National Beverage Corp. — Form 10-Q Summary
Business context and period: The filing covers the three months ended July 29, 2017, the first quarter of fiscal 2018, compared with the three months ended July 30, 2016. National Beverage develops, produces, markets and sells beverages, primarily in North America. Its portfolio includes Power+ Brands such as LaCroix, Rip It and juice products, as well as Shasta and Faygo carbonated soft drinks. Financial statements are unaudited; amounts below are in millions except per-share data.
Key financial results
| Metric | Q1 FY2018 | Q1 FY2017 | Change |
|---|---|---|---|
| Net sales | $259.8 | $217.1 | +19.7% |
| Gross profit | $104.5 | $85.5 | +22.2% |
| Gross margin | 40.2% | 39.4% | +0.8 percentage points |
| SG&A | $46.7 | $41.5 | +$5.2 |
| Income before taxes | $58.0 | $44.1 | +31.7% |
| Net income | $38.3 | $29.0 | +32.0% |
| Diluted EPS | $0.82 | $0.62 | +$0.20 |
| Operating cash flow | $43.5 | $30.5 | +$13.1 |
| Capital expenditures | $4.1 | $3.5 | +$0.6 |
Performance, cash flow and financial position
- Management attributed sales growth primarily to a 14.9% increase in case volume and, to a lesser extent, a 2.6% increase in average selling price per case from product mix. Power+ Brands volume grew 37.9%; carbonated soft drinks declined.
- Gross profit growth reflected higher volume and a greater contribution from higher-margin Power+ Brands; cost of sales per case was flat. SG&A rose with distribution, volume-related expenses and marketing, but declined to 18.0% of sales as higher volume leveraged fixed costs.
- Cash and equivalents were $175.9 at July 29, up from $136.4 at April 29, 2017. Operating cash flow benefited from net income and a $24.8 increase in accrued and other liabilities, partly offset by higher receivables and inventory.
- Working capital was $147.6, down from $181.1 at April 29, and the current ratio was 1.8 versus 3.1. Management attributed the decline primarily to the declared $69.9 special dividend and higher income taxes payable. The dividend was paid August 4, 2017.
- No credit-facility borrowings were outstanding. The company had $100.0 of unsecured revolving facilities, with $97.8 available after standby letters of credit. It reported compliance with covenants. The filing reports interest expense of $0.05 for the quarter.
- Trade receivables increased $14.8 to $86.1; days sales outstanding improved to 30.2 from 30.6. Inventory increased $4.0 to $57.3; inventory turns improved to 10.8 from 9.5.
Outlook, risks and other notable items
- No specific financial or sales guidance is provided. Management said existing capital resources should meet liquidity and capital requirements for the next 12 months. Results are seasonal, with the highest beverage volume typically in warmer months, and interim results may not indicate full-year performance.
- Management identified risks including raw-material and packaging costs, competitive pricing, consumer preferences, retailer support, new-product success, weather, labor interruptions, regulation and taxes, and the ability to pass cost increases to customers. The company reported no material changes in risk factors or market risks from its prior annual report.
- The company uses aluminum swap contracts to partially hedge can-cost exposure. Their notional amount was $53.2; assuming no commodity-price change, $1.4 of pretax unrealized loss was expected to be reclassified from accumulated other comprehensive loss into earnings over the next 12 months.
- A $2.0 equipment residual-value guarantee remained outstanding; the company did not expect a loss. The related lease term was extended on July 31, 2017, after quarter-end.
- Adoption of share-based payment accounting guidance resulted in $0.081 of excess tax benefits recognized in the tax provision. The filing also reports adoption of deferred-tax balance-sheet classification guidance and ongoing evaluation of lease accounting guidance.
Important facts for investors to verify
- Whether strong sales and Power+ volume growth continue, and whether the decline in carbonated soft drinks persists.
- Whether favorable margin performance is sustained as product mix, marketing and distribution costs change.
- How much operating cash flow reflects recurring earnings versus working-capital movements, particularly the increase in accrued and other liabilities.
- The post-quarter cash and liquidity effect of the $69.9 special dividend, and the company’s ability to maintain liquidity through seasonal fluctuations.
- Potential effects of aluminum and other input-cost movements, including the hedge loss expected to enter earnings.