BellRing Brands, Inc. — Q1 Fiscal 2022 Form 10-Q
Reporting period: Three months ended December 31, 2021, compared with the three months ended December 31, 2020, unless otherwise noted. Amounts are in millions except per-share data.
Business context
BellRing is a single-segment nutrition products company, principally selling protein-based consumer goods under the Premier Protein and Dymatize brands. Products include ready-to-drink beverages, powders and nutrition bars. Post Holdings retained control and a 71.5% economic interest in BellRing LLC at quarter-end; BellRing’s public shareholders held the remaining indirect economic interest through BellRing Inc.
Financial performance and position
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Net sales | $306.5 | $282.4 |
| Gross profit | $92.3 | $91.9 |
| Operating profit | $50.6 | $47.8 |
| Net earnings, including redeemable noncontrolling interest | $39.3 | $32.9 |
| Net earnings attributable to Class A common stockholders | $8.2 | $7.8 |
| Basic and diluted EPS | $0.21 | $0.20 |
| Cash (used in) provided by operating activities | $(9.1) | $23.3 |
- Sales increased 9%; gross profit increased only 0.4%, and gross margin declined to approximately 30.1% from 32.5%. Operating margin was approximately 16.5%, versus 16.9%.
- By product, shakes and other beverages generated $245.0 in sales (up from $234.2); powders generated $50.8 (up from $35.4); nutrition bars generated $9.1 (down from $11.6).
- Operating cash flow fell by $32.4 year over year, primarily reflecting $36.9 of unfavorable working-capital movements, partly offset by higher earnings. Capital expenditures were $0.6.
- Cash was $30.4 at December 31, 2021, down from $152.6 at September 30, 2021. Current assets were $297.6 and current liabilities were $145.7.
- Debt principal was $519.8, down from $609.9 at September 30, 2021; reported current and long-term debt totaled $508.4 after unamortized discount and issuance costs. The company repaid $90.1, including an $81.4 mandatory excess-cash-flow prepayment. The $200.0 revolving facility was undrawn; $200.0 remained available.
- The Term B Facility interest rate was 4.75% at quarter-end, and the company reported compliance with its 6.00-to-1.00 maximum total net leverage covenant.
Material changes and management commentary
- Premier Protein sales rose 5%, driven by higher average selling prices, while volume declined 6%, primarily due to supply constraints and reduced demand-driving activity. Dymatize sales rose 41%, with volume up 8% and higher average selling prices.
- Operating profit rose 6%, supported by higher sales and $1.1 lower advertising and promotional spending. Offsetting pressures included $29.8 of higher net product costs, higher employee-related costs and $2.0 of separation-related expenses. The prior-year period included $4.7 of restructuring and facility-closure costs.
- Net interest expense declined $4.4 to $8.4, reflecting lower debt balances, a lower weighted-average borrowing rate (4.8% versus 6.0%) and more favorable swap results.
- Management said raw-material, packaging and freight inflation, labor and input availability, and limited third-party manufacturing capacity were pressuring margins and constraining product availability. Low inventories, below-normal service levels and product allocations were expected to persist through fiscal 2022, depending on contract manufacturers’ performance. Pricing actions had been taken on nearly all products.
- Management expected positive operating cash flow and believed cash, operating cash generation and potential future credit facilities would meet foreseeable needs. No significant capital expenditures were planned for the remainder of fiscal 2022. The filing provided no specific numerical earnings or sales guidance.
Transactions, risks and contingencies
- Post’s proposed separation and distribution of a significant portion of its BellRing ownership, followed by a merger, was expected to close in Q2 FY2022, subject to customary conditions; completion and timing were not assured. The transaction’s cash consideration was still to be determined.
- BellRing repurchased approximately 0.774 million Class A shares for $18.1, including commissions, during the quarter. The filing also reports an average price of $23.34 excluding commissions in its monthly repurchase table.
- COVID-19-related supply disruption and broad input and freight inflation were key operating risks. Other disclosed exposures include reliance on a limited number of contract manufacturers and suppliers, especially for RTD shakes, competition, customer demand, leverage and the proposed Post transaction.
- Joint Juice consumer litigation remained pending in multiple actions. The company had an $8.5 accrual and said it did not expect the litigation to materially affect its financial condition, results or cash flows; a New York case trial was scheduled for May 23, 2022.
Most important facts for investors to verify
- Whether contract manufacturers increase capacity and restore inventory, service levels and fill rates as expected, and whether supply constraints continue to limit sales.
- Whether pricing offsets persistent input, freight and labor inflation without materially weakening volume or demand.
- Actual operating cash flow and working-capital trends, given the quarter’s cash use and sharp decline in cash balances.
- Debt repayment, leverage-covenant compliance and liquidity after the substantial term-loan prepayment and share repurchases.
- Timing, terms and completion of the proposed Post separation, distribution and merger, including the final cash consideration and associated risks.
- Developments in the Joint Juice litigation and adequacy of the recorded accrual.