National Beverage Corp. — Form 10-Q Summary
Reporting period: Fiscal third quarter and first nine months ended January 27, 2018; comparisons are to periods ended January 28, 2017, unless otherwise noted. The company develops, produces, markets and sells beverages, primarily in North America, including LaCroix and other sparkling waters, juices, energy drinks, and Shasta and Faygo soft drinks. Financial amounts below are in U.S. dollars; millions are used unless stated otherwise.
Financial performance
| Metric | Third quarter FY2018 | Third quarter FY2017 | Nine months FY2018 | Nine months FY2017 |
|---|---|---|---|---|
| Net sales | $227.5 million | $194.6 million | $731.4 million | $614.9 million |
| Gross profit | $91.2 million | $75.9 million | $291.8 million | $240.1 million |
| Gross margin | 40.1% | 39.0% | 39.9% | 39.1% |
| SG&A | $45.4 million | $39.2 million | $137.6 million | $122.0 million |
| Income before taxes | $46.1 million | $36.9 million | $155.1 million | $118.4 million |
| Net income | $41.1 million | $24.3 million | $113.3 million | $77.9 million |
| Diluted earnings per share | $0.88 | $0.52 | $2.42 | $1.67 |
- Third-quarter sales grew 16.9%; case volume rose 14.9%, including 38.0% growth in Power+ Brands. Average selling price per case increased 2.0%, primarily from product mix.
- For the first nine months, sales grew 19.0%; case volume rose 15.8%, including 38.9% growth in Power+ Brands. Average selling price per case increased 2.0%.
- Management attributed gross-profit growth to higher volume and the increased contribution of higher-margin Power+ Brands; cost of sales per case was flat. Nine-month SG&A was 18.8% of sales versus 19.8% a year earlier, reflecting operating leverage.
- Cash provided by operations was $106.8 million for nine months, compared with $81.6 million. Capital expenditures were $18.7 million versus $11.8 million. Cash dividends paid were $69.9 million in each period.
Financial position and liquidity
- At January 27, 2018, cash and equivalents were $155.0 million, compared with $136.4 million at April 29, 2017. Total assets were $400.7 million and shareholders’ equity was $293.5 million.
- The company reported no borrowings under its $100 million unsecured revolving credit facilities; $97.8 million was available after $2.2 million reserved for standby letters of credit. It reported compliance with loan covenants.
- Working capital was $214.3 million, up from $181.1 million at fiscal year-end; the current ratio was 3.4 to 1 versus 3.1 to 1. Management said existing resources should meet liquidity and capital needs for the next twelve months.
- Receivables rose $4.6 million as sales increased; days sales outstanding improved slightly to 30.4 from 30.6. Inventory rose $7.5 million to support sales, while inventory turns declined to 9.0 from 9.5.
- Capital spending increased to support volume growth. A special cash dividend of $1.50 per share, totaling $69.9 million, was paid in August 2017.
Material changes, outlook and risks
- Carbonated Soft Drinks volume declined, primarily following the conclusion of the company’s retail brands business; Power+ Brands drove the reported volume gains.
- The Tax Cuts and Jobs Act lowered the federal corporate tax rate, with a blended statutory rate of 30.4% for fiscal 2018 and a 21% rate in subsequent fiscal years. The company reported effective tax rates of 10.9% for the quarter and 26.9% for the nine months, versus 34.2% in both prior-year periods. It recorded a one-time adjustment involving deferred tax remeasurement and year-to-date tax estimates that reduced tax expense by $7 million. The filing does not separately quantify the full effect of these tax items on reported net income.
- The company uses aluminum swap contracts to partially mitigate can-cost exposure. Their notional amount was $33.6 million; assuming commodity prices did not change, $4.7 million of unrealized pre-tax gain was expected to be reclassified to earnings over the next twelve months.
- No specific sales or earnings guidance was provided. Management noted that beverage sales are seasonal, typically highest in warmer months, and that quarterly results may not be comparable.
- Risks cited include changes in consumer preferences, competition and pricing, raw-material and packaging costs, ability to pass through cost increases, retailer support, new-product success, weather, labor interruptions, regulation and taxes. The company reported no material change in risk factors or market risks from its prior annual report. Disclosure controls were concluded to be effective, with no reported material change in internal control over financial reporting.
- The company guaranteed up to $1.6 million of residual value on certain leased equipment through August 1, 2019; management did not expect a loss.
Investor verification points
- Assess how much sales growth and margin improvement depends on continued Power+ Brands growth, and whether soft-drink declines persist.
- Review the one-time Tax Act adjustments and the resulting tax-rate effect when evaluating earnings comparability.
- Monitor inventory growth and lower inventory turns alongside volume trends and cash conversion.
- Check the realization and timing of aluminum-hedge gains, and the company’s exposure to future input-cost changes.
- Consider seasonality, increased capital expenditures and the substantial cash dividend when assessing future liquidity and cash needs.