Business context and reporting period
BellRing Brands, Inc. is a convenient nutrition company, with Premier Protein and Dymatize as its primary brands. It sells ready-to-drink protein shakes and other beverages, powders, nutrition bars, and supplements. This unaudited Form 10-Q covers the quarter and six months ended March 31, 2021; the quarter is fiscal Q2. Dollar amounts are in millions except per-share data.
Financial performance
| Metric | Three months ended Mar. 31, 2021 | Prior year | Six months ended Mar. 31, 2021 | Prior year |
|---|---|---|---|---|
| Net sales | $282.1 | $257.5 | $564.5 | $501.5 |
| Gross profit | $87.0 | $88.2 | $178.9 | $179.5 |
| Gross margin | 30.8% | 34.3% | 31.7% | 35.8% |
| Operating profit | $15.6 | $35.1 | $63.4 | $84.4 |
| Net earnings available to Class A stockholders | $0.6 | $4.2 | $8.4 | $10.2 |
| Basic and diluted EPS | $0.02 | $0.11 | $0.21 | $0.26 |
| Operating cash flow | Not separately provided | Not separately provided | $73.8 | $(5.1) |
Quarterly sales rose 10%; six-month sales rose 13%. Shakes and other beverages generated $227.4 of quarterly sales and $461.6 for six months; powders generated $41.4 and $76.8, respectively. Cost of goods sold rose faster than sales, contributing to lower gross margins. Quarterly operating margin was 5.5%, versus 13.6% a year earlier.
At March 31, cash was $33.2, down from $48.7 at September 30, 2020. Current assets were $307.9 and current liabilities $199.2. Debt principal totaled $627.4: $73.2 current and $554.2 long-term before unamortized discounts and issuance costs. No revolving-credit borrowings were outstanding; $200.0 of revolving capacity was available. The company reported compliance with its 6.00-to-1.00 maximum total net leverage covenant.
Changes versus the prior comparable period
- Quarterly sales increased $24.6, led by Premier Protein sales growth of 8% and Dymatize growth of 29%. Six-month sales increased $63.0; Premier Protein grew 13% and Dymatize 23%.
- Operating profit declined $19.5 in the quarter and $21.0 for the six months. Key six-month pressures included $18.1 of accelerated amortization tied to the Supreme Protein discontinuation, $10.3 of higher net product costs, $5.5 of restructuring and facility-closure costs, and $2.5 of increased advertising and promotional spending.
- Quarterly interest expense fell $3.0 to $11.3; six-month expense fell $1.8 to $24.1, reflecting lower debt balances and rates. A $1.5 refinancing loss was recorded in 2021.
- Six-month operating cash flow improved by $78.9 year over year, primarily due to favorable working-capital movements; the filing cites timing of supplier payments, inventory, and customer collections as important factors. Financing used $89.4, including debt repayments and $10.7 of net cash transfers to Post.
Outlook, commentary, risks and unusual items
- Management expects positive operating cash flow and believes cash on hand, operating cash flow, and potential future credit facilities will meet foreseeable requirements. No significant capital expenditures were planned for the remainder of fiscal 2021; no specific earnings or sales guidance was provided.
- The February 2021 debt amendment reduced the Term B interest-rate margin by 100 basis points. The Term B rate was 4.75% at March 31, versus 6.00% at September 30, 2020. Certain lower-rate refinancing or repricing before August 26, 2021 could trigger a 1% premium.
- The company discontinued Supreme Protein and expected the related customer-relationship and trademark assets to be fully amortized by June 1, 2021. The Dallas office closure and Munich downsizing were expected to finish by June 30, 2021; estimated total restructuring charges were $4.9.
- Management said the liquid and powder categories had returned to growth broadly in line with pre-pandemic rates, while bars continued to decline as of March 31. COVID-19, supply-chain continuity, third-party manufacturing and supplier concentration, freight and raw-material costs, customer demand, and leverage remain risks.
- Joint Juice consumer litigation remains pending in several cases. BellRing is defending the claims, does not expect a material adverse effect, and had an $8.5 accrual at March 31. Management said other legal and regulatory matters were not expected to be material.
- Post held 71.2% of BellRing LLC’s economic interest and controlled BellRing Inc. through its Class B share. BellRing’s tax receivable agreement requires payments to Post equal to 85% of certain realized or deemed tax savings.
Important facts for investors to verify
- Whether sales growth can continue while gross margins remain pressured by freight, raw-material costs, promotional spending, and product mix.
- How much of the strong six-month operating cash flow reflects recurring operations versus working-capital timing.
- Debt repayment requirements, floating-rate exposure, covenant headroom, and the effect of the refinancing amendment and interest-rate swaps.
- The final cost and completion timing of restructuring, and the remaining impact of Supreme Protein’s discontinuation and accelerated amortization.
- Developments in Joint Juice litigation and the company’s ongoing obligations to Post, including tax distributions and tax receivable agreement payments.