Investors were feeling nervous heading into National Beverage's (NASDAQ:FIZZ) fiscal third quarter earnings report this week. The soda and sparkling water specialist's management team claimed in its last announcement that sales trends had returned to normal at the start of the quarter, following a sharp deceleration in the previous three months.

In its actual results announced this week, the company revealed a further slowing of demand that suggests it is still struggling to reconnect with health-conscious sparkling water fans.

Let's take a closer look.

The raw numbers


Q3 2019

Q3 2018

Year-Over-Year Gain (Decline)


$221 million

$227 million


Net income

$25 million

$41 million






Data source: National Beverage's financial filings. Chart by author.

What happened this quarter?

Sales trends fell into negative territory last quarter as news coverage surrounding the marketing of the LaCroix sparkling water brand continued to hurt demand. National Beverage also had trouble passing along higher costs, which amplified the negative profit impact from its sales volume declines.

A woman drinks sparkling water from a glass.

Image source: Getty Images.

Here are the key highlights of the quarter. 

  • Sales declined 3% compared with a 7% increase last quarter and a 13% spike in the fiscal first quarter. Revenue gains have slowed to 8% over the past 12 months, versus 18% in fiscal 2018.
  • Volume decreased 4% year over year, which was partly offset by higher average selling prices.
  • Gross profit margin fell to 36.5% of sales from 40.1% a year earlier due to the falling sales volumes. In addition, manufacturing costs jumped 10% per case sold, compared with a 3.7% increase in prices.
  • The company spent more on marketing and distribution, which helped push expenses up to 22.4% of sales from 20% a year earlier. When combined with the lower gross profit, this shift reduced pre-tax income to $32 million, or 14.6% of sales, from $46 million, or 20.3% of sales in the prior-year period.
  • Higher tax expenses contributed to a 40% decline in net income.

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What management had to say

CEO Nick Caporella's comments didn't deviate from his characteristically animated style. "We are truly sorry for these results," Caporella said in a press release. "Negligence nor mismanagement nor woeful acts of God were not the reasons," he explained, but instead "much of this was the result of injustice!" Management added more detail in the 10-Q filing, stating that the volume declines were "principally due to widespread media coverage of litigation regarding the marketing and labeling of LaCroix."

Caporella sought to reassure investors by saying that the LaCroix brand was in no danger of taking on lasting damage. "Nothing herein mentioned has detracted from the ultimate value and future of our dynamic company," he said.

Looking forward

These results demonstrate that National Beverage hasn't moved past the branding hit that began to hurt results in the fiscal second quarter. The company could continue to struggle over the coming quarters, especially as it seeks to absorb rising costs in the context of weak sales volumes.

An even bigger concern for investors, and a likely driver of the stock's sharp decline following the results, may be the spotty track record that management has established through this demand challenge. Its early-December prediction of a return to normal growth patterns didn't pan out this quarter, so investors see more reasons to be cautious about the business. Thus, in addition to stabilizing sales, Caporella and his team have to work at regaining investor confidence.

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