $101.5 | $108.0 | $226.3 | $225.3 |
| Operating income | $51.6 | $61.6 | $121.9 | $128.3 |
| Net income | $39.3 | $47.2 | $93.1 | $98.3 |
| Diluted EPS | $0.42 | $0.50 | $0.99 | $1.05 |
- Q2 sales increased 4.2%, primarily from a 4.0% increase in average selling price per case and modest case-volume growth, chiefly in Power+ Brands. Six-month sales rose 5.3%; average selling price increased 4.3%, while volume growth included a 3.3% increase in Power+ Brands offset by lower carbonated soft-drink volume.
- Q2 gross margin fell to 35.8% from 39.8%; cost of sales per case increased 10.9%. For the six months, gross margin was 38.0% versus 39.9%, and cost of sales per case rose 8.4%.
- SG&A was $49.9 million in Q2 and $104.4 million for the six months, up from $46.5 million and $97.0 million, respectively. Shipping and marketing costs drove the increase, partly offset by lower administrative costs.
- Effective tax rates were 23.8% for Q2 and 23.6% for the six months, compared with 23.5% in each prior-year period.
Cash flow, liquidity and debt
- Six-month operating cash flow was $86.0 million, down from $110.9 million. Capital spending was $6.6 million versus $10.4 million; cash increased $79.4 million to $273.0 million.
- At October 30, 2021, working capital was $310.7 million and the current ratio was 3.2:1, compared with $217.7 million and 2.5:1 at May 1, 2021. Receivables were $88.2 million and inventory was $78.8 million.
- No borrowings were outstanding on the $100 million unsecured revolving facilities; $97.5 million was available after letters of credit. The company reported covenant compliance. Lease liabilities totaled $37.7 million, including $13.1 million current.
- Management said existing capital resources should meet liquidity and capital requirements for the next 12 months. Capital expenditures for the remainder of FY2022 were expected to be comparable to total FY2021 levels.
Material developments, outlook and risks
- Management attributed lower Q2 gross profit to higher packaging, ingredient and freight costs and supply-chain disruptions that hurt manufacturing efficiency; higher selling prices partly offset these pressures. Six-month gross profit was slightly higher year over year, with pricing offsetting some cost increases.
- On December 2, 2021, the board declared a $3.00-per-share cash dividend, expected to total approximately $280 million and payable on or before February 11, 2022. This is a substantial cash commitment relative to the $273.0 million cash balance reported at quarter-end.
- The filing gives no specific sales or earnings guidance. It identifies risks including raw-material and packaging costs and availability, ability to pass through cost increases, labor interruptions, consumer demand, retailer support, competition, weather and regulation. The company reported no material changes to previously disclosed risk factors or market risks.
- Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether pricing actions can continue to offset inflation in packaging, ingredients, freight and labor without weakening volume or demand.
- The expected funding and liquidity impact of the approximately $280 million dividend, including cash needs after its February 2022 payment.
- Whether supply-chain disruptions and manufacturing inefficiencies persist, and how they affect costs and margins.
- Power+ Brands’ growth trajectory relative to declining carbonated soft-drink volume, and whether planned capacity and efficiency spending remains comparable to FY2021.