National Beverage (FIZZ) - 2019 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents National Beverage Corp.'s unaudited consolidated financial statements as of January 26, 2019, and for the three and nine-month periods then ended, including Balance Sheets, Income, Comprehensive Income, Shareholders' Equity, Cash Flows, and notes Consolidated Balance Sheets As of January 26, 2019, total assets increased to $552.7 million from $458.8 million at April 28, 2018, primarily driven by a rise in cash and equivalents, while total liabilities significantly increased to $247.2 million from $127.4 million mainly due to a $135.2 million dividend payable, consequently decreasing total shareholders' equity from $331.4 million to $305.5 million Consolidated Balance Sheets (in thousands) | Assets & Liabilities | January 26, 2019 | April 28, 2018 | | :--- | :--- | :--- | | Total current assets | $429,795 | $352,967 | | Total assets | $552,673 | $458,832 | | Total current liabilities | $223,269 | $104,670 | | Total liabilities | $247,229 | $127,392 | | Total shareholders' equity | $305,494 | $331,440 | | Total liabilities and shareholders' equity | $552,673 | $458,832 | Consolidated Statements of Income For the third quarter ended January 26, 2019, net sales decreased by 2.9% to $220.9 million, and net income fell to $24.8 million from $41.1 million year-over-year, while for the nine-month period, net sales grew 5.8% to $774.2 million, with net income seeing a slight increase to $114.7 million from $113.3 million in the prior year Consolidated Statements of Income (Unaudited, in thousands) | Metric | Three Months Ended Jan 26, 2019 | Three Months Ended Jan 27, 2018 | Nine Months Ended Jan 26, 2019 | Nine Months Ended Jan 27, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $220,891 | $227,477 | $774,190 | $731,428 | | Gross profit | $80,553 | $91,193 | $299,772 | $291,776 | | Net income | $24,809 | $41,080 | $114,717 | $113,332 | | Diluted EPS | $0.53 | $0.88 | $2.44 | $2.42 | Consolidated Statements of Comprehensive Income For the nine months ended January 26, 2019, comprehensive income was $108.7 million, a decrease from $117.2 million in the prior-year period, primarily due to a $6.0 million loss from cash flow hedges, net of tax, compared to a $3.9 million gain in the previous year Consolidated Statements of Comprehensive Income (Unaudited, in thousands) | Metric | Nine Months Ended Jan 26, 2019 | Nine Months Ended Jan 27, 2018 | | :--- | :--- | :--- | | Net income | $114,717 | $113,332 | | Other comprehensive income (loss), net of tax | ($5,998) | $3,915 | | Comprehensive income | $108,719 | $117,247 | Consolidated Statements of Shareholders' Equity For the nine months ended January 26, 2019, total shareholders' equity decreased to $305.5 million from a beginning balance of $331.4 million (at April 28, 2018), driven by net income of $114.7 million, offset by a cash dividend of $135.2 million and a $6.0 million loss from cash flow hedges - For the nine months ended January 26, 2019, retained earnings decreased from $307.8 million to $287.3 million, primarily due to a $135.2 million cash dividend payment which was partially offset by $114.7 million in net income[12] Consolidated Statements of Cash Flows For the nine months ended January 26, 2019, net cash from operating activities was $107.0 million, nearly flat compared to the prior year, while net cash used in investing activities increased to $27.4 million due to higher capital expenditures, with the company ending the period with $269.9 million in cash and equivalents, an increase of $80.0 million from the beginning of the period Cash Flow Summary (Nine Months Ended, in thousands) | Activity | January 26, 2019 | January 27, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $107,032 | $106,758 | | Net cash used in investing activities | ($27,446) | ($18,628) | | Net cash provided by (used in) financing activities | $403 | ($69,479) | | Net Increase in Cash and Equivalents | $79,989 | $18,651 | | Cash and Equivalents - End of Period | $269,853 | $155,023 | Notes to Consolidated Financial Statements The notes provide details on significant accounting policies, including the use of derivative instruments for hedging raw material costs, the company's $100 million in unsecured credit facilities with no outstanding borrowings, legal proceedings related to LaCroix marketing which it believes are without merit, and a special cash dividend of $2.90 per share paid in January 2019 - The company uses aluminum swap contracts as cash flow hedges to mitigate exposure to aluminum can cost changes. As of January 26, 2019, the notional amount of outstanding contracts was $57.6 million[26] - The company maintains $100 million in unsecured revolving credit facilities, with no borrowings outstanding as of January 26, 2019, and $97.9 million was available for borrowing[22] - The company is a defendant in legal proceedings alleging its LaCroix products contain synthetic ingredients, which management believes are without merit and will not have a material adverse effect on financial results[32] - A special cash dividend of $2.90 per share, totaling $135.2 million, was declared on November 20, 2018, and paid on January 29, 2019[33] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, highlighting a 2.8% decrease in net sales for Q3 FY19 attributed to a volume decline in Power+ Brands, which management believes was impacted by litigation publicity, while for the nine-month period, net sales increased 5.8%, with the discussion also covering increased costs for aluminum and freight, higher marketing expenses, and the impact of a large special dividend on the company's financial position Overview National Beverage Corp. focuses on a portfolio of sparkling waters, juices, and energy drinks targeting health-conscious consumers, with a strategy emphasizing healthier beverages, unique flavor innovation, and creative marketing to respond quickly to consumer trends, and primary brands including LaCroix, Rip It, and Shasta, with a market focus on the United States and Canada - The company's strategy focuses on developing healthier beverages, unique flavor development, innovative marketing, and responding quickly to consumer trends[35] - The brand portfolio is geared towards active and health-conscious consumers ("Power+ Brands") and includes LaCroix, Rip It energy drinks, and Everfresh juices, alongside iconic carbonated soft drinks like Shasta and Faygo[37] Results of Operations In Q3 FY19, net sales fell 2.8% YoY to $220.9 million, and gross profit dropped 11.7% to $80.5 million, with gross margin contracting to 36.5% from 40.1%, which management attributes to negative media coverage of litigation, while for the first nine months of FY19, net sales grew 5.8% to $774.2 million, driven by a 13.5% volume increase in Power+ Brands, though gross margin slightly decreased due to higher aluminum, manufacturing, and freight costs Q3 FY2019 vs Q3 FY2018 Performance | Metric | Q3 FY2019 | Q3 FY2018 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $220.9M | $227.5M | -2.8% | | Gross Profit | $80.5M | $91.2M | -11.7% | | Gross Margin | 36.5% | 40.1% | -3.6 p.p. | - Management believes the decline in Power+ Brands volume in Q3 was principally due to widespread media coverage of litigation regarding the marketing and labeling of LaCroix[42] Nine Months FY2019 vs Nine Months FY2018 Performance | Metric | Nine Months FY2019 | Nine Months FY2018 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $774.2M | $731.4M | +5.8% | | Gross Profit | $299.8M | $291.8M | +2.7% | | Gross Margin | 38.7% | 39.9% | -1.2 p.p. | Liquidity and Financial Condition The company's primary source of liquidity is cash from operations, which amounted to $107.0 million for the first nine months of FY19, while a special cash dividend of $135.2 million, paid in January 2019, caused working capital to decrease to $206.5 million, and capital expenditures increased to $27.5 million to expand production capacity, with the company maintaining $100 million in undrawn credit facilities - A special cash dividend of $2.90 per share, totaling $135.2 million, was paid on January 29, 2019[58] - Net cash from operating activities for the first nine months of fiscal 2019 was $107.0 million, consistent with the prior year[60] - Capital expenditures increased to $27.5 million for the first nine months of fiscal 2019, up from $18.7 million in the prior year, primarily to expand production capacity[61] - Working capital decreased from $248.3 million to $206.5 million during the first nine months of fiscal 2019, mainly due to the accrual of the $135.2 million cash dividend[62] Quantitative and Qualitative Disclosures About Market Risk The company reports that there have been no material changes in its market risks since those disclosed in its Annual Report on Form 10-K for the fiscal year ended April 28, 2018 - There have been no material changes in market risks from those reported in the Annual Report on Form 10-K for the fiscal year ended April 28, 2018[64] Controls and Procedures Based on an evaluation conducted by management, including the CEO and Principal Financial Officer, the company concluded that its disclosure controls and procedures were effective as of the end of the reporting period, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report[65] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[66] PART II - OTHER INFORMATION Risk Factors The company states that there have been no material changes in its risk factors from those previously reported in its Annual Report on Form 10-K for the fiscal year ended April 28, 2018 - There have been no material changes in risk factors from those reported in the Annual Report on Form 10-K for the fiscal year ended April 28, 2018[70] Exhibits This section lists the exhibits filed with the Form 10-Q, which include certifications by the CEO and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and the XBRL interactive data files - The exhibits filed with this report include: - Certifications of the CEO and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2) - XBRL Interactive Data Files (Exhibit 101)[71] Signature The report is duly signed on March 7, 2019, by George R. Bracken, Executive Vice President – Finance, serving as the Principal Financial Officer for National Beverage Corp - The report was signed on March 7, 2019, by George R. Bracken, Executive Vice President – Finance (Principal Financial Officer)[74]