Summary
- Some of its premium brands have been under pressure from consumers trading down to lower cost offerings.
- There are no visible catalysts suggesting the company will be able to break out of its trading range.
- Until the job market and economic uncertainty improve, FIZZ will probably continue to trade sideways.
National Beverage Corp. ( FIZZ ) stock has traded level over the last couple of years, failing to break out into a sustainable upward growth trend. Under current economic conditions, including an uncertain job market in some market segments like high-paying tech, I don't see any visible catalysts pointing to the company breaking out anytime in the near future.
While its revenue has grown modestly, earnings have shown signs of weakness from what appears to be consumers trading down in regard to some of its premium brands, resulting in a decline in net income and earnings over the last year.
And considering revenue in the last quarter was down approximately $18.00 million sequentially, it reinforces the strong probability the company is undergoing some challenges associated with changing consumer spending habits and decisions.
In this article we'll look at some of the latest earnings numbers, some of it potential growth areas, and why it's going to take time for FIZZ to improve it net income and earnings going forward.
Some of the numbers
Revenue in its second fiscal quarter of 2022 was $300.00 million, compared to revenue of $283.2 million in the second fiscal quarter of 2021. Revenue in the first six months of 2022 was $617.8 million, compared to revenue of $595.00 million in the first six months of 2021.
Sequentially, revenue was down by approximately $18.00 million from the $318.1 million generated in the first fiscal quarter of 2022. In the first fiscal quarter of 2022 management noted that it appeared some of its premium brands were seemingly being traded down by consumers, presumably one of the reasons the company has struggled to break out.
Net income in the second fiscal quarter of 2022 was $36.05 million, or $.39 per diluted share, compared to net income of $39.3 million, or $0.42 per diluted share in the second fiscal quarter of 2021.
Net income for the first six months of fiscal 2022 was $71.5 million, or $.76 per diluted share, compared to net income of $93.1 million, or $0.99 per diluted share in the first six months of fiscal 2021.
At the end of the second fiscal quarter of 2022, the company held cash and cash equivalents of $92.63 million, compared to cash and cash equivalents of $48.05 million held as of April 30, 2022.
FIZZ had no long-term debt at the end of the second fiscal quarter of 2022.
Share price movement
Over the last couple of years FIZZ has been trading in a relatively flat range, with no real direction emerging during that time. It has traded at a low of $38.10 per share to a high of approximately $65.50.
Over the last year it has traded at a double bottom of about $38.50 per share, to a double top of around $57.50 per share.
After hitting its 52-week high of $57.65 on August 18, 2022, it plummeted to the above-mentioned 52-week low, and pushed back up to a lower double top of approximately $54.00 per share.
Since early January 2023, it has traded in a tight range of $42.00 per share to $45.70 per share, failing to break past the $46.00 per share mark on several occasions during that time.
When all is said and done, the share price of FIZZ is trading at about the same place it was a year ago. I think the major reason for that is that even though it had a modest increase in revenue from 2021 to 2022, net income and EPS were both down.
Looking ahead
The company expects to continue to grow in Canada and Mexico, with Mexico reportedly switching from its past preference for cola drinks to flavored and sparkling water drinks.
Management also noted that U.S. retailers have been expanding to Europe and Mexico, providing FIZZ with an opportunity to boost its international footprint.
It was also stated that its brands generate premium pricing for sellers, which provides retailers with wide margins.
Under stronger economic conditions that is a positive catalyst, but where we are today, as the first and second fiscal quarters of 2022 confirm, is a growing number of consumers have been trading down because of inflationary pressures that is resulting in reprioritizing spending. For that reason, sales and earnings are likely to continue to remain fairly flat through much of 2023 until the macro-economic environment improves. With food and drink prices continuing to inflate, it will probably be a headwind in the quarters ahead for FIZZ.
Conclusion
FIZZ does have some strong brands that should continue to do well, but some of them are already showing weakness that is having a negative effect on its bottom line, and it appears it's starting to have an impact on the top line as well.
If revenue continues to fall in the quarters ahead, which would confirm consumers are trading down from its higher-price, wider margin premium brands, it means its net income and earnings per share would follow suit.
With macro-economic conditions remaining challenging, and ongoing uncertainty in a number of segments of the job market, I think FIZZ is going to find it difficult to gain traction over the next year or so, and even once the economic smoke clears, there aren't a lot of growth catalysts I see that would result in sustainable growth afterwards.
If there is any growth, it appears it'll have to come from Mexico and Europe as the company stands today, and in that regard it's reliant upon how quickly retailers expand in those markets.
Over time it should result in consistent, incremental growth, but that's going to take time. For that reason, I think the company is going to continue to trade in the range it has been over the last couple of years, with the best play being to wait for the steep corrections to take a position, and being ready to sell once it bounces.
With that in mind, it should be added that over the last couple of years the ceiling has dropped further, which is probably going to continue. If that's how it plays out, that means investors should expect the bounce to be more modest than it has been in the recent past.
For further details see:
National Beverage: Food And Drink Inflation Likely Headwinds In 2023