National Beverage Corp. — Q3 FY2023 Form 10-Q
Reporting period: Third quarter and first nine months of fiscal 2023, ended January 28, 2023; comparisons are to periods ended January 29, 2022. National Beverage develops, produces, markets and sells beverages, primarily in the United States and Canada, including LaCroix sparkling water, juices, energy drinks and carbonated soft drinks.
Financial results
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Net sales | $268.5 million | $258.9 million | $886.2 million | $853.8 million |
| Gross profit / margin | $94.9 million / 35.4% | $93.8 million / 36.2% | $294.3 million / 33.2% | $320.1 million / 37.5% |
| Operating income | $44.4 million | $40.7 million | $137.8 million | $162.6 million |
| Net income | $34.4 million | $31.1 million | $105.9 million | $124.2 million |
| Diluted EPS | $0.37 | $0.33 | $1.13 | $1.33 |
- Q3 sales increased 3.7%, driven by a 6.9% increase in average selling price per case, partly offset by a 3.0% decline in case volume, primarily from carbonated soft drinks. Gross margin fell 0.8 percentage points as cost of sales per case rose 8.4% amid higher packaging and ingredient costs.
- Nine-month sales rose 3.8%, reflecting a 9.3% increase in average selling price per case, partly offset by a 5.0% decline in case volumes across Power+ Brands and carbonated soft drinks. Cost of sales per case increased 16.7%; higher packaging, ingredient and labor costs contributed to the gross-margin decline.
- Q3 selling, general and administrative expenses declined to $50.5 million from $53.1 million, primarily on lower marketing and shipping costs. Nine-month expenses were $156.5 million versus $157.5 million; lower marketing costs were partly offset by higher shipping and administrative costs.
- Nine-month operating cash flow was $112.3 million, up from $92.6 million. Capital expenditures were $12.3 million versus $16.1 million; cash increased $70.3 million to $118.3 million.
- At January 28, 2023, working capital was $198.4 million and the current ratio was 2.6:1, compared with $129.2 million and 1.9:1 at April 30, 2022. Inventories declined $9.7 million; receivables rose $3.5 million, and days sales outstanding increased to 32.9 from 30.0.
- No debt was outstanding at period-end. The company reported $97.8 million available under its $100 million credit facilities after $2.2 million was reserved for letters of credit; a separate $50 million loan facility also had no borrowings outstanding. The subsidiary was in compliance with loan covenants. Lease liabilities totaled $40.9 million, including $11.9 million current.
Changes, outlook and risks
- Q3 net income and operating income increased year over year, while nine-month net income and operating income declined. Nine-month cash generation improved, and the company repaid $30 million under its loan facility; no debt remained outstanding at January 28, 2023.
- The prior-year nine-month period included a $280.0 million cash dividend, a major reason financing cash flow differed substantially between periods. No dividend was paid in the current nine-month period.
- Management said cost per case remained elevated but had declined for a second consecutive quarter. It expects FY2023 capital expenditures to be lower than FY2022 levels and believes existing resources will meet liquidity and capital needs for the next 12 months. No specific revenue or earnings guidance was provided.
- Results are affected by raw-material and packaging costs and availability, pricing and the ability to pass on cost increases, labor, retailer support, consumer preferences, competition, weather and seasonality; beverage sales are typically higher in summer. Aluminum swaps partially hedge can-cost exposure: outstanding notional was $61.0 million, and the filing estimated $395,000 of unrealized gain would be reclassified to earnings over the next 12 months, assuming no commodity-price change.
- The company reported no material changes in risk factors or market risks from its FY2022 Form 10-K. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Investor verification points
- Assess whether pricing can continue to offset lower case volumes and elevated input costs, especially given the nine-month gross-margin decline.
- Verify subsequent trends in cost per case, commodity and packaging costs, and the timing and earnings effects of aluminum hedge reclassifications.
- Review volume performance by brand category and the effects of reduced retail-partner marketing programs.
- Check credit-facility availability, maturities and covenant compliance, as well as the timing and scale of planned capital spending.
- Consider seasonality and the absence of specific forward revenue or earnings guidance when evaluating expectations.