NATIONAL BEVERAGE CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS NATIONAL BEVERAGE CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share data)       July 29,     April 29,       2023     2023   Assets                 Current assets:                 Cash and equivalents   $ 222,769     $ 158,074   Trade receivables - net     107,680       104,918   Inventory     92,999       93,578   Prepaid and other assets     8,025       9,835   Total current assets     431,473       366,405   Property, plant and equipment - net     149,300       148,423   Right of use assets- net     39,766       39,506   Goodwill     13,145       13,145   Intangible assets     1,615       1,615   Other assets     5,108       5,248   Total assets   $ 640,407     $ 574,342                     Liabilities and Shareholders' Equity                 Current liabilities:                 Accounts payable   $ 87,323     $ 85,106   Accrued liabilities     48,734       47,318   Operating lease liabilities     11,876       11,745   Income taxes payable     8,898       152   Total current liabilities     156,831       144,321   Deferred income taxes - net     24,030       19,814   Operating lease liability - non current     29,911       29,782   Other liabilities     7,560       7,938   Total liabilities     218,332       201,855   Commitments and contingencies                     Shareholders' equity:                 Preferred stock, $ 1 par value - 1,000,000 shares authorized Series C - 150,000 shares issued     150       150   Common stock, $ .01 par value - 200,000,000 shares authorized; 101,727,658 issued at July 29, 2023 and April 29, 2023     1,017       1,017   Additional paid-in capital     40,561       40,393   Retained earnings     407,976       358,345   Accumulated other comprehensive loss     ( 3,396 )     ( 3,185 ) Treasury stock - at cost:                 Series C preferred stock - 150,000 shares     ( 5,100 )     ( 5,100 ) Common stock - 8,374,112 shares     ( 19,133 )     ( 19,133 ) Total shareholders' equity     422,075       372,487   Total liabilities and shareholders' equity   $ 640,407     $ 574,342                     See accompanying Notes to Condensed Consolidated Financial Statements.                    3 Table of Contents     NATIONAL BEVERAGE CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share amounts)       Three Months Ended       July 29,     July 30,       2023     2022                     Net sales   $ 324,240     $ 318,117                     Cost of sales     209,759       218,716                     Gross profit     114,481       99,401                     Selling, general and administrative expenses     51,377       52,923                     Operating income     63,104       46,478                     Other (income) expense - net     ( 2,063 )     84                     Income before income taxes     65,167       46,394                     Provision for income taxes     15,536       10,940                     Net income   $ 49,631     $ 35,454                     Earnings per common share:                 Basic   $ . 53     $ . 38   Diluted   $ . 53     $ . 38                     Weighted average common shares outstanding:                 Basic     93,354       93,338   Diluted     93,610       93,599     See accompanying Notes to Condensed Consolidated Financial Statements.   4 Table of Contents     NATIONAL BEVERAGE CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (In thousands)       Three Months Ended       July 29,     July 30,       2023     2022                     Net income   $ 49,631     $ 35,454                     Other comprehensive loss, net of tax:                 Cash flow hedges     (211)       (10,956)                     Comprehensive income   $ 49,420     $ 24,498     See accompanying Notes to Condensed Consolidated Financial Statements.       5 Table of Contents     NATIONAL BEVERAGE CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) (In thousands)       Three Months Ended       July 29, 2023     July 30, 2022       Shares     Amount     Shares     Amount   Series C Preferred Stock                                 Beginning and end of period     150     $ 150       150     $ 150                                     Common Stock                                 Beginning and end of period     101,727       1,017       101,712       1,017                                     Additional Paid-In Capital                                 Beginning of period             40,393               39,405   Stock-based compensation             168               170   End of period             40,561               39,575                                     Retained Earnings                                 Beginning of period             358,345               216,181   Net income             49,631               35,454   End of period             407,976               251,635                                     Accumulated Other Comprehensive Loss                                 Beginning of period             ( 3,185 )             6,918   Cash flow hedges, net of tax             ( 211 )             ( 10,956 ) End of period             ( 3,396 )             ( 4,038 )                                   Treasury Stock - Series C Preferred                                 Beginning and end of period     150       ( 5,100 )     150       ( 5,100 )                                   Treasury Stock - Common                                 Beginning and end of period     8,374       ( 19,133 )     8,374       ( 19,133 )                                   Total Shareholders' Equity           $ 422,075             $ 264,106     See accompanying Notes to Condensed Consolidated Financial Statements.   6 Table of Contents     NATIONAL BEVERAGE CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)       Three Months Ended       July 29,     July 30,       2023     2022   Operating Activities:                 Net income   $ 49,631     $ 35,454   Adjustments to reconcile net income to net cash provided by (used in) operating activities:                 Depreciation and amortization     4,956       5,461   Deferred income taxes     4,284       1,072   Loss on disposal of property, net     3       6   Stock-based compensation     171       170   Amortization of operating right of use assets     3,329       3,164   Changes in assets and liabilities:                 Trade receivables     ( 2,762 )     ( 6,681 ) Inventories     579       12,965   Operating lease right of use assets     ( 3,589 )     (12,468 ) Prepaid and other assets     1,475       11,656   Accounts payable     2,217       ( 19,148 ) Accrued and other liabilities     9,562       ( 344 ) Operating lease liabilities     287       9,310   Net cash provided by operating activities     70,143       40,617                     Investing Activities:                 Additions to property, plant and equipment     ( 5,474 )     ( 2,609 ) Proceeds from sale of property, plant and equipment     26       3   Net cash used in investing activities     ( 5,448 )     ( 2,606 )                   Financing Activities:                 Repayments of loan facility     -       ( 30,000 ) Net cash used in financing activities     -       ( 30,000 )                   Net Increase in Cash and Equivalents     64,695       8,011                     Cash and Equivalents - Beginning of Period     158,074       48,050                     Cash and Equivalents - End of Period   $ 222,769     $ 56,061                     Other Cash Flow Information:                 Interest paid   $ 112     $ 192   Income taxes paid (refunded)   $ 1     $ ( 79 )   See accompanying Notes to Condensed Consolidated Financial Statements.   7 Table of Contents   NATIONAL BEVERAGE CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   National Beverage Corp. develops, produces, markets and sells a distinctive portfolio of sparkling waters, juices, energy drinks and carbonated soft drinks primarily in the United States and Canada. Incorporated in Delaware in 1985, National Beverage Corp. is a holding company for various operating subsidiaries. When used in this report, the terms “we,” “us,” “our,” “Company” and “National Beverage” mean National Beverage Corp. and its subsidiaries.       1. SIGNIFICANT ACCOUNTING POLICIES   Basis of Presentation The condensed consolidated financial statements include the accounts of National Beverage Corp. and its subsidiaries. Significant intercompany transactions and accounts have been eliminated.   The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and rules and regulations of the Securities and Exchange Commission for interim financial reporting. Accordingly, they do not include all information and notes presented in the annual consolidated financial statements. The condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and accompanying notes included in our Annual Report on Form 10 -K for the fiscal year ended April 29, 2023. The accounting policies used in these interim unaudited condensed consolidated financial statements are consistent with those used in the annual consolidated financial statements.   The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the interim unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Results for the interim periods presented are not necessarily indicative of results which might be expected for the entire fiscal year.   Inventories Inventories are stated at the lower of first -in, first -out cost or net realizable value. Inventories at July 29, 2023 were comprised of finished goods of $ 52.6 million and raw materials of $ 40.3 million. Inventories at April 29, 2023 were comprised of finished goods of $ 54.3 million and raw materials of $ 39.2 million.   Marketing Costs The Company utilizes a variety of marketing programs, including cooperative advertising programs with customers, to advertise and promote its products to consumers. Marketing costs are expensed when incurred, except for prepaid advertising and production costs, which are expensed when the advertising takes place. Marketing costs, which are included in selling, general and administrative expenses, totaled $ 10.8 million for the three months ended July 29, 2023 and $ 10.3 million for the three months ended July 30, 2022.   8 Table of Contents   Shipping and Handling Costs Shipping and handling costs are reported in selling, general and administrative expenses in the accompanying condensed consolidated statements of income. Such costs totaled $ 20.9 million for the three months ended July 29, 2023 and $ 23.6 million for the three months ended July 30, 2022. Although our classification is consistent with many beverage companies, our gross margin may not be comparable to companies that include shipping and handling costs in cost of sales.       2. PROPERTY, PLANT AND EQUIPMENT   Property, plant and equipment consist of the following:       (In thousands)       July 29, 2023     April 29, 2023   Land   $ 9,835     $ 9,835   Buildings and improvements     70,867       70,615   Machinery and equipment     294,230       289,567   Total     374,932       370,017   Less accumulated depreciation     ( 225,632 )     ( 221,594 ) Property, plant and equipment – net   $ 149,300     $ 148,423     Depreciation expense was $ 4.6 million for three months ended July 29, 2023, and $ 4.5 million for the three months ended July 30, 2022.       3. DEBT   At July 29, 2023, a subsidiary of the Company maintained unsecured revolving credit facilities with banks aggregating $ 100 million (the “Credit Facilities”). The Credit Facilities expire from October 28, 2024 to May 30, 2025 and any borrowings would currently bear interest at 1.05 % above the Secured Overnight Financing Rate (SOFR). There were no borrowings outstanding under the Credit Facilities at July 29, 2023 or April 29, 2023. At July 29, 2023, $ 2.2 million of the Credit Facilities was reserved for standby letters of credit and $ 97.8 million was available for borrowings.   On December 21, 2021, a subsidiary of the Company entered into an unsecured revolving term loan facility with a national bank aggregating $ 50 million (the “Loan Facility”). There were no borrowings outstanding under the Loan Facility at July 29, 2023 or April 29, 2023. The Loan Facility expires December 31, 2023 and any borrowings would bear interest at .95% above the adjusted daily SOFR.    The Credit Facilities and Loan Facility require the subsidiary to maintain certain financial ratios, including debt to net worth and debt to EBITDA (as defined in the credit agreements), and contain other restrictions, none of which are expected to have a material effect on our operations or financial position. At July 29, 2023, the subsidiary was in compliance with all loan covenants.       4. STOCK-BASED COMPENSATION   During the three months ended July 29, 2023, no options to purchase shares of common stock were exercised. At July 30, 2022, options to purchase 536,600 shares of common stock at a weighted average exercise price of $ 18.97 per share were outstanding and stock-based awards to purchase 5,387,005 shares of common stock were available for grant.   9 Table of Contents     5. DERIVATIVE FINANCIAL INSTRUMENTS   From time to time, the Company enters into aluminum swap contracts to partially mitigate our exposure to changes in the cost of aluminum cans. Such financial instruments are designated and accounted for as cash flow hedges. Accordingly, gains or losses are reported in accumulated other comprehensive income (loss) (“AOCI”) and reclassified into cost of sales in the period in which the hedged transaction affects earnings. The following summarizes the gains (losses) recognized in the consolidated statements of Income and AOCI for the quarters ended July 29, 2023 and July 30, 2022:       (In thousands)       2023     2022   Recognized in AOCI:                 Loss before income taxes   $ ( 4,040 )   $ ( 15,010 ) Less income tax benefit     ( 966 )     ( 3,590 ) Net     ( 3,074 )     ( 11,420 ) Reclassified from AOCI to cost of sales:                 Loss before income taxes     ( 3,763 )     ( 608 ) Less income tax benefit     ( 900 )     ( 144 ) Net     ( 2,863 )     ( 464 ) Net change to AOCI   $ ( 211 )   $ ( 10,956 )     As of July 29, 2023, the notional amount of our outstanding aluminum swap contracts was $ 49.5 million and, assuming no change in commodity prices, $ 4.9 million of unrealized loss before tax will be reclassified from AOCI and recognized in earnings over the next 12 months.   As of July 29, 2023, the fair value of the derivative liability was $ 4.9 million, which was included in accrued liabilities. At April 29, 2023, the fair value of the derivative liability was $ 4.6 million, which was included in accrued liabilities. Such valuation does not entail a significant amount of judgment and the inputs that are significant to the fair value measurement are Level 2 as defined by the fair value hierarchy as they are observable market based inputs or unobservable inputs that are corroborated by market data.     6. LEASES   The Company has entered into various non-cancelable operating lease agreements for certain of our offices, buildings, machinery and equipment expiring at various dates through July 2035. The Company does not assume renewals in the determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. Lease agreements generally do not contain material residual value guarantees or material restrictive covenants. Operating lease cost for the three months ended July 29, 2023 and July 30, 2022  was $ 3.7 million and $ 3.4  million, respectively.  As of July 29, 2023, the weighted-average remaining lease term and weighted average discount rate of operating leases was 4.40  years and 3.40 %, respectively. As of April 29, 2023, the weighted-average remaining lease term and weighted average discount rate of operating leases was 4.34 years and 3.30 %, respectively. Cash payments were $ 3.7 million for operating leases for the three months ended July 29, 2023 and $ 3.4 million for the three months ended July 30, 2022.   10 Table of Contents   The following is a summary of future minimum lease payments and related liabilities for all non-cancelable operating leases as of July 29, 2023:       (In thousands)   Fiscal 2024 – Remaining 3 quarters   $ 10,061   Fiscal 2025     10,719   Fiscal 2026     8,892   Fiscal 2027     7,428   Fiscal 2028     3,522   Thereafter     4,519   Total minimum lease payments including interest     45,141   Less: Amounts representing interest     ( 3,354 ) Present value of minimum lease payments     41,787   Less: Current portion of lease obligations     ( 11,876 ) Non-current portion of lease obligations   $ 29,911         ITEM 2. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   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.   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.   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 waters 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.   11 Table of Contents   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, supply chain disruptions, holiday and seasonal programming and weather conditions. While prior years witnessed more seasonality, higher sales are realized during the summer when outdoor activities are more prevalent.   RESULTS OF OPERATIONS   Three Months Ended July 29, 2023 (first quarter of fiscal 2024) compared to Three Months Ended July 30, 2022 (first quarter of fiscal 2023)   Net sales for the first quarter of fiscal 2024 increased 1.9% to $324.2 million from $318.1 million for the first quarter of fiscal 2023. The increase in sales resulted primarily from a 3.9% increase in average selling price per case partially offset by a 1.9% decrease in case volume. The volume declined for Power+ Brands, partially offset by increased volume of Carbonated Soft Drink brands.   Gross profit for the first quarter of fiscal 2024 increased to $114.5 million from $99.4 million for the first quarter of fiscal 2023. The increase in gross profit is due to the increase in average selling price and a decline in packaging and ingredient costs. Gross margin was 35.3% for the first quarter of fiscal 2024 and 31.2% for the first quarter of fiscal 2023.   Selling, general and administrative expenses for the first quarter of fiscal 2024 decreased $1.5 million to $51.4 million from $52.9 million for the first quarter of fiscal 2023. The decrease was primarily due to a decrease in shipping costs partially offset by increased selling and marketing costs. As a percent of net sales, selling, general and administrative expenses decreased to 15.8% for the first quarter of fiscal 2024 from 16.6% for the first quarter of fiscal 2023.   Other (income) expense - net includes interest income of $1.8 million for the first quarter of fiscal 2024 and $24,000 for the first quarter of fiscal 2023. The increase in interest income is due to increased average invested balances and higher yields.   The Company’s effective income tax rate, based upon estimated annual income tax rates, was 23.8% for the first quarter of fiscal 2024 and 23.6% for the first quarter of fiscal 2023. 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 July 29, 2023, we maintained $150 million unsecured revolving credit facilities, under which no borrowings were outstanding and $2.2 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.   12 Table of Contents   Cash Flows The Company’s cash position increased $64.7 million during the first quarter of fiscal 2024.   Net cash provided by operating activities for the first quarter of fiscal 2024 amounted to $70.1 million compared to $40.6 million for the first quarter of fiscal 2023. Net cash provided by operating activities for the first quarter of fiscal 2024 was principally provided by net income of $49.6 million, depreciation and amortization of $5.0 million, amortization of right to use assets of $3.3 million, deferred income taxes of $3.2 million and an increase in taxes payable of $8.7 million, offset in part by changes in working capital and other accounts.   Net cash used in investing activities for the first quarter of fiscal 2024 reflects capital expenditures of $5.5 million, compared to capital expenditures of $2.6 million for the first quarter of fiscal 2023. Certain production capacity and efficiency improvement projects are in progress and we anticipate fiscal 2024 capital expenditures will be in the range of $25 to $30 million.    Financial Position At July 29, 2023, our working capital increased to $274.6 million from $222.1 million at April 29, 2023. The current ratio was 2.8 to 1 at July 29, 2023 and 2.5 to 1 at April 29, 2023. Trade receivables increased $2.8 million and days sales outstanding improved to 30.2 from 33.6. Inventories decreased $.6 million and inventory turns improved to 8.2 times from 7.9 times     ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   There have been no material changes in market risks from those reported in our Annual Report on Form 10-K for the fiscal year ended April 29, 2023.