National Beverage Corp. — Q3 FY2012 Form 10-Q
Reporting period: Quarter and first nine months ended January 28, 2012, compared with periods ended January 29, 2011. Dollar amounts below are in millions unless otherwise noted.
Business context
National Beverage develops, manufactures, markets and distributes soft drinks, juices, waters, energy drinks and other beverages, primarily in North America. Sales are seasonal, typically highest in summer. The company emphasized its premium brands and expansion in the convenience channel.
Financial performance and position
| Metric | Q3 FY2012 | Q3 FY2011 | Nine months FY2012 | Nine months FY2011 |
|---|---|---|---|---|
| Net sales | $136.401 | $131.926 | $463.455 | $448.083 |
| Gross profit | $45.235 | $49.530 | $160.412 | $164.373 |
| Gross margin | 33.2% | 37.5% | 34.6% | 36.7% |
| SG&A | $33.415 | $38.013 | $110.686 | $118.252 |
| Net income | $7.904 | $7.407 | $32.462 | $29.667 |
| Diluted EPS | $0.17 | $0.16 | $0.70 | $0.64 |
- Cash flow: Nine-month operating cash flow was $18.501 million, down from $36.343 million. Investing cash outflow was $6.143 million, primarily capital spending of $6.172 million. Cash increased $12.589 million from fiscal year-end to $19.961 million.
- Liquidity: Working capital was $60.431 million, up $29.501 million from April 30, 2011; the current ratio improved to 2.1 from 1.4.
- Debt and facilities: The filing reports no outstanding borrowings. Unsecured revolving facilities total $75 million; $2.639 million was used for standby letters of credit, leaving $72.361 million available. The company was in covenant compliance.
Material changes versus prior periods
- Quarterly and nine-month sales each increased 3.4%. In Q3, premium-brand case volume grew 6.1% and carbonated soft-drink volume grew 5.1%; unit pricing fell 1.8%, primarily due to mix. For the nine months, premium-brand volume rose 9.3% and unit pricing increased 2.5%, while carbonated soft-drink volume declined 1.7%.
- Gross margin contracted in both comparisons, chiefly from higher raw-material costs and product mix. Cost of sales per unit rose 5.0% in Q3 and 5.8% for the nine months.
- Lower marketing and administrative expenses reduced SG&A, helping quarterly and nine-month net income rise despite lower gross profit.
- Operating cash flow fell year over year, with cash use from inventory growth, lower accounts payable and lower accrued and other liabilities among the working-capital effects.
Outlook, risks and unusual items
- No specific financial guidance or quantified forecast is provided. Management believes existing capital resources will meet liquidity and capital needs for the foreseeable future.
- Risks cited include raw-material cost fluctuations and the ability to raise prices, competitive pricing, consumer preference changes, retailer support, new-product performance, weather, regulation and broader economic conditions. The company reported no material changes to previously disclosed risk factors or market risks.
- The company uses aluminum swaps as cash-flow hedges, not for speculation. At January 28, 2012, contracts had a $23.417 million notional amount; assuming commodity prices do not change, $304,000 of unrealized net loss before tax was expected to be reclassified into earnings over the next 12 months.
- Disclosure controls were assessed as effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether pricing and product mix can offset continued raw-material inflation and restore gross margins.
- Whether sales growth and premium-brand volume momentum persist, particularly alongside declining carbonated soft-drink volume in the nine-month period.
- Whether operating cash flow improves as inventory, payables and accrued liabilities change.
- Current revolver availability, covenant compliance and any future borrowing needs.
- Subsequent effects of aluminum hedge settlements and the expected reclassification of hedge losses into cost of sales.