National Beverage Corp. — Form 10-Q Summary
Business and period: National Beverage develops, produces, markets and sells beverages, primarily in North America, including LaCroix sparkling water, juices, energy drinks and carbonated soft drinks. This report covers the quarter and six months ended October 27, 2018, in fiscal 2019; comparisons are with the periods ended October 28, 2017. Financial amounts below are in U.S. dollars.
Financial performance
| Metric | Quarter | Six months |
|---|---|---|
| Net sales | $260.7 million, up 6.8% | $553.3 million, up 9.8% |
| Gross profit / margin | $103.5 million / 39.7%, versus 39.4% | $219.2 million / 39.6%, versus 39.8% |
| SG&A | $51.4 million; 19.7% of sales, versus 18.6% | $104.1 million; 18.8% of sales, versus 18.3% |
| Net income | $41.1 million, versus $34.0 million | $89.9 million, versus $72.3 million |
| Diluted earnings per share | $0.88, versus $0.72 | $1.92, versus $1.54 |
| Operating cash flow | $76.2 million for six months, versus $72.3 million |
Quarterly branded case volume rose 8.5%, including 16.0% growth in Power+ Brands; average selling price per case increased 5.7%. For six months, branded case volume increased 13.0%, including 22.8% Power+ growth, while average selling price per case increased 4.0%. Carbonated soft drinks declined in both comparisons. Gross profit benefited from higher volume and product mix, while cost of sales per case rose on aluminum and freight costs. Higher distribution and marketing spending drove SG&A growth.
Cash, liquidity and debt
Cash and equivalents were $250.1 million at October 27, 2018, up from $189.9 million at April 28, 2018. Six-month cash flow included $16.3 million of capital expenditures; cash increased $60.2 million overall. Inventories rose $19.9 million, which the company attributed to anticipated sales growth. Working capital was $325.5 million, and the current ratio was 4.1 to 1.
No borrowings were outstanding under the $100 million unsecured revolving credit facilities; $97.9 million was available after reserving $2.1 million for standby letters of credit. The company reported compliance with loan covenants. Interest expense was $0.1 million for six months.
Material changes, outlook and risks
- The federal tax rate reduction contributed to a lower effective tax rate: 22.9% for the quarter and 23.2% for six months, compared with 33.3% and 33.7%, respectively, in the prior-year periods.
- Management expects fiscal 2019 capital expenditures to increase, primarily to expand production capacity for volume growth. The filing provides no specific earnings or revenue guidance.
- On November 20, 2018, the company declared a special cash dividend of $2.90 per share, expected to total approximately $135 million and payable by January 29, 2019. This subsequent dividend is substantial relative to the reported cash balance.
- Aluminum swaps are used to partly hedge can-cost exposure. The outstanding notional amount was $43.0 million; the reported derivative asset was approximately $0.1 million. Management expected approximately $0.1 million of unrealized gains before tax to be reclassified into earnings over the next 12 months, assuming commodity prices did not change.
- The company cited raw-material and packaging costs, ability to pass through cost increases, competition, consumer preferences, retailer support, weather, labor interruptions, regulation and taxes among forward-looking risks. It said legal proceedings, including derivative and class-action complaints, were believed to be without merit and not expected to have a material adverse effect. No material changes to previously disclosed risk factors or market risks were reported.
- The company adopted the revenue recognition standard effective April 29, 2018, with no material financial-statement impact. It anticipated that lease accounting adoption in fiscal 2020 would increase balance-sheet lease assets and liabilities; income-statement effects were still under evaluation.
Important facts for investors to verify
- Whether Power+ growth and pricing can offset declining carbonated soft drink volumes and higher aluminum, freight, distribution and marketing costs.
- Expected capacity-expansion spending and its timing, alongside the approximately $135 million special dividend and post-payment liquidity.
- The composition and turnover of the higher inventory balance, and whether it converts into planned sales growth.
- Future effects of commodity hedges, including changes in aluminum prices and the timing of gains reclassified into cost of sales.
- Developments in the disclosed litigation and any resulting financial or operational effects.