La Croix Owner National Beverage Corp. Bringing Healthy Beverages to America
If you’ve been reading EGS you’ll know that I recently posted on why I sold my shares of Coca Cola (Symbol: KO). Recently, I have been drinking lots of La Croix. I’ve noticed at backyard barbeques and other events that La Croix cans litter the premises. As a result, I decided to research the La Croix brand, which turns out to be owned by National Beverage Corp. (Symbol: FIZZ). The most recognizable FIZZ brand is La Croix. However, FIZZ has a number of other sparkling water and healthy beverage brands. This post will hopefully pique your interest and cause you to do some research of your own on FIZZ.
Sales and Income Growth Accelerating at FIZZ
Sales for the fiscal year ended April 29, 2017 were $826M. This was an increase of 17.4% over the prior fiscal year. The cost of sales was $500M resulting in a gross profit of $326M. The gross profit number reflected an increase of approximately 35.3% year over year. Jumping to the bottom line, net income for fiscal year 2017 was $107M, an increase of approximately 75% over the prior fiscal year. Fiscal year 2017 represents a huge jump in net income for FIZZ.
Historically, FIZZ has had net income between $43M and $49M (Fiscal Years 2013-2015). In 2016, FIZZ started to experience noticeable growth and 2017 has seen an acceleration of that growth trend. The cause of growth is likely due to a well-timed marketing campaign in 2015 targeting millennials as well as the continued macro trend of declining sugary soda consumption. Bottom line – this is a business that is experiencing rapid growth that started in fiscal year 2016 and has continued through fiscal year 2017.
With rapid growth, the primary concern is whether the FIZZ team is ready to handle the increased demand. With beverages, distribution is crucial. It remains to be seen whether FIZZ has the distribution infrastructure to accommodate continued rapid growth. One option would be to strike a deal with Coke or Pepsi to assist with distribution, but I see this as a problem that management should be able to deal with.
Potential for Exponential Growth
La Croix reminds me a bit of the growth in the energy drink market. Ten years ago I had my first Monster energy drink and my heart about pounded out of my chest. Thankfully I survived, but needless to say I’ve avoided the energy drinks since that day. I digress. Monster Beverage Company (Symbol: MNST) has a market cap of $31.39B dollars. FIZZ has a market cap of $5.78B so there is definitely opportunity for FIZZ to continue its growth.
At the utter extreme of the size comparison is Coke with a market cap of $191B. While I don’t think FIZZ has the potential to get as big as Coke, it certainly gives an outer limit to what one could expect. A reasonable expectation for FIZZ would be to become the dominant brand in the seltzer/water space similar to what Monster has become in the energy drink space.
Up, Up, and Away Goes the FIZZ Share Price
FIZZ currently trades at about 49 times prior earnings. This is slightly higher than MNST which trades at around 42x earnings. I would expect a slightly lower price to earnings ratio for MNST simply because it is about six times larger than FIZZ.
Year to date, FIZZ has increased 142.85%. Over that same time the SP-500 ETF, SPY, has increased 12.39%, KO has increased 8.56%, and MNST has increased 24.61%. FIZZ has outperformed all of the aforementioned by over 100 percentage points. Again, it is a relatively small company so one would expect slightly higher returns for the added risk, but this growth is huge!
A definite concern with FIZZ is the fact that it is heavily dependent on growth of the La Croix brand. Although the company does not break out sales of La Croix specifically, by most estimates La Croix accounts for 25%-40% of FIZZ sales. Regardless, if La Croix continues to grow by increasing sales in the U.S., and Canada, and is able to move into international markets, I think there’s more room for this stock to run.
I do not own any positions in FIZZ.