National Beverage Corp. — Q1 FY2017 Form 10-Q
Reporting period: Three months ended July 30, 2016, compared with the three months ended August 1, 2015. National Beverage develops, produces, markets and sells beverages, including LaCroix sparkling waters, juices, energy drinks and carbonated soft drinks. Amounts below are in millions except per-share data.
Financial results
| Metric | Q1 FY2017 | Q1 FY2016 | Change |
|---|---|---|---|
| Net sales | $217.1 | $185.4 | +17.1% |
| Gross profit | $85.5 | $62.9 | +35.9% |
| Gross margin | 39.4% | 33.9% | +5.5 percentage points |
| SG&A | $41.5 | $36.8 | 19.1% vs. 19.9% of sales |
| Operating income | $44.0 | $26.1 | Calculated as gross profit less SG&A |
| Net income | $29.0 | $17.1 | +69.4% |
| Diluted EPS | $0.62 | $0.37 | +67.6% |
| Operating cash flow | $30.4 | $20.6 | +$9.8 |
Case volume grew 19.5%, including 45.6% growth in Power+ Brands, primarily from increased sparkling-water velocity and distribution. Revenue per case declined slightly due to product mix. Cost of sales per case fell 10.1%, attributed to mix and lower raw-material costs. SG&A increased with higher marketing, distribution and selling costs. The effective tax rate was 34.2% in both periods.
Cash, liquidity and debt
- Cash and equivalents were $132.6 at July 30, up $27.0 during the quarter. Operating cash flow was $30.4; capital expenditures were $3.5.
- Working capital was $176.7, versus $148.1 at April 30, 2016; the current ratio was 2.9:1, compared with 3.0:1. Receivables rose $14.8 with higher sales; days sales outstanding increased to 31.8 from 31.0. Inventory rose $3.9 to support sales and product launches; turns improved to 10.2 from 9.5.
- No borrowings were outstanding under the $100.0 million unsecured revolving credit facilities; $97.8 was available after $2.2 reserved for standby letters of credit. The company reported covenant compliance and said resources should meet liquidity and capital needs for the next 12 months.
- Total assets were $350.3 and shareholders’ equity was $235.7 at July 30, 2016. The filing reports no outstanding facility borrowings.
Outlook, risks and notable items
- No quantified earnings or revenue guidance was provided. Management describes an ongoing strategic focus on healthier hydration, product and flavor innovation, and growing Power+ Brands. Results are seasonal, with sales typically highest in warmer months; quarterly results may not indicate full-year performance.
- Risks cited include raw-material and packaging cost fluctuations, competitive pricing, consumer preference changes, weather, retailer support, labor interruptions, regulation and taxes, and the success of new products and business strategies. The company reported no material changes in risk factors or market risks from its FY2016 10-K.
- Aluminum swaps are used to partially hedge can-cost exposure, not for speculation. Their notional amount was $9.3; the company expected $1.8 of unrealized pre-tax losses to be reclassified into earnings over the next 12 months, assuming commodity prices did not change. The derivative liability was $1.8.
- The company guaranteed up to $4.1 of residual value on leased equipment terminating August 1, 2017, and expected no loss. Disclosure controls were deemed effective; no material internal-control changes were reported.
Key facts for investors to verify
- Whether strong case-volume and sparkling-water growth continued, and how product mix affects revenue per case.
- Whether lower raw-material costs and improved gross margin persist as input prices and product mix change.
- How seasonal working-capital needs, receivable collections and inventory levels affect cash generation.
- The timing and earnings impact of the $1.8 million hedge loss, and the outcome of the equipment residual-value guarantee.
- Any subsequent changes to the company’s stated risks, liquidity outlook or revolving-credit availability.