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Key Takeaways From National Beverage's Earnings Report

By Demitri Kalogeropoulos – Sep 14, 2018 at 9:01AM

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Here are the highlights from the sparkling water upstart's latest earnings announcement.

National Beverage (FIZZ -1.81%) is ideally positioned to profit from health-driven shifts in the soda industry. In fact, its LaCroix franchise is on track to overtake well-established brands like Diet Coke in the key U.S. grocery channel market as consumers move toward sparkling water and away from traditional cola drinks.

Those favorable long-term trends lifted the beverage maker's results in its recently closed fiscal first quarter, which saw it pass $1 billion in annual revenue for the first time. Now National Beverage has its sights set on extending its dominance to international markets.

Let's take a closer look.

By the numbers

Sales rose 13% to mark a slight slowdown from the prior quarter's 17% spike. Gross profit margin declined a bit, too, falling to 39.5% of sales from 40.2% a year ago. 

A glass of sparkling water.

Image source: Getty Images.

Investors shouldn't read too much into quarter-to-quarter shifts like this, since the bigger picture includes plenty of evidence of robust demand for National Beverage's products. Sales volumes were above 10% in each of the last two quarters, after all, compared to below 3% for Coca Cola. Sure, National Beverage is seeing increased costs on inputs like aluminum, but average selling prices are still marching higher for its sparkling water drinks. These gains helped power a 38% spike in net income over the past year.

CEO Nick Caporella took the opportunity in early September to highlight the company's achievement of $1 billion in annual sales after revenue climbed 15% over the past 12-month period. Executives celebrated the fact that almost all of this growth came from organic sales in franchises like LaCroix, with just about $180 million of annual revenue tied to the company's acquisitions of Shasta and Faygo.

Expanding the market

Expansion into new markets represents a major challenge -- but a huge potential growth avenue for National Beverage. The LaCroix franchise is the top-selling sparkling beverage brand in 42 of the 52 metropolitan markets in the U.S., but it has very little distribution beyond that. 

The company recently took its first small steps into the international arena, and, while executives didn't offer any concrete sales numbers, they did say that early results in Canada give them confidence that the brand's strength will translate into areas beyond the United States. Booming growth for sparkling water machine specialist SodaStream seems to support that idea, as it enjoys robust and growing demand in places like Canada, Germany, and France.

Looking forward

In his typical overstated fashion, Caporella told investors that the LaCroix brand's global potential supports the "uniqueness of valuation" of the company. Shares are clearly priced as if National Beverage will enjoy a long period of faster growth than industry giants. The company's forward price-to-earnings ratio sits at 32, compared to 22 for Coca Cola and 20 for PepsiCo.

FIZZ PE Ratio (Forward) Chart

FIZZ PE Ratio (Forward) data by YCharts.

It was no easy feat for these soda giants to build global distribution and marketing platforms over many decades. Now it's up to National Beverage to show that it can make similar progress by extending its popular, but untested, brand into new sales channels and new markets over the next few years. That's a tall order, but it helps that the company owns one of the most valuable brands in sparkling water, the industry's fastest-growing niche.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool owns shares of SodaStream. The Motley Fool recommends National Beverage. The Motley Fool has a disclosure policy.

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