OVERVIEW
National Beverage Corp. innovatively refreshes America with a distinctive
portfolio of sparkling waters, juices, energy drinks (Power+ Brands) and, to a
lesser extent, Carbonated Soft Drinks. We believe our creative product designs,
innovative packaging and imaginative flavors, along with our corporate culture
and philosophy, make National Beverage unique as a stand-alone entity in the
beverage industry. Traditional and typical are not a part of an innovator's
vocabulary.
Our strategy seeks the profitable growth of our products by (i) developing
healthier beverages in response to the global shift in consumer buying habits
and tailoring our beverage portfolio to the preferences of a diverse mix of
'crossover consumers' - a growing group desiring a healthier alternative to
artificially sweetened and high-caloric beverages; (ii) emphasizing unique
flavor development and variety throughout our brands that appeal to multiple
demographic groups; (iii) maintaining points of difference through innovative
marketing, packaging and consumer engagement and (iv) responding faster and more
creatively to changing consumer trends than larger competitors who are burdened
by legacy production and distribution complexity and costs.
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The majority of our brands are geared to the active and health-conscious
consumer including sparkling waters, energy drinks, and juices. Our portfolio of
Power+ Brands includes LaCroix®, LaCroix Cúrate®, and LaCroix NiCola® sparkling
water products; Clear Fruit® non-carbonated water beverages enhanced with fruit
flavor; Rip It® energy drinks and shots; and Everfresh®, Everfresh Premier
Varietals™ and Mr. Pure® 100% juice and juice-based products. Additionally, we
produce and distribute carbonated soft drinks including Shasta® and Faygo®,
iconic brands whose consumer loyalty spans more than 130 years.
Presently, our primary market focus is the United States and Canada. Certain of
our products are also distributed on a limited basis in other countries and
options to expand distribution to other regions are being considered. To service
a diverse customer base that includes numerous national retailers, as well as
thousands of smaller "up-and-down-the-street" accounts, we utilize a hybrid
distribution system consisting of warehouse and direct-store delivery. The
warehouse delivery system allows our retail partners to further maximize their
assets by utilizing their ability to pick up product at our warehouses, further
lowering their/our product costs.
Our operating results are affected by numerous factors, including fluctuations
in the costs of raw materials, holiday and seasonal programming, changes in
consumer purchasing habits and weather conditions. Beverage sales are seasonal
with higher sales volume realized during the summer months when outdoor
activities are more prevalent.
RESULTS OF OPERATIONS
Three Months Ended October 29, 2022 (second quarter of fiscal 2023) compared to
Three Months Ended October 30, 2021 (second quarter of fiscal 2022)
Net sales for the second quarter of fiscal 2023 increased 5.8% to $299.6 million
from $283.2 million for the second quarter of fiscal 2022. The increase in sales
resulted primarily from a 10.3% increase in average selling price per case with
volume declining in total by 4.1%. Both Power+ Brands and carbonated soft
drinks experienced volume declines in the quarter.
Gross profit for the second quarter of fiscal 2023 was $100.0 million compared
to $101.5 million for the second quarter of fiscal 2022. The decrease in gross
profit is due to increased packaging, ingredients and freight costs. These cost
increases were partially offset by the increase in average selling price. Cost
of sales per case increased 2.7% and gross margin decreased to 33.4% from 35.8%
for the second quarter of fiscal 2022; gross margin improved from 31.2% reported
in the first quarter of fiscal 2023.
Selling, general and administrative expenses for the second quarter of fiscal
2023 increased $3.1 million to $53.1 million from $49.9 million for the second
quarter of fiscal 2022. The increase was primarily due to an increase in
shipping and administrative costs partially offset by a decrease in
marketing costs. As a percent of net sales, selling, general and administrative
expenses increased slightly to 17.7% for the second quarter of fiscal 2023 from
17.6% for the second quarter of fiscal 2022.
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Other income (expense)- net includes interest income of $151 thousand for the
second quarter of fiscal 2023 and $49 thousand for the second quarter of fiscal
2022. The increase in interest income is due a higher return on investments.
The Company's effective income tax rate, based upon estimated annual income tax
rates, was 23.3% for the second quarter of fiscal 2023 and 23.8% for the second
quarter of fiscal 2022. The difference between the effective rate and the
federal statutory rate of 21% was primarily due to the effects of state income
taxes.
Six Months Ended October 29, 2022 (first six months of fiscal 2023) compared to
Six Months Ended October 30, 2021 (first six months of fiscal 2022)
Net sales for the first six months of fiscal 2023 increased 3.8% to $617.8
million from $594.9 million for the first six months of fiscal 2022. The
increase in sales resulted primarily from a 10.3% increase in average selling
price per case with volume declining in total by 5.8% . Both Power+ Brands and
carbonated soft drinks experienced volume declines.
Gross profit for the first six months of fiscal 2023 decreased to $199.4 million
from $226.3 million for the first six months of fiscal 2022. The decline in
gross profit is due to increased packaging, ingredients and labor costs offset
in part by increased average selling price. Cost of sales per case increased
6.4% and gross margin decreased to 32.3% from 38.0% for the first six months of
fiscal 2022.
Selling, general and administrative expenses for the first six months of fiscal
2023 increased $1.6 million to $106.0 million from $104.4 million for the first
six months of fiscal 2022. The increase was primarily due to an increase in
shipping and administrative costs partially offset by a decrease in
marketing costs. As a percent of net sales, selling, general and administrative
expenses decreased to 17.2% from 17.5% for the first six months of fiscal 2022.
Other income includes interest income of $175 thousand for the first six months
of fiscal 2023 and $97,000 for the first six months of fiscal 2022. The increase
in interest income is due to a higher return on investments.
The Company's effective income tax rate, based upon estimated annual income tax
rates, was 23.5% for the first six months of fiscal 2023 and 23.6% for the first
six months of fiscal 2022. The difference between the effective rate and the
federal statutory rate of 21% was primarily due to the effects of state income
taxes.
LIQUIDITY AND FINANCIAL CONDITION
Liquidity and Capital Resources
Our principal source of funds is cash generated from operations. At October 29,
2022, we maintained $150 million unsecured revolving credit facilities, under
which no borrowings were outstanding and $2.5 million was reserved for standby
letters of credit. We believe existing capital resources will be sufficient to
meet our liquidity and capital requirements for the next twelve months.
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Cash Flows
The Company's cash position increased $44.6 million for the first six months of
fiscal 2023 compared to an increase of $79.4 million for the first six months of
fiscal 2022. The Company repaid $30 million of outstanding indebtedness in the
first quarter of 2023.
Net cash provided by operating activities for the first six months of fiscal
2023 was $82.2 million compared to $86.0 million for the six months of fiscal
2022. For the first six months of fiscal 2023, cash flow provided by operating
activities was principally provided by net income of $71.5 million, depreciation
and amortization of $10.4 million, and amortization of operating lease right of
use assets of $6.6 million, offset in part by changes in working capital and
other accounts.
Net cash used in investing activities for the first six months of fiscal 2023
reflects capital expenditures of $8.0 million, compared to capital expenditures
of $6.6 million for the first six months of fiscal 2022. Certain production
capacity and efficiency improvement projects are in progress and we anticipate
fiscal 2023 capital expenditures will be comparable to fiscal 2022 levels
Financial Position
At October 29, 2022, our working capital increased to $151.0 million from $129.2
million at April 30, 2022. The current ratio was 2.0 to 1 at October 29, 2022
compared to 1.9 to 1 at April 30, 2022. Trade receivables increased $6.9 million
and days sales outstanding increased to 30.5 from 30.0. Inventories decreased
$14.9 million and inventory turns improved to 9.2 times from 8.2 times.
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NATIONAL BEVERAGE CORP. 
