BRBR - BellRing Brands Sees Reduced Inventory Constraints To Power Growth

2023-04-19 10:32:03 ET

Summary

• BellRing Brands, Inc. went public in October 2019, raising $480 million in an IPO that priced at $14.00 per share.
• The firm sells sports nutrition food and beverage products in the U.S. and internationally.
• BellRing Brands has grown despite inventory constraints, which are loosening; management is seeing strong growth in the club channel.
• While my discounted cash flow analysis points to full valuation for the stock, BellRing Brands, Inc. could be a reasonable growth story despite fears of a soft economy ahead, so my outlook on BellRing Brands is a Buy in the near term.

A Quick Take On BellRing Brands

BellRing Brands, Inc. ( BRBR ) went public in October 2019, raising approximately $480 million in gross proceeds in an IPO that was priced at $14.00 per share.

The company manufactures and sells several sports nutrition food brands in the U.S. and overseas markets.

BRBR is a profitable growth story despite the potential for a softening economy, so my outlook on the stock is a Buy in the near term.

BellRing Brands Overview

St. Louis, Missouri-based BellRing was formed in 2019 as a unit of Post Holdings, Inc. ( POST ).

The company's brands include Premier Protein, Dymatize and the PowerBar brand as well as Active Nutrition International, an international manufacturer and retailer of company products for certain international markets.

Management is headed by President and CEO Darcy H. Davenport, who has been with the firm since its inception and was previously President of Post’s Active Nutrition business.

BellRing’s brands include Premier Protein, PowerBar, Joint Juice, Supreme Protein, and Dymatize.

BellRing's markets its products through a network of channels including club, food, drug and mass [FDM], eCommerce, convenience stores as well as specialty channels.

The firm has a dedicated internal digital marketing team and relies on its website, email marketing, social media, such as Facebook, Instagram, Twitter, and Pinterest, as well as influencers and various retailer programs, among others, to drive brand awareness.

BellRing’s Market & Competition

According to a 2023 market research report by Grand View Research, the global sports nutrition market was an estimated $42.9 billion in 2022 and is forecasted to reach $75.9 billion by 2030, growing at a CAGR of 7.4% between 2016 and 2022.

Sports nutrition is made for and used by athletes, bodybuilders, and sports enthusiasts to improve their overall health and help them recover faster after intense stress.

The main factors driving forecasted market growth is the shift of lifestyle and recreational users to adopting sports nutrition for overall health. The Asia-Pacific region is projected to grow at a fast rate.

Below is a chart showing the historical and projected future growth trajectory of the U.S. sports nutrition market by product type:

Major competitors that provide or are developing sports nutrition products include:

• Iovate Health Sciences

• Abbott

• Quest Nutrition

• PepsiCo

• Cliff Bar

• The Coca-Cola Company

• MusclePharm

• The Bountiful Company

• BA Sports Nutrition

• Cardiff Sports Nutrition

• Jacked Factory

• Orgain.

BellRing’s Recent Financial Trends

• Total revenue by quarter has risen per the following chart:

• Gross profit margin by quarter has trended higher in recent quarters:

• Selling, G&A expenses as a percentage of total revenue by quarter have also moved higher more recently:

• Operating income by quarter has grown markedly, as the chart shows below:

• Earnings per share (Diluted) have also increased recently:

(All data in the above charts is GAAP.)

In the past 12 months, BRBR’s stock price has risen 47.4% vs. that of the Consumer Staples Select Sector SPDR Fund ETF's ( XLP ) drop of 2.94%, as the chart indicates below:

For the balance sheet , the firm ended the quarter with $43.9 in cash and equivalents and $944.8 million in total debt, of which $0 was categorized as the current portion due within 12 months.

Over the trailing twelve months, free cash flow was $64.9 million, of which capital expenditures accounted for $1.5 million. The company paid $11.8 million in stock-based compensation in the last four quarters.

Valuation And Other Metrics For BellRing Brands

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha.)

Below is an estimated DCF (Discounted Cash Flow) analysis of the firm’s projected growth and earnings:

Assuming generous DCF parameters, the firm’s shares would be valued at approximately $29.87 versus the current price of $35.07, indicating they are potentially currently somewhat overvalued, with the given earnings, growth, and discount rate assumptions of the DCF.

Future Prospects For BellRing

In its last earnings call ( Source - Seeking Alpha ), covering FQ1 2023’s results, management highlighted the partial return of shake inventory to more normal levels, but said that it would not achieve full normality until 2024.

Notably, the firm has pulled back in terms of its marketing for its Premier Protein brand, but is seeing strong growth in the sports club channel as "consumers pursue their fitness goals" and return to sports clubs as the pandemic has waned.

While gross profit margin rose due to attaining its production levels, excluding these fees, gross margin dropped 1.2% year-over-year due to inflation that was only partially offset by price increases.

Looking ahead, management guided full-year revenue to $1.6 billion and adjusted EBITDA of $316 million at the midpoint of the range for both estimates.

The company's financial position is relatively strong, and management expects the company "to generate much stronger cash flow in fiscal 2023, particularly in the second half…"

Regarding valuation, the stock has been pushed up lately, but my discounted cash flow calculation, which used very generous assumptions, suggests the stock may be fully valued.

So, BellRing Brands, Inc. faces the combination of reduced inventory constraints, lowered product promotion and higher demand in certain channels as consumers continue to return to normal activities.

Investors appear to be quite bullish on the stock lately, and despite macroeconomic headwinds, I’m inclined to agree with them.

If there’s a recession ahead, consumer staple stocks will tend to perform better than others, so my outlook on BellRing Brands, Inc. is a Buy as a growth story into a potential economic soft period.

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