Nutrition products company Bellring Brands (NYSE:BRBR) reported Q1 FY2024 results beating Wall Street analysts' expectations, with revenue up 18.7% year on year to $430.4 million. The company's full-year revenue guidance of $1.91 billion at the midpoint also came in 1.3% above analysts' estimates. It made a non-GAAP profit of $0.43 per share, improving from its profit of $0.33 per share in the same quarter last year.
BellRing Brands (BRBR) Q1 FY2024 Highlights:
- Revenue: $430.4 million vs analyst estimates of $408.4 million (5.4% beat)
- EPS (non-GAAP): $0.43 vs analyst estimates of $0.40 (8.5% beat)
- The company lifted its revenue guidance for the full year from $1.87 billion to $1.91 billion at the midpoint, a 2.1% increase
- Free Cash Flow of $74.2 million, down 11.8% from the previous quarter
- Gross Margin (GAAP): 34.4%, up from 33.6% in the same quarter last year
- Organic Revenue was up 18.7% year on year
- Sales Volumes were up 19% year on year
- Market Capitalization: $7.45 billion
Spun out of Post Holdings in 2019, Bellring Brands (NYSE:BRBR) offers protein shakes, nutrition bars, and other products under the PowerBar, Premier Protein, and Dymatize brands.
These products emphasize protein and low-carb or low-sugar content for weight loss and weight management. The Bellring Brands core customer is therefore a health-conscious individual who prioritizes nutritious eating or someone who wants to become that health-conscious person. Some customer archetypes include fitness enthusiasts or people on low-carb or keto diets looking to lose weight.
Bellring Brands’s products are available in general retailers such as grocery stores and club warehouse stores as well as in specialty retailers that cater to fitness and nutrition enthusiasts. Additionally, gyms and fitness centers sometimes carry the company’s products. Lastly, each of the company’s brands has a dedicated website where consumers can browse products, access exclusive deals, and access information on health and fitness.
Personal care products include lotions, fragrances, shampoos, cosmetics, and nutritional supplements, among others. While these products may seem more discretionary than food, consumers tend to maintain or even boost their spending on the category during tough times. This phenomenon is known as "the lipstick effect" by economists, which states that consumers still want some semblance of affordable luxuries like beauty and wellness when the economy is sputtering. As with other consumer staples categories, personal care brands must exude quality and be priced optimally given the crowded competitive landscape. Consumer tastes are constantly changing, and personal care companies are currently responding to the public’s increased desire for ethically produced goods by featuring natural ingredients in their products.Competitors offering health and wellness supplements and products include The Simply Good Foods Company (NASDAQ:SMPL), Herbalife (NYSE:HLF), and Usana Health Sciences (NYSE:USNA) .
BellRing Brands is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale. On the other hand, one advantage is that its growth rates can be higher because it's growing off a small base.
As you can see below, the company's annualized revenue growth rate of 19.1% over the last three years was impressive as consumers bought more of its products.
This quarter, BellRing Brands reported robust year-on-year revenue growth of 18.7%, and its $430.4 million in revenue exceeded Wall Street's estimates by 5.4%. Looking ahead, Wall Street expects sales to grow 11.2% over the next 12 months, a deceleration from this quarter.
Gross Margin & Pricing Power
Gross profit margins tell us how much money a company gets to keep after paying for the direct costs of the goods it sells.
This quarter, BellRing Brands's gross profit margin was 34.4%, in line with the same quarter last year. That means for every $1 in revenue, $0.66 went towards paying for raw materials, production of goods, and distribution expenses.
BellRing Brands's unit economics are higher than the typical consumer staples company, giving it the flexibility to invest in areas such as marketing and talent to reach more consumers. As you can see above, it's averaged a decent 31.7% gross margin over the last eight quarters. Its margin has also been trending up over the last 12 months, averaging 2.1% year-on-year increases each quarter. If this trend continues, it could suggest a less competitive environment where the company has better pricing power and more favorable input costs (such as raw materials).
Operating margin is an important measure of profitability accounting for key expenses such as marketing and advertising, IT systems, wages, and other administrative costs.
In Q1, BellRing Brands generated an operating profit margin of 17%, down 3.9 percentage points year on year. Conversely, the company's gross margin actually increased, so we can assume the reduction was driven by operational inefficiencies and a step up in discretionary spending in areas like corporate overhead and advertising.Zooming out, BellRing Brands has been a well-managed company over the last eight quarters. It's demonstrated it can be one of the more profitable businesses in the consumer staples sector, boasting an average operating margin of 17.1%. On top of that, its margin has remained more or less the same, highlighting the consistency of its business.
These days, some companies issue new shares like there's no tomorrow. That's why we like to track earnings per share (EPS) because it accounts for shareholder dilution and share buybacks.
In Q1, BellRing Brands reported EPS at $0.43, up from $0.33 in the same quarter a year ago. This print beat Wall Street's estimates by 8.5%.
Between FY2021 and FY2024, BellRing Brands's EPS grew 110%, translating into an astounding 28% compounded annual growth rate. If it can maintain this rate of growth, BellRing Brands will more than triple its EPS in the next five years.
Wall Street expects the company to continue growing earnings over the next 12 months, with analysts projecting an average 17.7% year-on-year increase in EPS.
Return on Invested Capital (ROIC)
EPS and free cash flow tell us whether a company's revenue growth was profitable. But was it capital-efficient? If two companies had equal growth, we’d prefer the one with lower reinvestment requirements.
Enter ROIC, a metric showing how much operating profit a company generates relative to its invested capital (debt and equity). ROIC not only gauges the ability to grow profits but also a management team's ability to allocate limited resources.
BellRing Brands's five-year average ROIC was 21.6%, beating other consumer staples companies by a wide margin. Just as you’d like your investment dollars to generate returns, BellRing Brands's invested capital has produced robust profits.
The trend in its ROIC, however, is often what surprises the market and drives the stock price. Over the last two years, BellRing Brands's ROIC has averaged a 40.7 percentage point increase each year. BellRing Brands has historically shown the ability to generate good returns, and its rising ROIC is a great sign. It could suggest its competitive advantage or profitable investment opportunities are growing.
Key Takeaways from BellRing Brands's Q1 Results
We were impressed by how significantly BellRing Brands blew past analysts' revenue and organic revenue growth expectations this quarter. That outperformance was driven by its Premier Protein brand, which saw 19.5% volume growth on modest promotional activity. That type of unit growth is rare in the consumer staples sector. Its smaller brand, Dymatize, also saw superb volume growth of 32.4%. As a result of the strong demand, the company lifted its full-year revenue and adjusted EBITDA guidance. Overall, this quarter's results seemed positive and shareholders should feel optimistic. The stock is flat after reporting and currently trades at $57.7 per share.
Is Now The Time?
BellRing Brands may have had a favorable quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.
There are several reasons why we think BellRing Brands is a great business. For starters, its revenue growth has been impressive over the last three years. And while its brand caters to a niche market, its volume growth has been in a league of its own. On top of that, its average annual EPS growth over the last three years has been fantastic.
BellRing Brands's price-to-earnings ratio based on the next 12 months is 34.5x. Looking at the consumer staples landscape today, BellRing Brands's qualities stand out and we like the stock at this price.
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