National Beverage Corp. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2012, the three months ended July 30, 2011; comparisons are with the three months ended July 31, 2010. National Beverage develops, manufactures, markets and distributes beverages, including soft drinks, juices, waters and energy drinks.
Financial performance
| Metric | Q1 FY2012 | Q1 FY2011 | Change |
|---|---|---|---|
| Net sales | $169.1 million | $165.0 million | +2.5% |
| Gross profit | $61.1 million | $58.5 million | +4.4% |
| Gross margin | 36.1% | 35.4% | +0.7 percentage points |
| SG&A | $40.4 million | $39.7 million | +1.6% |
| Income before taxes | $20.7 million | $18.7 million | +10.4% |
| Net income | $13.4 million | $12.1 million | +11.5% |
| Diluted EPS | $0.29 | $0.26 | +$0.03 |
| Operating cash flow | $14.8 million | $15.9 million | Down $1.1 million |
Management attributed sales growth to 12.2% case-volume growth in the premium brand portfolio and a 4.3% increase in unit pricing, partly offset by declines in carbonated soft drinks. Total case volume decreased 1.7%. Pricing reflected favorable product mix and price increases intended to offset higher raw-material costs. Cost of sales per case rose 3.2%; management said mix and pricing more than offset higher input costs in gross margin.
Cash, liquidity and debt
- Cash and equivalents were $20.5 million at July 30, 2011, up from $7.4 million at April 30, 2011. Cash at the prior-year quarter-end was $83.1 million.
- Operating cash flow was $14.8 million. Inventory growth used $6.4 million of cash; higher accounts payable provided $3.1 million. Capital expenditures were $1.8 million, and investing cash outflow was $1.8 million.
- Working capital increased $12.9 million to $43.8 million; the current ratio was 1.5, versus 1.4 at April 30, 2011.
- The company reported unsecured revolving credit facilities totaling $75.0 million. $2.6 million was committed to standby letters of credit, leaving $72.4 million available. The filing does not report a drawn borrowing balance. The facilities expire through July 8, 2013; the company reported compliance with covenants.
- Interest expense was $23,000. No separate debt balance is shown in the balance sheet.
Material changes, outlook and risks
- Compared with the prior-year quarter, revenue and earnings increased, while operating cash flow declined. The filing links the cash-flow decrease principally to working-capital movements, including the $6.4 million inventory increase.
- Management stated that existing capital resources should meet liquidity and capital requirements for the foreseeable future. No specific revenue or earnings guidance was provided.
- Sales are seasonal, with the highest volume typically during summer. Risks cited include raw-material cost changes, consumer preferences, competitive pricing, retailer support, weather, regulation, and the success of new products and business strategies.
- The company uses aluminum swaps to partially hedge can-cost exposure through April 2012. The notional amount was $19.7 million; assuming commodity prices did not change, $2.5 million of pre-tax unrealized gain was expected to be reclassified into earnings over the next 12 months. Hedge ineffectiveness was immaterial.
- The company reported no material changes in market risks or risk factors from its fiscal 2011 Form 10-K. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Key facts for investors to verify
- Whether premium-brand volume and pricing gains can continue, and whether declines in carbonated soft drinks persist.
- How higher raw-material costs and the aluminum hedges affect future gross margins and earnings.
- Whether seasonal inventory and receivables convert to cash, given the quarter’s inventory-driven working-capital use.
- Credit-facility availability, covenant compliance and any borrowing balance or restrictions not shown as debt on the balance sheet.
- The impact of seasonality and the listed competitive, consumer, weather and regulatory risks; the filing provides no numerical forward guidance.