National Beverage Corp. — Q1 FY2021 Form 10-Q
Reporting period: Three months ended August 1, 2020; comparative quarter ended July 27, 2019. Unaudited results. The company develops, produces, markets, and sells beverages, primarily in the United States and Canada.
Key financial results
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Net sales | $293.4 million | $263.6 million | +11.3% |
| Gross profit | $117.2 million | $96.6 million | +21.4% |
| Gross margin | 40.0% | 36.6% | +3.4 percentage points |
| Operating income | $66.7 million | $44.6 million | +49.6% |
| Net income | $51.2 million | $34.5 million | +48.1% |
| Diluted EPS | $1.09 | $0.74 | +$0.35 |
| Operating cash flow | $51.5 million | $50.6 million | +$0.9 million |
- Sales volume increased 12.3%; Power+ Brands volume rose 15.7% and carbonated soft drinks volume rose 5.1%. Average selling price per case was flat.
- Management attributed higher gross profit to increased volume and lower raw-material costs. Cost of sales per case declined 5.2%.
- SG&A declined to $50.5 million from $52.0 million, principally due to lower marketing and selling costs, partly offset by increased shipping costs. SG&A was 17.2% of sales versus 19.7%.
- Net margin was approximately 17.4%, compared with 13.1% in the prior-year quarter.
- Capital expenditures were $3.7 million, versus $4.2 million. Cash increased $48.0 million to $352.5 million; net cash used in investing was $3.7 million.
Liquidity and debt
- At August 1, 2020, current assets were $527.1 million and current liabilities were $149.7 million; working capital was $377.5 million and the current ratio was 3.5:1.
- No borrowings were outstanding under the $100 million unsecured revolving credit facilities. After $3.4 million reserved for letters of credit, $96.6 million was available. The company reported compliance with covenants.
- Management said existing capital resources should meet liquidity and capital requirements for the next 12 months.
- Total liabilities were $202.7 million, including $46.0 million of operating lease liabilities. The company reported no debt borrowings.
Management commentary, outlook, and risks
- Management linked Power+ Brands’ volume growth primarily to increased consumer demand in the take-home channel. Beverage sales are seasonal, with higher volumes generally in summer.
- The company expects fiscal 2021 capital expenditures to be comparable to fiscal 2020 levels and plans continued production-capacity and efficiency projects. No specific revenue or earnings forecast was provided.
- Management cited risks including economic and competitive conditions, consumer preferences, success of new products and strategies, raw-material and packaging costs and availability, weather, labor disruptions, retailer support, and regulation and taxes.
- The filing reported no material changes in risk factors or market risks from the prior annual report. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
- Aluminum swaps hedged commodity exposure. The quarter included a $5.3 million net-of-tax positive change in accumulated other comprehensive income from cash-flow hedges. The derivative asset was $1.0 million and liability was $1.0 million at quarter-end; management said $130,000 of unrealized losses before tax was expected to be reclassified into earnings over the next 12 months, assuming no change in commodity prices.
Most important facts for investors to verify
- Whether the strong sales-volume growth, particularly in the take-home channel, continued beyond this seasonal quarter.
- Whether lower raw-material costs and improved gross margin are sustainable, and how commodity hedges affect future cost of sales.
- How receivables and operating cash flow develop: receivables rose $18.8 million during the quarter, while cash from operations was nearly flat year over year.
- Actual fiscal 2021 capital spending compared with management’s expectation of levels comparable to fiscal 2020.
- Availability and renewal timing of the revolving facilities, which expire from October 2020 through June 2021.