BellRing Brands, Inc. (NYSE:BRBR) Q1 2024 Earnings Call Transcript
BellRing Brands, Inc. (NYSE:BRBR) Q1 2024 Earnings Call Transcript February 6, 2024
BellRing Brands, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to BellRing Brands First Quarter Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jennifer Meyer, Investor Relations for BellRing Brands. Please go ahead.
Jennifer Meyer: Good morning, and thank you for joining us today for BellRing Brands' first quarter fiscal 2024 earnings call. With me today are Darcy Davenport, our President and CEO; and Paul Rode, our CFO. Darcy and Paul will begin with prepared remarks, and afterwards, we'll have a brief question-and-answer session. The press release and supplemental slide presentation that support these remarks are posted on our website in both the Investor Relations in the SEC filings section at bellring.com. In addition, the release and slides are available on the SEC's website. Before we continue, I would like to remind you that this call will contain forward-looking statements which are subject to risks and uncertainties that should be carefully considered by investors, as actual results could differ materially from these statements.
These forward-looking statements are current as of the date of this call, and management undertakes no obligation to update these statements. As a reminder, this call is being recorded, and an audio replay will be available on our website. And finally, this call will discuss certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website. With that, I will turn the call over to Darcy.
Darcy Davenport: Thanks, Jennifer, and thank you all for joining us. Last evening, we reported our first quarter results and posted a supplemental presentation to our website. This presentation is designed to provide more insight into our business, consumption and key metrics and now includes more information on our powders' business. I'm pleased to share the fiscal 2024 is off to an excellent start. The business continues to accelerate as we bring on new share capacity and begin to drive demand. Our first quarter results came in ahead of our expectations. Net sales grew 19% over prior year and adjusted EBITDA was up 18%. Premier Protein drove the outperformance, as some key customers chose to right-size their trade inventory that they were heading into the New Year, New You season started in January.
As you saw in yesterday's press release, we raised our outlook for the year. We now expect net sales to grow between 12% and 17% over fiscal 2023 and adjusted EBITDA to grow between 11% and 18%. Our better-than-expected first quarter performance along with strong consumption trends and confidence in our capacity expansion drove our decision to raise the top and bottom line. Moving to shake production. In fiscal 2023, we made notable progress to grow and diversify our shake supply and our efforts continue into 2024. I'm happy to share that we brought our second greenfield co-man facility at Michael Foods online during Q1. They will continue to scale up over the next 12 months, producing more shakes every quarter. We remain on track to grow production north of 20% this year enabling strong net sales growth in 2024 and increased weeks of supply.
The demand and supply dynamics on shake will remain tight for most of the year and we'll continue to be nimble, so we can navigate effectively. Now to the category and brand updates. The convenient nutrition category grew 10% in Q1 as tailwinds around health and wellness and fitness continue to drive growth. Consumer interest in functional beverages and sports nutrition products continues to be high. Ready-to-drink led the category up 16%. And ready-to-mix grew 6%. Increase supply and distribution gains are lifting ready-to-drink growth, while the growth in ready-to-mix remained healthy, despite lapping significant price increases. Premier Protein shake consumption remained strong this quarter at 29%. Growth was robust across all channels driven by improved supply, distribution expansion and continued excitement around our seasonal flavors.
The highest growth was in Mass and eCommerce. Mass benefited from higher in-stock levels and distribution gains, while eCommerce saw strong growth behind promotional activity. Our latest seasonal flavor, Winter Mint Chocolate, demonstrated remarkable incrementality to the brand. January consumption growth continues at 34%, lifted by incremental promotional activity in tracked channels. Our brand metrics reflect our continued momentum, as Premier Protein reached all-time highs in TDPs and household penetration. Premier Protein with RTD market share of 21% maintained its position as the number-one brand in the RTD segment as well as the number-one brand in the broader Convenient Nutrition category. Premier Protein continues to gain new users, reaching over 17% of households this quarter, adding nearly one percentage point versus Q4.
In calendar year 2023, the brand grew household penetration 24% a significant contributor to the overall RTD category growth. Premier Protein's household penetration continues to be the highest in the category. And we expect marketing and promotional activities in the remainder of fiscal 2024 to further grow our reach. With the RTD segment household penetration is still below categories such as nutrition bars and energy drinks. We still see tremendous opportunity to grow in our existing channels. Premier Protein powder continued its strong trajectory, growing 66% in Q1 behind distribution gains, strong velocities and promotional support. The momentum continued in January up 50%, as we begin a powder-focused marketing campaign. We remain encouraged by the growth potential of the Premier Protein brand in this format.
In fact during calendar year 2023, Premier Powder's household penetration grew 82%, the highest of any key competitor in the Powder category. We believe the brand will continue to bring mainstream consumers into the Powder category in the same way Premier did to the ready-to-drink category. Turning to Dymatize, the brand had a solid quarter with household penetration maintaining record highs and consumption of 16%, significantly outpacing the category. We saw double-digit growth in nearly all channels driven by distribution gains, promotion and continued top-tier velocities. Specialty consumption growth was the only exception it remains challenged as consumers shift purchases to mainstream channels. Looking forward Dymatize launched a new national marketing campaign in Q2, which focuses on what makes the brand unique.
It's superior Premier -- its super premium ingredients and amazing taste. The formulated for more campaign has three pillars. The first focuses on the brand and superior ingredients and how they support superior results for athletes. The second pillar showcases our amazing tasting flavors like Fruity Pebbles to highlight the fun they bring to even the most serious athlete. The third is possibly the most exciting if you're a football fan. I'm thrilled to share we have expanded our core team of Dymatize athletes and influencers and we are partnering with San Francisco All-Pro running back, Christian McCaffrey. We are eager to see the impact this type of enhanced digital marketing and top tier influencer will have on our brand awareness and household penetration.
In closing, our Q1 results position us well for an above-algorithm fiscal year. Our confidence in our long-term outlook for BellRing remains strong. Our business is focused on the strongest segments of a growing category with a ton of upside. Premier Protein and Dymatize are leading mainstream brands with low household penetration and strong loyalty. Our momentum continues to grow as we began to drive shake demand and ramp up our powder marketing efforts. We continue to increase our shake supply and our scalable supply chain will enable many years of robust shake growth. We are bringing flavor excitement to consumers and retail partners and more innovation in our pipeline to fuel future growth. Before passing over to Paul, I'm sure that most of you have heard that Rob Vitale, our Executive Chairman has returned from his medical leave.
We are incredibly excited to have him back at full strength. We look forward to sharing our progress next quarter. And I will now turn the call over to Paul.
Paul Rode: Thanks Darcy and good morning everyone. As Darcy highlighted, our first quarter results came in above our expectations. Net sales for the quarter were $430 million and adjusted EBITDA was $101 million. Net sales grew 19% over prior year and adjusted EBITDA increased 18% with adjusted EBITDA margin of 23.4%. Starting with brand performance, Premier Protein net sales grew 19%, behind strong growth for RTD shakes and powders. Distribution gains, organic growth and light promotional activity drove shake growth. Shake consumption dollars grew 29%, outpacing shipment growth of 19%. The former benefited primarily from higher net pricing as price increases at retail lagged our October 2022 price increase on shakes. Dymatize net sales decreased 21% this quarter as the brand benefited from increased distribution and organic growth of domestic mainstream channels.
These gains, combined with lapping last year's Q1 trade inventory de-load, drove volume gains in the quarter. Price/mix was a partial offset to this growth, driven by incremental promotional activity and unfavorable mix. Gross profit of $148 million grew 22% with an increase of gross profit margin of 80 basis points to 34.4%. The margin increase resulted from the input cost deflation, partially offset by incremental promotional activity and lapping production attainment fees received in the prior year. Excluding one-time costs in the prior year period, SG&A expenses as a percentage of net sales decreased 90 basis points as we lap our lowest SG&A spend quarter in 2023. Operating profit of $73 million, decreased $2 million compared to prior year and was negatively impacted by $17 million of accelerated amortization.
This was a non-cash expense recorded in connection with our Q4 decision to discontinue the PowerBar North American business and was treated as an adjustment for the non-GAAP measures. The intangible assets associated with this business were fully amortized in the first quarter. Before reviewing our outlook, I would like to make a few comments on cash flow and liquidity. We generated $74 million in cash flow from operations of the first quarter. While our working capital modestly decreased in the first quarter, we continue to expect net working capital growth in fiscal '24 to exceed our net sales growth rates as we add weeks of shake supply. As a result, our cash flow in fiscal '24 will be modestly lower than fiscal '23. During the quarter, we repaid the remaining $25 million of borrowings under our revolving credit facility.
As of December 31, net debt was $755 million and net leverage was 2.1 times. With our adjusted EBITDA growth and strong cash flow generation, we anticipate net leverage will declined below two times in fiscal '24. With respect to our share repurchases this quarter, we bought 200,000 shares at an average price of $44.27 per share or $9 million in total. Our remaining share repurchase authorization is $14 million. Turning to our outlook. We raised our fiscal '24 guidance for net sales to be $1.87 billion to $1.95 billion and adjusted EBITDA of $375 million to $400 million. Our guidance supply of strong top line growth of 12% to 17% and adjusted EBITDA growth of 11% to 18% with healthy adjusted EBITDA margins of 20.3% organic [ph]. As Darcy mentioned, our better-than-expected first quarter performance drove our decision to raise our outlook and we don't expect any major changes to the cadence we communicated last quarter.
Moving to our second-quarter forecast, we expect net sales growth to exceed 20% with majority of the growth driven by Premier Protein as we restart meaningful shake promotions. Consequently, we expect pricing to be a significant offset the strong shake volume growth. We expect second quarter adjusted EBITDA margins to improve modestly compared to prior year as higher gross margins are partially offset by higher SG&A as the percentage of net sales. Gross margins are expected to benefit from lower protein costs offset partially by increased promotional spend and other input cost inflation. In closing, we are pleased with our good start to fiscal '24. Our strong Q1 results give us greater confidence in our full-year outlook and long-term growth prospects.
I will now turn it over to the operator for questions.
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