Business context and reporting period
National Beverage Corp. develops, manufactures, markets and sells flavored beverages, primarily in North America. This unaudited Form 10-Q covers the first quarter of fiscal 2015, the three months ended August 2, 2014, compared with the three months ended July 27, 2013. The company notes that sales are seasonal, typically highest in summer.
Financial performance and position
| Metric | Q1 FY2015 | Q1 FY2014 |
|---|---|---|
| Net sales | $174.6 million | $172.4 million |
| Gross profit / margin | $59.8 million / 34.3% | $58.7 million / 34.1% |
| SG&A / percent of sales | $37.6 million / 21.6% | $40.1 million / 23.3% |
| Income before taxes | $23.3 million | $18.4 million |
| Net income | $15.4 million | $12.1 million |
| EPS, basic and diluted | $0.33 | $0.26 |
| Operating cash flow | $18.2 million | $18.2 million |
Sales rose 1.3%. Gross margin improved modestly; management attributed this to favorable product mix and reported a 3.2% decline in cost of sales per unit. SG&A fell primarily because of lower selling and marketing costs. Net income increased about 27% year over year. Other income included a $1.3 million gain on sale of property.
At August 2, 2014, cash and equivalents were $37.3 million, total current assets $152.6 million and current liabilities $67.5 million, for working capital of $85.1 million and a current ratio of 2.3:1. Long-term debt was $25.0 million, down from $30.0 million at May 3, 2014. The company had $72.8 million available to borrow under its $100 million revolving facilities, after $25 million in borrowings and $2.2 million in standby letters of credit; it reported compliance with loan covenants. Capital expenditures were $1.6 million, and cash increased $7.4 million during the quarter.
Material changes, outlook and risks
- Power+ brand case volume increased 19.3% and branded carbonated soft-drink volume increased 2.1%; allied-brand volume declined. Unit pricing fell 2.9%, primarily due to product mix.
- The company redeemed 120,000 Series D preferred shares—50% of the outstanding amount—for $6 million plus accrued dividends. The redemption was funded in part by operating cash and accompanied by $5 million of credit-facility repayments.
- Cash flow from operations was essentially unchanged year over year. Seasonal increases in receivables and inventory partly offset cash generated by earnings and depreciation.
- Management said existing capital resources should meet liquidity and capital needs for the next 12 months. The filing gives no specific sales or earnings forecast.
- Risks cited include raw-material cost changes, competitive pricing, consumer preferences, retailer support, new-product performance, weather, regulation and general economic conditions. Aluminum swaps partially hedge can-cost exposure; the outstanding contracts had a $6.5 million notional amount and a $595,000 unrealized gain expected to be reclassified to earnings over nine months, assuming commodity prices do not change.
- The company guaranteed up to $5.2 million of leased equipment residual value; the lease was extended to August 1, 2017. Management expected no loss. The filing reported no material changes in risk factors or market risks from the prior annual report and stated disclosure controls were effective.
Important facts for investors to verify
- Whether strong Power+ volume growth continues and offsets lower allied-brand volume and unit pricing.
- Whether margin gains and reduced selling and marketing costs are sustainable, excluding the property-sale gain.
- Seasonal working-capital needs, particularly inventory and receivables, and the company’s ability to maintain operating cash generation.
- Revolver availability, covenant compliance and the effects of further preferred-stock redemptions or debt repayments.
- Exposure to aluminum and other input costs, and the stated equipment residual-value guarantee.