Business context and reporting period
BellRing Brands, Inc. filed this Form 10-K for the fiscal year ended September 30, 2021. The company sells convenient nutrition products, principally through Premier Protein and Dymatize, across retail, club, specialty and e-commerce channels. Fiscal 2021 sales were concentrated in Premier Protein (83.0%) and RTD beverages (81.3% of net sales).
Financial results and liquidity
Amounts in millions of dollars, except per-share data and percentages.
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $1,247.1 | $988.3 | +26% |
| Gross profit / gross margin | $386.2 / 31.0% | $338.0 / 34.2% | Margin down 3.2 pts |
| Operating profit / operating margin | $168.0 / 13.5% | $164.0 / 16.6% | Profit +2% |
| Net earnings, including redeemable noncontrolling interest | $114.4 | $100.1 | +14% |
| Net earnings available to Class A stockholders | $27.6 | $23.5 | +17% |
| Diluted EPS | $0.70 | $0.60 | +$0.10 |
| Cash from operating activities | $226.1 | $97.2 | +$128.9 |
| Capital expenditures | $1.6 | $2.1 | — |
Cash was $152.6 at year-end, versus $48.7 a year earlier. Gross debt principal was $609.9, down from $703.7; the company reported $200.0 of available revolving-credit capacity and no revolver borrowings at September 30, 2021. The debt covenant caps total net leverage at 6.00:1.00; BellRing LLC was in compliance. The current ratio was approximately 1.54. The filing reports $515.6 of purchase commitments, including $327.7 due in fiscal 2022.
Material changes versus the prior year
- Sales growth reflected higher volumes and distribution gains: Premier Protein sales rose 25%, and Dymatize sales rose 43%. Favorable product mix also increased average net selling prices.
- Operating profit grew only 2% as higher sales and lower separation costs were partly offset by $38.9 of higher net product costs, $29.9 of accelerated amortization, $5.6 of restructuring and facility-closure costs, and increased advertising and employee costs.
- Net interest expense fell $11.5, primarily due to lower debt and a lower weighted-average borrowing rate (5.3%, versus 6.3%). The February 2021 refinancing reduced the Term B Facility margin by 100 basis points.
- Operating cash flow rose substantially, aided by favorable working-capital changes, including lower inventory as sales outpaced production. Cash used in financing activities was $120.9, including debt repayments and $24.6 paid to Post for tax distributions and state tax withholdings.
- The effective tax rate was 7.1%, down from 8.4%; the filing attributes the lower rate versus pre-IPO periods primarily to BellRing Inc. recognizing only its 28.8% distributive share of BellRing LLC taxable items after the IPO.
Outlook, commentary, risks and unusual items
Management expected supply-chain pressures to persist into fiscal 2022: production shortfalls, delayed capacity additions, labor and input availability issues, and freight and input inflation had reduced inventory, missed sales and kept service levels below normal. Some products were allocated. Management expected conditions to improve but remain challenging, dependent on contract manufacturers’ ability to deliver volumes, add capacity and rebuild inventory. No quantified fiscal 2022 financial guidance is provided in the supplied filing text.
- COVID-19 continued to create uncertainty around demand, workforce availability, manufacturing, freight and supply continuity. RTD protein shakes represented approximately 80.2% of fiscal 2021 net sales; one contract manufacturer supplied 67.5% of Premier Protein RTD shakes, and two customers, Costco and Walmart and affiliates, together represented approximately 65.3% of sales.
- Input cost inflation and constrained supply may pressure margins; the company cautions it may not be able to pass all cost increases to customers. Eleven-ounce RTD shake packaging and related manufacturing equipment depended on a single supplier.
- In December 2020, BellRing decided to discontinue Supreme Protein, recording $29.9 of accelerated amortization; the related customer relationships and trademarks were fully amortized by year-end. Dallas office closure and Munich downsizing generated $5.6 of restructuring and closure costs.
- After year-end, BellRing and Post signed an agreement for a separation, distribution and merger transaction, anticipated in the first calendar quarter of 2022 subject to conditions. New BellRing was expected to have pro forma net leverage of up to 4.0x. The cash consideration per existing Class A share remained to be determined, and completion was not assured.
- Post held 71.2% of BellRing LLC’s economic interest and controlled 67% of BellRing Inc.’s voting power at year-end. The tax receivable agreement generally entitles Post to 85% of specified realized or deemed tax savings and may create material cash obligations.
- The company accrued $8.5 for ongoing Joint Juice litigation, which management did not expect to have a material adverse effect. It reported no material goodwill impairment in fiscal 2021.
Important facts for investors to verify
- Whether fiscal 2022 production capacity, fill rates and inventory recover as expected, and the resulting effect on sales and margins.
- How much of freight, ingredient, packaging and labor inflation can be offset through pricing, mix or efficiencies.
- Debt repayment, cash generation, covenant headroom and the impact of the proposed transaction’s financing and final cash consideration.
- Customer and product concentration, including reliance on RTD shakes, the largest contract manufacturer, and Costco and Walmart.
- Potential tax receivable agreement payments, transaction-related costs, litigation developments and any changes to the $8.5 legal accrual.