National Beverage Corp. — Q3 Fiscal 2013 Form 10-Q
Reporting period: Quarter ended January 26, 2013; comparisons are with the quarter ended January 28, 2012. Nine-month results cover the first three quarters of fiscal 2013. Financial statement amounts below are in millions unless otherwise noted.
Business context
National Beverage develops, manufactures, markets and sells soft drinks, juices, energy drinks, teas, waters and other beverages, primarily in North America. Its portfolio includes Shasta, Faygo, LaCroix and Rip It. The company operates 12 manufacturing facilities and uses warehouse, direct-store-delivery and independent-distributor channels. Sales are seasonal, typically highest in summer.
Financial performance
| Metric | Q3 FY2013 | Q3 FY2012 | Nine months FY2013 | Nine months FY2012 |
|---|---|---|---|---|
| Net sales | $144.7 | $136.4 | $494.1 | $463.5 |
| Gross profit | $46.4 | $45.2 | $159.2 | $160.4 |
| Gross margin | 32.0% | 33.2% | 32.2% | 34.6% |
| Income before taxes | $12.3 | $11.8 | $52.6 | $49.6 |
| Net income | $8.4 | $7.9 | $34.8 | $32.5 |
| Diluted EPS | $0.18 | $0.17 | $0.75 | $0.70 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $27.0 | $18.5 |
- Quarterly sales rose 6.1%; management attributed growth to case-volume increases of 2.8% for Power+ Brands and 9.9% for carbonated soft drinks. Unit pricing declined 1.7%, mainly from product mix.
- Nine-month sales increased 6.6%, supported by case-volume growth of 7.3% for Power+ Brands and 9.9% for carbonated soft drinks; unit pricing fell 2.4%.
- Gross margin contracted in both periods. Management cited product mix and lower unit pricing; cost of sales per unit was unchanged in Q3 and increased 1.2% over nine months.
- SG&A was $33.9 million, or 23.4% of sales, in Q3 versus $33.4 million, or 24.5%. For nine months it was $106.3 million, or 21.5%, versus $110.7 million, or 23.9%, reflecting lower marketing and administrative expenses.
Cash, debt and liquidity
- At January 26, 2013, cash and equivalents were $18.5 million, down from $35.6 million at April 28, 2012. Working capital was $67.0 million, down $2.8 million from fiscal year-end; the reported current ratio was 2.3 to 1, versus 1.9 to 1 at April 28, 2012.
- Nine-month operating cash flow was $27.0 million; investing cash use was $6.0 million, principally capital expenditures. Financing cash use was $38.1 million, including the $118.1 million special dividend, partly offset by $60.0 million in credit-facility borrowings and $19.7 million in net preferred-stock proceeds.
- Long-term debt was $60.0 million. The company had $100 million of revolving facilities, with $2.4 million used for letters of credit and $37.6 million available. Borrowings bore interest at 1% above LIBOR (1.2% at period-end); the company reported compliance with covenants.
- Management said existing capital resources should meet liquidity and capital requirements for the next 12 months.
Material changes, outlook and risks
- The company paid a special cash dividend of $2.55 per share, totaling $118.1 million, on December 27, 2012. It also issued 400,000 Series D preferred shares for $20 million gross proceeds; net proceeds of $19.7 million were used to repay credit-facility borrowings. The preferred stock has a $50-per-share liquidation preference and cumulative dividends of 3% annually through April 30, 2014, then 3-month LIBOR plus 370 basis points; it is redeemable at the company’s option beginning May 1, 2014.
- No specific earnings or sales guidance was provided. Management highlighted exposure to raw-material costs, consumer preferences, competitive pricing, retailer support, new-product execution, regulation and regional weather. Aluminum swaps partially hedge can-cost exposure through April 2013; $123,000 of unrealized net loss was expected to be reclassified to cost of sales over the following three months, assuming no commodity-price change.
- The company guaranteed up to $6.7 million of residual value on leased equipment through August 1, 2013, but expected no loss. Management reported no material changes in risk factors or market risks from its prior annual report.
- Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported. Interim results are unaudited and may not indicate full-year performance.
Important facts for investors to verify
- Whether volume growth can continue without further unit-price pressure or gross-margin erosion.
- How the special dividend, preferred-stock terms and resulting debt affect future cash flow, distributions and common-shareholder returns.
- Progress in rebuilding cash and managing working capital, especially accounts payable and inventories.
- Commodity-cost exposure after the aluminum swaps expire, and the outcome of the equipment residual-value guarantee.
- Any subsequent update to the company’s outlook, risk factors or credit-facility position; this filing provides no quantified forward guidance.