BellRing Brands, Inc. — Q1 FY2023 Form 10-Q
Reporting period: Three months ended December 31, 2022; compared with the three months ended December 31, 2021. The filing is unaudited. BellRing sells convenient nutrition products, primarily under the Premier Protein and Dymatize brands, and reports one operating segment.
Financial results
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Net sales | $362.7 million | $306.5 million | +18% |
| Gross profit | $121.8 million | $92.3 million | +32% |
| Gross margin | 33.6% | 30.1% | +3.5 percentage points |
| Operating profit | $75.2 million | $50.6 million | +49% |
| Operating margin | 20.7% | 16.5% | +4.2 percentage points |
| Net earnings, including redeemable noncontrolling interest | $44.2 million | $39.3 million | +12% |
| Net earnings available to common stockholders | $44.2 million | $8.2 million | +439% |
| Diluted earnings per share | $0.33 | $0.21 | +$0.12 |
| Net cash from operating activities | $36.3 million | $(9.1) million | Improved $45.4 million |
Revenue growth was led by Premier Protein, up 23%, driven mainly by targeted price increases; reported volume rose 5%, partly reflecting comparison with prior-year supply constraints. Dymatize sales rose 3% as higher prices and favorable mix were partly offset by a 19% volume decline. Shakes and other beverages generated $297.0 million of sales; powders generated $56.1 million.
Higher sales and $1.7 million lower separation-related costs supported operating profit. These benefits were partly offset by $24.8 million in higher net product costs and $1.0 million in higher advertising expense. Reported common-stockholder earnings and EPS comparisons are affected by the prior-year allocation of $31.1 million of earnings to redeemable noncontrolling interest before the 2022 spin-off. The effective tax rate increased to 24.4% from 6.9%, primarily because BellRing reported 100% of BellRing LLC’s taxable results after the spin-off.
Cash, debt and liquidity
- Cash was $43.9 million at December 31, 2022, up from $35.8 million at September 30, 2022. Operating cash flow was $36.3 million; investing cash use was $0.3 million; financing cash use was $28.4 million.
- Quarter-end long-term debt was $944.8 million net of debt issuance costs, comprising $840.0 million of 7.00% senior notes due 2030 and $114.0 million drawn on the revolving facility. The revolving facility has $250.0 million of commitments, with $136.0 million available. Variable-rate revolver borrowings carried rates of 7.42%–9.50% at quarter-end.
- Net interest expense rose to $16.7 million from $8.4 million; the weighted-average interest rate on total debt was 7.1%, versus 4.8% a year earlier.
- The company repurchased 1.8 million shares for $41.2 million, including commissions. Total current assets were $454.0 million and current liabilities were $149.1 million. Stockholders’ deficit was $370.3 million.
- BellRing said it expects positive operating cash flow and believes cash on hand, operating cash flow and potential future credit facilities will meet foreseeable requirements. It reported compliance with its maximum 6.00:1.00 total net leverage covenant at quarter-end.
Outlook, risks and unusual items
- Management expects input-cost inflation to continue during fiscal 2023. Raw-material, packaging and freight inflation has pressured margins; pricing actions have been taken on nearly all products. Further cost increases, inability to offset them, or adverse demand effects from pricing could materially harm results.
- No specific financial or earnings guidance is provided in the supplied filing text. Management said no significant capital expenditures were planned for the rest of fiscal 2023; capital spending has historically averaged less than 1% of sales.
- A December 2022 co-manufacturing agreement includes minimum purchase and take-or-pay provisions, increasing purchase commitments by $200.0 million through fiscal 2028, including $40.0 million due within 12 months.
- Debt was higher than at September 30, 2022, and the company cited higher debt levels and interest rates as the primary reasons for increased interest expense. Borrowings under the revolver are variable-rate.
- Joint Juice litigation includes a New York jury verdict and judgment of $12.9 million; BellRing appealed. Other related actions remain pending, and an additional California case was scheduled for trial in June 2023. The company had a $16.0 million estimated liability for these matters and said it did not expect their ultimate resolution to materially affect its financial condition, results or cash flows.
- A voluntary recall initiated in fiscal 2022 covered products made at one contract manufacturer from December 8, 2021 through July 9, 2022. The company was still assessing its impact and did not expect a material adverse effect.
- Supply-chain dependence is significant: the filing cites reliance on a limited number of contract manufacturers, including one responsible for most RTD protein shakes, and on limited suppliers for certain ingredients and packaging. Post had no BellRing share ownership at December 31, 2022.
Key facts for investors to verify
- Whether pricing can continue to offset inflation without weakening demand, and whether input costs and gross margins improve or deteriorate.
- Trends in Premier Protein and Dymatize volumes, including the sharp Dymatize volume decline and the role of shipment timing, promotions and distribution.
- Execution and financial implications of the new co-manufacturing agreement, including the $200.0 million take-or-pay commitment and near-term purchases.
- Debt, variable-rate borrowing costs, liquidity headroom and continued covenant compliance.
- Developments in the Joint Juice litigation, appeal, recorded liability and product-recall assessment.
- Comparability of earnings per share across periods, given the 2022 spin-off, prior-year noncontrolling-interest allocation and change in weighted-average shares.