In a previous article I discussed National Beverage's (NASDAQ:FIZZ) disappointing quarter. Net sales were down, SG&A expenses were up, and net income fell. Even with a higher gross margin and a healthier balance sheet the company was unable to redeem itself. However because National Beverage has rewarded investors so well (its share price is up more than 200% over the past decade, over triple the rise of the S&P 500, over triple that of the S&P 500) I gave the company the benefit of a doubt. However I did say that the company's next report should be more heavily scrutinized. Additionally, if National Beverage is to be treated as an outperformer we must have some competitors to compare; cue Cott (NYSE:COT) and Dr Pepper Snapple (NYSE:DPS). Well that next report has arrived so let the scrutiny begin.

Stabilized fundamentals

Growth may not have be awe-worthy but the fundamentals have at least stabilized. For the quarter ending Oct. 26, when compared to the same quarter of last year net sales rose 0.7% with net income rising 4%. The company's gross margin went from 32.8% to 35.1% (partially a result of a 2.8% fall in the cost of sales) and their operating margin went from 7.2% to 7.5%.

One year ago National Beverage had a debt/equity ratio of 0.57, a quick ratio of 1.93, and not a dime of long-term debt. As of Oct. 26 the company has a debt/equity ratio of 1.25, a quick ratio of 1.74, and $40 million worth of long-term debt. The good news is that conditions are improving. The company's debt/equity ratio has been consistently falling from its Jan. 26 high of 2.32, its quick ratio has been consistent rising from its April 28 low of 1.45, and the company has already paid off a third of the $60 million of long-term debt that was first recorded on the balance sheet of Jan. 26. .

A closer look

The changes in the income statement are actually rather simple to explain. A 12.5% volume growth in the company's Power+ brands and a 1.5% increase in pricing related to more favorable product mixes was able to offset a 5.8% fall in carbonated soft drink volume. For the short and mid-term this could be troublesome. If carbonated soft drink sales continue to fall then the company would have to rely on growth of other product types in order to offset losses. National Beverage could experience long-term strength as carbonated soft drinks shift to make up a smaller portion of sales if they are able to sustain growth of their other product types. Consumer tastes are shifting toward healthier options and being more oriented toward this is a definite plus.

National Beverage may not report earnings by segment but that doesn't mean we can't approximate. We do know that the carbonated drinks segment and the Power+ brands segment are their two primary segment (Allied Brands is essentially a continuation of the carbonated drinks segment), carbonated drinks revenue fell 5.8%, Power+ revenue rose by about 14.2%, net sales for the quarter were $167.67 million and rose about 0.66%. Doing a bit of math tells us that the carbonated drinks segment makes up 71% of revenue, while Power+ makes up the other 29%. Clearly National Beverage is still heavily reliant on soft drinks.

Also of interest was a 9.8% rise in SG&A expenses that was a result of higher advertising and marketing expenses. If this were to have taken place during a period of more robust growth for the company it wouldn't be such an issue but because it is taking placing during a period of stagnation it is a sign that the only way National Beverage is able to keep sales from falling is by more advertising. While the company has been successful so far in improving margins, heightened marketing without accompanying growth could erode these improvements.

But are they still an outperformer?For the quarter ending Sept. 28 Cott saw revenue fall 7% with net income falling 15.9%. Their gross margin fell from 12.5% to 12% while their operating margin fell from 2.7% to 2.4%. The balance sheet as of Sept. 28 when compared to that of nine months prior paints a slightly better picture. The company's debt/equity ratio stayed roughly the same at 1.51 and the company's quick ratio went from 1.38 to 1.53, primarily the result of a 9% fall in current liabilities.

For the quarter ending Sept. 30 Dr Pepper Snapple saw revenue rise 1% with gross profit falling 1% and net income rising 15.6% (a fall of 155.9%% excluding a benefit provision for income taxes). Their gross margin went from 59% to 57.9% and their operating margin went from 11.7% to 13.4% (negative 10.2%). The company's long-term situation for their balance sheet as of Sept. 20 improved when compared to that of nine months prior, but their sort-term situation slightly deteriorated with their debt/equity ratio going from 2.92 to 2.52 and their quick ratio going from 0.92 to 0.90.

The Foolish bottom line

I would still rate National Beverage as a buy but am now becoming a bit more cautious of doing so. I am encouraged by the fact that the company was able to stabilize itself and at this point don't detect any red flags that would warrant selling. I also see a potential growth in sales of its non-carbonated soft drink products and see this as a strength going forward. However declines in carbonated soft drink sales and stagnant growth makes me weary that National Beverage will be able to continue outperforming the market. While I am more optimistic about the company's near and mid-term future than I was last quarter I will definitely be looking closely at their next 10-Q for faster growth. As long as National Beverage continues taking advantage of a wider variety of products I remain confident they are still a wise addition to most portfolios for the long-term.