BRBR Financial Analysis

Analysis Date: 2/5/2025

Business Model

BellRing Brands operates in the convenient nutrition category, generating revenue primarily through the sale of branded ready-to-drink protein shakes, powders, and other convenient nutrition products.

Revenue Sources

• Premier Protein RTD Shakes: Main revenue driver, experiencing strong growth across all channels.
• Premier Protein Powders: Showing strong growth trajectory, contributing to revenue.
• Dymatize Powders: Contributes to revenue, with international business offsetting domestic headwinds.

Revenue Distribution by Channel

• Premier Protein RTD Shake Sales Growth by Channel (Q1 FY2025 vs Q1 FY2024): - Club: +21.2% - Mass: +20.2% - Food: +33.7% - eCommerce: +48.2%

Income Statement Analysis

• Net sales increased significantly by 23.8% year-over-year, driven by volume and price/mix.
• Gross profit increased by 34.9%, with gross profit margin improving to 37.5% from 34.4% due to improved pricing and non-recurring cost favorability.
• SG&A expenses increased by 51.7%, as a percentage of net sales increased to 15.0% from 12.3%, driven by higher advertising and promotion spend, employee costs, and distribution & warehousing expenses. This could be a concern if not managed effectively in the future.
• Amortization of intangible assets decreased by 81.1% due to lapping accelerated amortization from the previous year, positively impacting operating profit.
• Operating profit increased by 57.9% year-over-year, reflecting strong top-line growth and gross margin expansion.
• Net earnings increased significantly by 75.2%, benefiting from higher operating profit.

Balance Sheet Analysis

• Cash and cash equivalents decreased by 30.2%, which might be due to increased inventory and share repurchases.
• Inventories increased significantly by 22.0%, indicating potential build-up for future sales or anticipation of higher demand. Management mentioned adding shake supply to inventory.
• Prepaid expenses and other current assets increased significantly by 102.6%, which needs further investigation to understand the driver.
• Total Current Assets increased by 9.6%, driven by inventory and prepaid expenses.
• Total Assets increased by 5.8% overall.
• Accounts payable decreased by 8.3%, potentially indicating better payment terms or faster payments.
• Total Current Liabilities decreased by 4.8%.
• Retained earnings increased substantially, reflecting the strong net earnings in Q1 FY2025.
• Treasury stock increased, indicating share repurchases during the quarter and subsequent period.
• Total Stockholders’ Deficit improved (decreased negative value) due to increased retained earnings.

Capital Allocation

BellRing Brands is allocating capital towards share repurchases and business reinvestment. In Q1 FY2025, they repurchased shares worth $11 million and further $40 million in January 2025. They are also reinvesting in the business through increased advertising and promotion spend, as SG&A expenses show an increase. There was no mention of dividends in the provided documents. The focus appears to be on driving demand through marketing, innovation, and returning value to shareholders through buybacks.

Management Commentary

Fiscal 2025 is off to a good start. The business accelerated as we layered in demand drivers and kicked off new campaigns on both brands.

Both net sales and adjusted EBITDA grew approximately 25% driven by Premier Protein.

We raised our outlook for the year. We now expect net sales to grow between 13% 17% over fiscal 2024 and adjusted EBITDA to grow between 7% 14%.

Premier shake consumption growth accelerated this quarter up 23%. Growth was strong in all channels.

DYMTIZE, the international business drove the global brand this quarter more than offsetting domestic headwinds. Despite recent U. S. Trends, the brand remains strong holding the number 2 share position within sports nutrition powders.

Shipment dollar growth slightly outpaced consumption dollar growth.

Dymatize net sales increased 13% this quarter on 12% higher volume. Similar to recent quarters, strength in the international business continued with double digit sales growth. This was partly offset by domestic headwinds.

SG and A expenses were $80,000,000 an increase of 270 basis points as a percentage of net sales with higher spend for advertising and promotion and warehousing the main drivers.

We generated $3,000,000 in cash flow from operations in the Q1. As anticipated, our working capital increased as we added Shake Supply to our inventory.

Overall Sentiment: Positive. Management expresses confidence in the business, highlighting strong Q1 performance, raised guidance, and robust demand for Premier Protein. While SG&A expenses and operating cash flow are areas to monitor, the overall tone is optimistic about future growth and category momentum. The strength in Premier Protein and international Dymatize are key positive drivers.

Recommendation

Rating: Hold

Reason for Rating: Hold recommendation. BellRing Brands demonstrates strong top-line growth and improving profitability, particularly driven by Premier Protein. Raised guidance reflects management's confidence. However, a significant decrease in operating cash flow in Q1 due to working capital changes and increased SG&A expenses for advertising and promotion are areas of concern that need to be monitored. While long-term prospects in the convenient nutrition category are positive and the company is executing well on demand generation, the cash flow and expense trends warrant a cautious 'Hold' rating until these aspects stabilize and improve.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/5/2025, 7:42:40 AM