National Beverage Corp. — Form 10-Q Summary
Reporting period: Second quarter and first six months of fiscal 2017, ended October 29, 2016; comparisons are with the corresponding periods ended October 31, 2015. The company develops, produces, markets and sells sparkling waters, juices, energy drinks and carbonated soft drinks, primarily in North America.
Financial results
| Metric | Quarter | Six months |
|---|---|---|
| Net sales | $203.2 million, up 13.7% | $420.3 million, up 15.4% |
| Gross profit | $78.7 million, up 29.9% | $164.2 million, up 32.9% |
| Gross margin | 38.7%, versus 33.9% | 39.1%, versus 33.9% |
| Net income | $24.6 million, versus $15.3 million | $53.6 million, versus $32.4 million |
| Diluted EPS | $0.53, versus $0.33 | $1.15, versus $0.69 |
| Operating cash flow | Not separately reported for the quarter | $53.2 million, versus $37.2 million |
- Quarterly case volume increased 13.4%; Power+ Brands volume grew 39.8%, chiefly from sparkling waters. Six-month case volume rose 16.5%, including 42.9% growth in Power+ Brands. Carbonated soft drinks declined in both periods. Average selling price per case increased 2.2% in the quarter and 2.1% year to date, mainly due to mix.
- Management attributed stronger gross profit and margins to higher sales and lower average cost per case: down 4.5% in the quarter and 4.8% for six months, reflecting product mix and lower raw-material costs.
- SG&A was $41.4 million for the quarter and $82.9 million for six months; as a share of sales, it decreased to 20.4% and 19.7%, respectively. Higher distribution, selling, marketing and administrative costs were primarily associated with volume growth.
- Six-month capital expenditures were $8.5 million, versus $4.4 million, primarily to support volume growth. Cash increased $44.9 million to $150.5 million.
Liquidity, debt and financial position
- At October 29, 2016, working capital was $200.1 million, versus $148.1 million at April 30, 2016; the current ratio was 3.8 to 1, versus 3.0 to 1.
- The company had 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 covenants. Interest expense was $50,000 for the quarter and $88,000 for six months.
- Six-month investing cash outflow was $8.5 million. Financing cash flow was positive $0.2 million, compared with a $9.4 million outflow in the prior-year period, which included $10 million of credit-facility repayments.
Outlook, risks and notable items
- No specific financial guidance was provided. Management said existing capital resources should meet liquidity and capital requirements for the next 12 months.
- On November 18, 2016, the company declared a $1.50-per-share special dividend, expected to total approximately $70 million, payable on or before January 27, 2017. The board also approved in concept another cash dividend, amount not yet determined, and the company said it planned to develop a shareholder distribution program based on length of ownership.
- Management described a strategic focus on healthier hydration and Power+ Brands, including sparkling waters. It noted that results are seasonal, with typically higher sales in warmer months.
- Risks cited include raw-material and packaging costs, consumer preferences, competitive pricing, retailer support, new-product success, weather, labor interruptions, regulation and the ability to pass cost increases to customers. The filing reported no material changes to previously disclosed risk factors or market risks.
- The company had aluminum swaps with a $6.5 million notional amount. Assuming commodity prices did not change, $517,000 of unrealized pre-tax loss was expected to be reclassified from accumulated other comprehensive loss into earnings over the next 12 months.
- The company guaranteed up to $3.6 million of residual value on leased equipment, with the lease ending August 1, 2017; management expected no loss.
Important facts for investors to verify
- Whether sparkling-water and other Power+ Brands growth continues, and whether it offsets ongoing carbonated soft-drink declines.
- Whether lower raw-material costs and favorable product mix persist and support gross margins.
- The cash and liquidity effect of the approximately $70 million special dividend and any additional shareholder distributions.
- Capital spending needs, working-capital trends and the company’s ability to maintain strong operating cash flow as volumes grow.
- Potential effects of commodity costs, weather, consumer demand, competition and retailer support on future results.