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 National Beverage Corp., (NASDAQ:FIZZ) is a holding company for various subsidiaries that develop and manufacture beverage products throughout the United States. National Beverage is considered as a holding company because it manages a few subsidiaries (namely Faygo Beverages, Lacroix Water, Everfresh Beverages and Shasta Beverages International). These subsidiaries would manage the brands that they own but National Beverage would hold all of the equity in these subsidiaries. As such, all profits and losses would be consolidated and reported at the HQ (National Beverage) level. The company's product positioning places emphasis on a branded portfolio of regional brands, particularly proprietary carbonated soft drinks that are sold at a premium to private labels but at a discount to national brands such as Coca-Cola and Pepsico. The company's largest and best known brands include Shasta, Faygo, Everfresh juice, La Croix sparkling water, and Rip It energy drink. National Beverage also develops and produces soft drinks for retailers and beverage companies. As of August 18, National Beverage had a market capitalization of $401.5 million and was trading at a Price to Earnings Ratio (P/E) of 17.91. In the past 3 months, the share price of National Beverage returned19.59% compared to the Dow Jones Soft Drinks Index which lost 0.88%. This made in the best performing stock in this sector.[1] For the fiscal year ended May 2008, National Beverage had Total Revenue of $566 million and Net Income of $22.48 million.[2] It also had Total Assets of $239.12 million, Total Liabilities of $94.5 million and Total Equity of $144.63 million on its Balance Sheet .[3] National Beverage also had a Gross Margin of 29.8%, a Return on Equity (ROE) of 14.1% and Return on Assets (ROA) of 9.16%.[4]
[edit] OverviewNational Beverage Corp. is a holding company for various subsidiaries that develop and manufacture beverage products throughout the United States. The company owns various proprietary brands in the energy drinks and powder, soft drinks, bottled waters, juices and juice product categories. Some of these brands include Shasta®, Faygo®, Everfresh®, LaCroix®, Ritz®, Crystal Bay®, ClearFruit®, Mr. Pure®, Rip It ® and PowerBlast ®.[5] According to Beverage Digest, National Beverage is ranked as the 5th carbonated soft drink company in the USA.[6] National Beverage is a vertically integrated beverage company that is involved in every phase of production and distribution. The company manufactures its own products in 13 manufacturing plants, across the United States to serve the various geographical markets. The company also produces most of the flavor concentrates used in its branded products. The control over the supply chain allows National Beverage to monitor product quality and maintain its cost effectiveness through its centralized purchasing and proximity to customer distribution centers. In addition, the company also develops and produces carbonated drinks and energy drinks for certain retailers and other brands. However, this segment of the business has been decreasing in volume over the last 2 years.[7] The company distributes its products through three primary channels: take-home, convenience and food service.[8] Take home channel includes national and regional grocery stores, warehouse clubs, mass-merchandisers, wholesalers and dollar stores while convenience channel refers to convenience stores, gas stations, and other smaller “up-and-down-the-street” accounts. Food service division is responsible for sales to hospitals, schools, military bases, airlines, hotels and food-service wholesalers. Due to the higher margins in the convenience segment, there is an increased emphasis by the management to penetrate this distribution channel through product and packaging innovations. First quarter earnings for 2008 fell 27 percent because of unprecedented raw material cost increases. Raw material costs for the past several quarters have spiked between 20 percent and 40 percent compared to their respective quarter in 2007, and customers have been slow to accept the latest round of price increases.[9] In order to maintain their margins, National Beverage has had to raise prices but consumers have been sensitive to the increased prices, resulting in a fall in the quantity sold. Net sales for 2008 increased 5.0% to $566.0 million compared to 2007. [10] The net sales increase reflects case volume growth of 9% for energy drinks, juices and waters along with the effect of an 11% improvement in unit pricing due to product mix and price increases instituted to recover higher raw material costs. Retailers and distributors do not buy National Beverage's products in cans or bottles but buy them in bulk purchase of cases. These increases were partially offset by a 6% decline in branded carbonated soft drink volume as well as the phase out of certain allied brands. Sales figures of National Beverage exhibit seasonality throughout the year, with the highest sales typically recorded in the summer months.
[edit] Operating SegmentsNational Beverage operates as a single segment for the purposes of financial reporting. However, the company’s Regional Share Dynamics classifies their brands into three categories: carbonated soft drinks, “good-for-you” refreshments and functional and nutritional beverages. Soft Drinks: The company's range of soft drinks offerings include Shasta, Faygo, Ritz, Big Shot and Crystal Bay. Shasta, the largest National Beverage brand, and Faygo, traditional soft drink brands that have been marketed in the US for over 100 years and has over 50 flavor varieties each. “Good-for-you” Refreshments: These are juice and juice-based products as well as water products carried under the brands of LaCroix, Everfresh, ClearFruit, Mr. Pure and Mt. Shasta. Functional and Nutritional Beverages: These include the company’s line of energy drinks and vitamin-enhanced waters. Rip It is the nation's seventh largest energy drink brand with an estimated 2.6% market share. Since its launch in 2004, the company has taken market share by pricing the brand at a discount to existing energy brands. Although cola drinks account for approximately 50% of the soft drink industry’s domestic grocery channel volume, colas account for less than 20% of National Beverage’s total volume. The company has been expanding its portfolio beyond carbonated soft drinks to develop alternative beverages geared towards health and wellness. Colas are viewed as being high in sugar and lacking any nutritional value and demand may be tapering off due to health concerns. However, the health and wellness sector has been expanding due to increased awareness of health issues.  [edit] Trends and Forces[edit] Customer Consolidation threatens National Beverage's positionThere has been a trend of mergers and acquisitions resulting in fewer competitors in the supermarket sector. As a result, the company's customer base (mainly supermarkets) has been consolidating over the past few years. This means the National Beverage now has fewer customers who individually account for a greater percentage of total sales for the company. As such, they have greater bargaining power and would be able to restrict National Beverage from raising the prices of its products. [edit] Changes in Consumer PreferencesConsumers are increasingly concerned about health and wellness in the food and beverage industry. This has led to a decline in the consumption of carbonated soft drinks which are high in calories, and an increase in the consumption of products seen as being able to deliver health and wellness. As the company derived 58% of its revenues from carbonated soft drinks in 2007, the company is particularly sensitive to changes in consumer demand for carbonated soft drinks. Many public schools have banned the sale of soft drinks on their campuses and the Center for Science and Public Interest has proposed that warning labels should be placed on all beverages containing more than 13g of sugar per 12-ounce serving.[12] In response to this trend, National Beverages has introduced alternative beverages into its product portfolio. The proportion of sales from alternative beverages is now at 42% as opposed to 31% 2 years ago.[13] [edit] Rising costs Depress MarginsThe company is facing increased costs in multiple areas. Co-packing and raw material costs are on the rise. The prices of PET plastic bottles and aluminum cans increase in 2006 and again in 2007. The prices of sucrose, trays, labels and pure cane sugar also increased in 2007, and are expected to increase again in 2008.[14] For the first quarter of 2008, cost of goods sold increased by 5.2% while revenues only increased by 1.1%, compared to the first quarter of 2007. These ongoing increases in production costs are expected to exert continued pressure on the company’s gross margins for 2008. It is uncertain if these increases can be passed along to the company’s customers as the different brands mainly compete on price and raising prices may hurt National Beverage’s competitive ability.[15] [edit] Market Share of National Beverage in the Carbonated Soft Drinks Industry
[edit] Market Share of Rip It in the Energy Drinks Industry National Beverage's Rip It energy drink ranked seventh in the energy drinks industry in 2006, with 2.6% market share. [edit] CompetitionNational Beverage competes mainly with Coca Cola, Pepsi, and Cott, amongst others in the $70 billion carbonated soft drinks industry. Coca-Cola Company is the largest manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups in the world. Beverages bearing its trademarks are sold in 200 odd countries. The company markets numerous well know nonalcoholic brands, which includes Diet Coke, Fanta and Sprite. It focuses on beverage creation and marketing and is the Goliath in the industry. In the Carbonated Soft Drinks space, it competes directly with National Beverage with offerings such Coca-Cola, Diet Coca-Cola, Sprite, Fanta, Barq's Root Beer and Coke Zero. In the Alternative Beverages space, it has brands such as Dasani bottled water, Glaceau VitaminWater, POWERade sports drinks, Minute Maid and Minute Maid To Go juices Nestea, Fuze Healthy Infuzions, Odwalla Juice drinks. Coca-Cola is a direct competitor in every market that National Beverage is in and is also in a much more dominant position. The brands that Coca-Cole manages have significant brand equity and are often the top-selling brand in that particular product category. Moreover, it is able to exploit economies of scale, resulting in lower distribution and raw material costs. It would also have a much better bargaining position with retailers and supermarkets as compared to National Beverage. PepsiCo is a manufactures, markets and sells a variety of salty, convenient, sweet and grain-based snacks, beverages and foods. The Company is organized into four divisions: Frito-Lay North America (FLNA), PepsiCo Beverages North America (PBNA), PepsiCo International (PI) and Quaker Foods North America (QFNA). Some of the brands marketed include Pepsi, Mountain Dew and Gatorade. PepsiCo Beverages North America is the division that competes directly with National Beverage. Some of PepsiCo’s major Carbonated Soft Drink offerings include Pepsi, Diet Pepsi, Mountain Dew and Sierra Mist. In the Alternative Beverages space, it has brands such as Aquafina bottled water, Gatorade sports drinks, Lipton Iced Tea and Starbucks Frappuccino ready-to-drink coffees. Pepsi-Co is a direct competitor in every market that National Beverage is in and is also in a much more dominant position. The brands that Pepsi-Co manages have significant brand equity and are often among the top-selling brands in that particular product category. Like Coca-Cola, it is able to exploit economies of scale, resulting in lower distribution and raw material costs. It would also have a much better bargaining position with retailers and supermarkets as compared to National Beverage. Hansen Natural develops, markets, sells and distributes alternative beverages, non-carbonated ready-to-drink iced teas, children’s multi-vitamin juice drinks, Junior Juice juices and flavored sparkling beverages under the Hansen’s brand name. Hansen's Monster energy drink, with 25.5% market in 2006, is a main competitor for National Beverage's Rip It. In addition, it also markets several other brands of energy drinks under different brands like Monster Energy, Lost Energy and Rumba brand energy juice. Hansen does not have a Carbonated Soft Drink division and only competes directly with National Beverage in the alternative beverages space. It is much more similar in size when compared to National Beverage and would face similar problems and constraints. Energy drinks accounted for 85% of Hansens' total revenue in fiscal year 2006, the majority of which came from the popular Monster Energy® product line. Hansen also has a strong marketing arm with the majority of the firm being engaged in Sales & Marketing activities. Jones Soda is a leading premium beverage brand which differentiates itself in the vast beverage industry through its ability to make emotional connections with its customers. It competes in both the soft drinks and alternative beverages industries. Jones has an exclusive agreement with National Beverage to bottle and distribute its canned soft drinks and energy drinks. This is an additional revenue source for National Beverage. Jones is both a customer and competitor to National Beverage. By having National Beverage bottle its drinks, it helps to provide a source of revenue and make sure that the bottling facilities are fully utilize. However, Jones would be unable to ensure that quality of its product or ensure that there is sufficient supply even demand spikes. Jones competes in all the markets that National Beverage is operating in, and is likely to face harsher constraints from rising raw material and energy costs due to its small size. Cott (COT) is a non-alcoholic beverage company and a provider of retailer brand soft drink. In addition to carbonated soft drinks, the company’s product lines include clear, still and sparkling flavored waters, juice-based products, bottled water, energy drinks and ready-to-drink teas, and is thus the closest competitor for National Beverage due to their similar size and range of product offerings. In the Carbonated Soft Drink market, Cott owns brands such as Cott, Stars & Stripes, Vess, Vintage, Mr. Fizz, Top Pop, City Club. All these products compete directly with the soft drinks produced by National Beverage. In the Alternative Beverages market, it owns brands such as Clear Choice, So Clear, Stars & Stripes Fruit Mist, Juiceful, One and Orient Emporium Tea. Due to its similar size when compared with National Beverage, it faces similar problems and constraints such as depressed margins from rising raw material and energy costs. However, Cott is much more international in scope currently has sales in more than 60 countries. Its extensive international presence would mean that it can benefit from continued growth in the emerging economies whereas National Beverage only operates in the developed economies of USA and Canada where growth is stagnating.
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