National Beverage Corp. — Form 10-Q Summary
Reporting period: Fiscal second quarter and first six months of fiscal 2013, ended October 27, 2012; comparisons are with the periods ended October 29, 2011. Amounts below are in U.S. dollars.
Business context and results
National Beverage develops, manufactures, markets and sells soft drinks, juices, waters and other beverages, primarily in North America. Its portfolio includes carbonated beverages and “Power+ Brands,” and it operates 12 manufacturing facilities. Sales are seasonal, typically highest in summer.
| Metric | Three months | Six months |
|---|---|---|
| Net sales | $166.6 million, up 5.4% | $349.4 million, up 6.8% |
| Gross profit / margin | $54.6 million / 32.8%, versus $54.1 million / 34.2% | $112.9 million / 32.3%, versus $115.2 million / 35.2% |
| SG&A | $36.1 million (21.7% of sales), versus $36.9 million (23.4%) | $72.4 million (20.7% of sales), versus $77.3 million (23.6%) |
| Net income | $12.0 million, versus $11.1 million | $26.4 million, versus $24.6 million |
| Diluted EPS | $0.26, versus $0.24 | $0.57, versus $0.53 |
Cash flow, balance sheet and liquidity
- For the first six months, operating cash flow was $16.1 million, compared with $18.1 million a year earlier; capital expenditures were $3.2 million, compared with $3.8 million.
- Cash increased to $48.7 million from $35.6 million at fiscal year-end. Working capital was $97.5 million; the current ratio was 2.7, up from 1.9.
- Receivables declined $5.0 million, while inventories increased $2.1 million. Management reported days sales outstanding of 30.9 days (33.9 at year-end) and inventory turns of 10.4 (11.0 at year-end).
- The balance sheet reports no borrowings under the revolving facilities. Of the $75 million in facilities, $2.4 million supported standby letters of credit and $72.6 million was available at quarter-end. The company was in covenant compliance.
Changes, outlook and risks
- Management attributed sales growth to case-volume gains: Power+ Brands rose 15.4% in the quarter and 18.3% for six months; carbonated soft drinks rose 6.3% and 6.8%, respectively. Lower unit pricing—down 2.9% for the quarter and 2.6% for six months, primarily from product mix—partly offset growth.
- Gross margin declined in both comparison periods. Management cited mix and lower pricing; cost of sales per unit declined 0.8% in the quarter but increased 1.7% for six months. Lower marketing and administrative expenses reduced SG&A.
- No specific earnings or revenue guidance is provided. Management said existing capital resources should meet liquidity and capital needs for the next 12 months.
- After quarter-end, the company declared a special dividend of $2.55 per share, expected to total approximately $118 million, payable on or before February 1, 2013. It expects to fund the payment with available cash and credit facilities. Also after quarter-end, one facility was amended to increase available credit from $25 million to $50 million and extend maturity to November 22, 2015.
- Aluminum swaps had a $12.6 million notional amount. Assuming commodity prices do not change, $1.1 million of unrealized pre-tax loss was expected to be reclassified to cost of sales over the following seven months. A $6.7 million equipment lease residual-value guarantee runs to August 1, 2013; the company expects no loss.
- Management cited risks including raw-material costs, competitive pricing, consumer preferences, retailer support, new-product success, weather, economic conditions and regulation. It reported no material changes in risk factors or market risks from its latest Form 10-K. Disclosure controls were deemed effective, with no material internal-control changes reported.
Important facts for investors to verify
- How the approximately $118 million dividend will be funded relative to quarter-end cash and available borrowing capacity, and its effect on post-payment liquidity.
- Whether volume growth can be sustained and pricing and product mix improve enough to stabilize gross margins.
- Actual operating cash generation, inventory trends and working-capital needs in subsequent periods.
- The realized cost impact of aluminum hedges and any changes in commodity exposure or the lease guarantee.
- Compliance with credit covenants and the availability and terms of facilities as they mature or are amended.