National Beverage Corp.'s (NASDAQ:FIZZ) recent quarter was disappointing to say the least. The company reported  an EPS of only $0.26 (for the quarter ending Jul. 27), a decline from the $0.31 EPS same quarter of last year. What  caused this miss were declining net sales of 5.7% and declining net income of 16.1%. Even with this disappointing  I will generally give companies with a strong track record, like National Beverage, the benefit of the doubt. The company's share price has risen an annualized 13.58% since its IPO and an annualized 18.9% over the past decade. That's not to say that I will forgive bad results but I do believe that a deeper look is definitely deserved.

The bad To start, let's look at what went wrong with the company's 10-Q. The biggest issue was the decline in net revenue. During the quarter ending Jul. 28, 2012 net sales rose 8.8% from the same quarter of 2011. For this quarter, however, net sales actually fell. Selling, general and administrative expenses rose by 10.6%, resulting primarily from increased marketing. This took a toll as its net margin fell from 7.9% to 6.9%. These results make it very obvious that National Beverages' recent bad quarter was a result of a sales problem, not a costs one. While each type of problem brings with it a set of difficult challenges, a company has more options to control costs as it contains many internal factors than it does to increase sales which are mostly a result of external factors.

The good
If National Beverage is able to reverse its sales decline then the company is actually in a much better position. Despite the fall in net sales, gross profit rose 0.8% on the back of a strengthening gross margin, from 31.9% to 34%. The rise in margins means that the company requires a smaller rebound in sales to recoup its decline in net income and if National Beverage is able to maintain this higher margin and the bad quarter turns out to be just a blip, they'll be able to keep more of their growth. Another positive was an improved balance sheet with total assets rising 5.5% and total liabilities decreasing 0.17%.

It's all relative
Whether an earnings report is good or bad it is always important to look at it in a proper context. This means comparing the company's performance in relation to similar companies as well as the market as a whole. This can give a better idea of whether any red flags are unique to the company or common throughout the industry or wider market. YTD National Beverage and the NASDAQ have each performed roughly equally and in the last three months National Beverage has actually underperformed. This clears the economy from blame, but the poor performance seems to spread across the cola sector. Both cola giant, The Coca-Cola  (NYSE:KO), and small cola competitor, Cott (NYSE:COT) have underperformed over the same period. In fact, not only did they both underperform the NASDAQ but also National Beverage.

Cott Corporation saw net sales decline 9.9% and net income decreased $8.2 million or 31.2%, This huge drop in net income is even with the company being able to cut SG&A expenses by 12.5%, or in nominal terms, $7.1 million. In other words the company's decrease in net income would have been nearly double without these cuts. The company was able to reduce their SG&A expenses primarily by reducing employee-related costs with a lower annual incentive accrual, reduced legal expenses, and reduced costs of their IT strategy. While the company's cost-cutting abilities are quite impressive I am concerned with the cuts in the company's IT strategy and whether they were able to reduce costs without sacrificing the long-term rewards of the strategy.

The Coca-Cola Company saw net sales decrease 2.6% for the quarter ending Jun. 28 compared to the same quarter of last year. and net income attributable to shareowners decrease 3.4%. Even with the company cutting selling, general and administrative expenses by 2.5% net income attributable to shareowners fell 3.4%. Even though these results are much less moderate when compared to National Beverage and Cott it is important to keep in mind that The Coca-Cola Company has an incredibly significant global presence and is exposed to not only the shifting consumer tastes of developed markets but also the fast-growing consumer economies of emerging markets.

The foolish bottom line While many aspects of National Beverages's 10-Q were comparatively not as bad or improved slightly, the overall results are inexcusable. Owning shares in a company is owning part of that company. That means that the management of a company you own shares in work for you and are responsible for ensuring your money gains the highest rate of return. Because of this when a company fails to live up to the expectations of investors management either has to present a case that investors are satisfied with or investors will take their hard-earned dollars elsewhere.

However, with all this in mind it is easy to lose track of the big picture and miss out on great investments because of acting rashly over a bad quarter. While the filing did highlight some of the challenges National Beverage faces it did not raise any red flags that would indicate any significant threats to the company's viability which leads me to believe the recent 10-Q was just a blip in an otherwise great company, not the mark of a decline. I still believe that the company's next 10-Q should be looked at with extra scrutiny to ensure that National Beverage is back on track. For the time being I would not advise current shareholders to make any changes and view now as a buying opportunity for investors considering a position in National Beverage.

Brodie McLeod has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.