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.

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