Business context and reporting period
National Beverage Corp. develops, produces and sells sparkling water, juices, energy drinks and carbonated soft drinks, primarily in the United States and Canada. Its brands include LaCroix, Shasta, Faygo, Rip It, Everfresh and Mr. Pure. This Form 10-K covers the fiscal year ended May 2, 2020, a 53-week year; fiscal 2019 had 52 weeks. The filing also provides unaudited fourth-quarter results, but this is an annual report, not a standalone quarterly filing.
Financial performance and position
| Metric | Fiscal 2020 | Fiscal 2019 |
|---|---|---|
| Net sales | $1,000.4 million | $1,014.1 million |
| Gross profit / gross margin | $370.1 million / 37.0% | $384.4 million / 37.9% |
| Operating income | $165.7 million | $179.9 million |
| Net income | $130.0 million | $140.9 million |
| Diluted earnings per share | $2.78 | $3.00 |
| Cash from operating activities | $177.7 million | $139.4 million |
Annual sales declined 1.4%, primarily reflecting a 1.4% decrease in average selling price per case, chiefly due to product mix. Power+ Brands volume fell 3.4%, while branded carbonated soft drink volume rose 6.6%. Gross profit declined as cost per case increased 1.0%, attributed mainly to mix and higher manufacturing costs. SG&A was essentially flat at $204.4 million; management cited higher selling and administrative costs offset by lower shipping and distribution costs. The effective tax rate was 23.3%, versus 23.4%.
In the fourth quarter, sales were $262.4 million versus $239.9 million, gross profit was $98.7 million versus $84.6 million, and net income was $36.2 million versus $26.1 million. Diluted EPS was $0.77 versus $0.56.
Cash and equivalents increased to $304.5 million from $156.2 million. Working capital was $319.0 million, and the current ratio was 3.3 to 1. Operating cash flow was $177.7 million; capital expenditures were $23.9 million, primarily for production capacity. The company had no revolving-credit borrowings and had $96.6 million available under its $100 million facilities, with $3.4 million reserved for letters of credit. It reported $49.1 million of operating lease liabilities; these are lease obligations, not revolving-credit debt.
Changes, outlook and material matters
- Cash from operations increased $38.3 million, primarily due to lower working-capital requirements and higher depreciation and amortization, partly offset by lower net income. Inventory fell $7.2 million; inventory turns increased to 9.4 from 8.8.
- No fiscal 2020 dividend was declared or paid. The company repurchased 154,512 shares for $6.2 million and had 943,428 shares remaining under its repurchase authorization.
- Management expected fiscal 2021 capital expenditures to be comparable to fiscal 2020 and believed existing resources would meet liquidity needs for the next 12 months. The filing gives no specific revenue or earnings guidance.
- COVID-19 was identified as an uncertain risk, including possible facility shutdowns and disruption to customers or suppliers. Other stated risks include competition, changing consumer preferences, retailer bargaining power, commodity and energy costs, weather, regulation, labor and employee-benefit costs.
- The company uses aluminum swaps to partially hedge commodity exposure. At year-end, the notional amount was $49.3 million; assuming commodity prices did not change, $6.7 million of unrealized loss before tax was expected to be reclassified to cost of sales over the following 12 months.
- LaCroix-related consumer litigation included allegations concerning synthetic ingredients; the company said it was vigorously defending the proceedings and did not expect a material financial effect. A similar complaint was voluntarily dismissed with a written retraction.
- The company paid $10.0 million in fiscal 2020 management fees to Corporate Management Advisors, Inc., owned by the chairman and CEO. The filing also disclosed an SEC inquiry concerning allocation of corporate-aircraft expenses; the review was not expected to materially affect the financial statements but could lead to adjustments or disclosure changes.
- Adoption of lease accounting standards resulted in recognition of right-of-use assets and lease liabilities. The independent auditor gave unqualified opinions on the financial statements and internal control; self-insurance accruals were identified as a critical audit matter.
Important facts for investors to verify
- Whether fourth-quarter improvement persisted after year-end, given the annual declines in sales, gross margin and net income.
- How mix, pricing and manufacturing costs affect margins, and whether Power+ volume stabilizes.
- The subsequent operational and financial effects of COVID-19, which the filing describes as uncertain.
- Developments in LaCroix litigation and the SEC aircraft-expense review, including any resulting adjustments or disclosures.
- Commodity-hedge performance, raw-material commitments, and potential exposure from multi-employer pension plans and self-insured claims.