National Beverage Corp. — Form 10-Q Summary
Business context and period: National Beverage develops, manufactures, markets and sells beverages, primarily in North America. This report covers the first quarter of fiscal 2013, the three months ended July 28, 2012; comparisons are with the three months ended July 30, 2011. Results are unaudited, and the company notes that beverage sales are seasonal, typically peaking in summer.
Financial performance
| Metric | Quarter ended July 28, 2012 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $182.8 million | $169.1 million | +8.1% |
| Gross profit | $58.3 million | $61.1 million | −4.6% |
| Gross margin | 31.9% | 36.1% | −4.2 percentage points |
| SG&A expense | $36.3 million | $40.4 million | −10.2% |
| Income before taxes | $22.0 million | $20.7 million | +6.3% |
| Net income | $14.4 million | $13.4 million | +7.1% |
| Diluted EPS | $0.31 | $0.29 | +$0.02 |
| Operating cash flow | $12.3 million | $14.8 million | −16.5% |
Financial position and cash flow
- Cash and equivalents were $46.6 million at July 28, 2012, up $11.0 million from April 28, 2012. Operating cash flow was $12.3 million; investing activities used $1.4 million, principally for capital expenditures, and financing activities provided $0.03 million.
- Working capital increased $14.5 million to $84.3 million; the current ratio improved to 2.1 from 1.9. Receivables and inventories rose $3.5 million and $3.2 million, respectively, mainly reflecting seasonal demand. Management reported lower days sales outstanding and improved inventory turns.
- The balance sheet reported no outstanding borrowings under the $75 million unsecured revolving facilities; $2.4 million was committed to standby letters of credit, leaving $72.6 million available. The facilities expire through July 8, 2013. The company was in covenant compliance.
- Property, plant and equipment additions were $1.4 million. Total shareholders’ equity was $135.3 million at quarter-end.
Changes, outlook and risks
- Management attributed sales growth to case-volume gains of 12.3% in Power+ Brands and 10.2% in carbonated soft drinks, partly offset by a 2.4% decline in unit pricing, primarily from product mix.
- Gross margin declined due to higher raw-material costs and mix; cost of sales increased 4.1% per unit. Lower marketing and administration expenses reduced SG&A to 19.8% of sales from 23.9%.
- No specific financial guidance was provided. Management said existing capital resources should meet liquidity and capital needs for the foreseeable future. Results may vary with raw-material costs, competitive pricing, consumer preferences, retailer support, product launches, weather and broader economic conditions.
- Aluminum swaps hedge some can-cost exposure through April 2013. The quarter recorded a $2.3 million pretax hedge loss in other comprehensive income; $1.9 million of pretax unrealized loss was expected to be reclassified into earnings over the next 12 months, assuming no change in commodity prices. The derivative liability was $1.9 million at quarter-end.
- The company guaranteed up to $6.7 million of residual value on leased equipment; the lease was extended to August 1, 2013. Management expected no loss. The filing reported no material changes in risk factors or market risks from the prior annual report and no material changes in internal control.
Important facts for investors to verify
- Whether volume growth can continue while pricing and product mix pressure sales realization and gross margin.
- How raw-material costs and aluminum hedge losses affect subsequent cost of sales and margins.
- Whether seasonal working-capital needs, especially receivables and inventories, affect cash generation in later quarters.
- Renewal or replacement of the revolving credit facilities as they approach their stated 2013 expirations.
- Any developments regarding the $6.7 million equipment residual-value guarantee.