National Beverage Corp. (NASDAQ: FIZZ) — FY2021 Form 10-K
Reporting period: Fiscal year ended May 1, 2021 (52 weeks). The filing also reports fourth-quarter results; this is an annual 10-K, not a fiscal 2020 10-K. Fiscal 2020 ended May 2, 2020 and contained 53 weeks.
Business context
National Beverage develops, produces and sells beverages, primarily in the U.S. and Canada. Its portfolio includes LaCroix sparkling water, juices, Rip It energy drinks, Clear Fruit, and Shasta and Faygo soft drinks. The company operates 12 production facilities and uses warehouse and direct-store distribution.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $1,072.2 million | $1,000.4 million |
| Gross profit / margin | $421.6 million / 39.3% | $370.1 million / 37.0% |
| Operating income | $227.8 million | $165.7 million |
| Net income | $174.1 million | $130.0 million |
| Diluted EPS | $1.86 | $1.39 |
| Cash from operations | $193.8 million | $177.7 million |
| Capital expenditures | $25.3 million | $23.9 million |
- Sales rose 7.2%; branded case volume increased 7.1%, including 10.2% growth in Power+ Brands and 1.0% growth in branded carbonated soft drinks. Average selling price per case increased slightly, primarily due to product mix.
- Gross profit growth reflected higher volume, growth in higher-margin Power+ products and a 3.7% reduction in cost per case. SG&A declined to $193.8 million from $204.4 million; marketing costs fell to $43.4 million from $54.8 million.
- Cash and equivalents were $193.6 million, down from $304.5 million, largely following the $279.9 million special cash dividend. Cash used in financing was $279.4 million. Working capital was $217.7 million on the balance sheet; the current ratio was 2.5, versus 3.3 a year earlier.
- No borrowings were outstanding at year-end. The company reported $100 million of unsecured revolving facilities, with $97.5 million available after standby letters of credit. Operating lease liabilities totaled $43.6 million, including $14.8 million current.
- The effective tax rate was 23.7%, versus 23.3%. Interest expense was $0.2 million.
Fourth-quarter results and changes
FY2021 fourth-quarter sales were $261.1 million, compared with $262.4 million in FY2020; gross profit was $100.7 million versus $98.7 million; net income was $39.1 million versus $36.2 million; and diluted EPS was $0.42 versus $0.39. Annual comparisons should be viewed in light of FY2020’s extra week.
The company paid a one-time $3.00-per-share cash dividend totaling $279.9 million in January 2021 and distributed a one-for-one stock split as a stock dividend in February; per-share data were retroactively adjusted. It made no share repurchases during FY2021.
Outlook, commentary and risks
- Management expects FY2022 capital expenditures to be comparable to FY2021’s $25.3 million, principally for capacity, packaging and efficiency projects. It believes existing resources will meet liquidity needs for the next 12 months. No specific sales or earnings guidance is provided.
- Management emphasizes healthier products, flavor and packaging innovation, and faster response to consumer trends. It cautions that weather, seasonality, promotions and product-development timing can make quarterly comparisons less informative.
- Key risks include intense competition and retailer bargaining power; changing consumer preferences and brand reputation; commodity, packaging and energy price or supply volatility; weather and water availability; regulation and potential beverage taxes; employee-benefit costs; COVID-19 disruptions; and cybersecurity or technology interruptions.
- The company is exposed to multi-employer pension withdrawal liabilities; one significant plan was in the “red” zone and had a rehabilitation plan and surcharge. Self-insurance accrual estimation was identified as a critical audit matter.
- The company disclosed derivative and class-action litigation, which it is defending and does not expect to materially affect results. It also disclosed an SEC inquiry into aircraft-use cost classification for FY2015–FY2020 and a volunteered settlement offer requiring an immaterial payment if approved; the amount had been accrued.
- Related-party arrangements warrant attention: CMA, owned by the Chairman and CEO, provides management services under a 1%-of-sales agreement. FY2021 fees were $10.7 million; amounts due CMA were reported as $3.8 million in the notes, including reimbursable costs.
Important facts for investors to verify
- Reconcile working capital: the balance-sheet figures imply $217.7 million, while MD&A states $219.8 million; selected financial data also shows $217.7 million.
- Review the $279.9 million special dividend’s effect on cash, working capital and future capital allocation.
- Confirm the status and current availability of the revolving facilities, whose disclosed expiry dates extended only through June 18, 2021.
- Review the CMA management agreement, related-party balances and aircraft-cost SEC inquiry and settlement status.
- Assess the sustainability of volume and margin gains, particularly LaCroix and other Power+ growth, against commodity-cost, competitive and consumer-preference risks.