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National Beverage Corp — Not Enough FIZZ

May 30, 2011 | About:
National Beverage Corp. (FIZZ)

National Beverage Corp. develops, manufactures, markets, and distributes various beverage products in the United States. It offers a selection of flavored soft drinks, juices and other specialty beverages, sparkling waters, energy drinks, and nutritionally-enhanced waters. The company provides its soft drink products under the Shasta and Faygo names. It also offers juice and juice-based products under Everfresh, Home Juice and Mr. Pure names; flavored, sparkling, and spring water products under LaCroix, Crystal Bay, and ClearFruit names; and nutritionally-enhanced waters under ASante name.

In addition, the company distributes energy drinks under the Rip It, fruit-flavored drinks under the Ohana, holiday soft drinks under the St. Nick’s, and powder and tablet beverage enhancers under the NutraFizz names. Further, it develops and produces soft drinks for retailers and beverage companies. The company was founded in 1985 and is based in Ft. Lauderdale, Fla.

May 30, 2011
Last Close Price $13.83
52 week range $11.3- 15.5
Diluted Shares Outstanding (millions) 46
Market Cap (millions) $642
Net Cash (millions) $98
Enterprise Value (millions) $544
EBITDA (millions) $72


FIZZ Selected Financials 2001-2010

Fiscal Year Sales Op Income Net Income Diluted EPS OCF Capex FCF DPS Shares
2001 480 25 15 0.33 21 (7) 15 0.00 45
2002 503 27 17 0.37 23 (7) 16 0.00 46
2003 500 28 18 0.38 36 (9) 27 0.00 46
2004 512 30 19 0.41 21 (8) 13 0.83 46
2005 496 25 17 0.37 33 (13) 20 0.00 46
2006 517 24 22 0.48 29 (6) 23 0.83 46
2007 539 36 25 0.54 33 (12) 21 0.00 46
2008 566 33 22 0.49 34 (11) 23 0.80 46
2009 575 38 25 0.54 36 (7) 29 0.00 46
2010 593 52 33 0.71 54 (9) 46 1.35 46
TTM 1/29/2011 598 61 39 0.84 50 (10) 40 2.30 46
In Millions of the reported currency, except EPS, DPS. Reported Currency USD


Customers

The company’s customers include national and regional retailers, mass merchandisers, wholesalers and discount stores, as well as hospitals, schools, military bases, airlines, hotels and food-service wholesalers.

National Beverage provides its products through national and regional grocery stores, warehouse clubs, mass-merchandisers, wholesalers and dollar stores, convenience stores, gas stations, and independent and specialized distributors, as well as through direct store distribution facilities.

Valuation
P/E 16.5
P/E adjusted for Net Cash 14.0
EV / EBIT 8.8
EV/ EBITDA 7.4
EV / Sales 0.9
P / Tangible Book 11.0
P / FCF 16.1
EV / FCF 13.5
EV/OCF 10.8


As can be seen from the table above, FIZZ is not trading at cheap multiples by most metrics.

Comparison to Comps

FIZZ KO PEP DPS HANS
Asset Turnover 2.3 0.6 1.1 0.6 1.4
Gross Margin % 33.2 63.9 54.7 60.2 52.2
EBIT Margin % 8.7 25.6 16.4 18.2 26.7
ROA % 12.8 9.3 11.0 7.3 23.1
Total D/E % 0.0 75.1 115.9 85.2 0.0
ROE % 21.1 41.9 32.6 18.7 30.0


Since FIZZ is a second-tier beverage company (brands not as popular as its comps), it prices its products cheaper. Hence, the lower gross margins in the 33% range compared to comps in the 50-60% gross margin range. All the margins are lower as a result. However, it does make up some ground with higher asset turns.

Merits

- Very Strong balance sheet with approx $2 per share in cash (15% of market cap).

- Generated about $1 per share in FCF last year.

- Consistent high ROC 25%. Went up to 35% last year as EBIT went from $38 million to $52 million.

- History of special dividends every two years or so. In the last two years, FIZZ paid special dividends of $1.3 and $2.3 per share. It paid $140 million in dividends in last five years. If FIZZ can keep up the FCF, it is possible that another special dividend could be paid out in the $0.8 to $1 range in the next 12-18 months.

- Profitable and FCF positive for 10 years consecutively. Twenty-five year company operating history.

- No share dilution.

- Avg ROE 16% for five years. Sign of a good business.

- Asset turnover is 2x of comps at 2.3 (avg 1.2).

- Good mix of brands ( http://www.nbcfiz.com/10AboutNBC.htm )

- EV / Sales is less than 1.

- Cheap valuation compared to large comps on EV/EBIT basis.

What I dont like

- Sales growth has been slow. CAGR over five years is 3%. (But bottom line numbers are much better with op leverage.)

- Valuation could be cheaper. Not quite cheap at 16x trailing earnings.

- Gross margins much below industry comps.

- EBIT Margins are quite low 8% (but getting better recently). Again below comps of 18%

- Not a FCF machine yet. But improving with a 7% FCF margin.

Conclusion: No position. Add to watchlist. Revisit at 7x EBIT.

Disclaimer: Long DPS. No position in FIZZ at the time of writing this article. My position may change at any time. This is not intended to be used as investment advice or a recommendation to buy /sell shares of any securities discussed in this article. Please do your own research or contact your financial advisor.

About the author:

Adib Motiwala
Adib Motiwala is a Portfolio Manager at Motiwala Capital LLC, an investment management firm that manages separate accounts for its clients.

Visit Adib Motiwala's Website


Rating: 3.8/5 (14 votes)

Comments

Elie Rosenberg
Elie Rosenberg - 3 years ago
Thanks Adib, interesting name. Any potential catalysts on the horizon?
Adib Motiwala
Adib Motiwala - 3 years ago
I don;t know of any. If it was cheaper, I would look harder. The only thing I could expect is another.. special dividend
Adib Motiwala
Adib Motiwala - 2 years ago
Val (thevalueguys.com) discussed FIZZ in the podcast Oct 21, 2011. Its a good one for anyone interested in value ideas.

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