BellRing Brands, Inc.

Moat: 3/5

Understandability: 2/5

Balance Sheet Health: 4/5

A consumer packaged goods company focused on nutrition products and the sale of ready-to-drink (RTD) protein shakes, powders, and other nutritional products.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview BellRing Brands, Inc. (BRBR) operates in the consumer-packaged goods sector, specializing in branded, protein-based nutritional products. The company’s core offerings include ready-to-drink (RTD) protein shakes, powders, and other nutritional products, primarily targeted at consumers focused on health, fitness, and on-the-go nutrition.

  • Brands: BRBR’s portfolio primarily comprises two brands:
    • Premier Protein: A leading brand in the RTD protein shake category.
    • Dymatize: A brand focused on protein powders and supplements.
  • Distribution: BRBR utilizes multiple distribution channels including direct-to-consumer sales (through ecommerce), retail outlets and clubs, and an internal supply network to fulfill these orders.

Revenue Distribution:

  • Product Sales: BRBR’s core revenue stream comes from the sale of its nutritional products, primarily protein shakes and powders. The focus is heavily on branded products, with the company reporting sales by product type, as shown in Note 3 of their 10-K, which showed “ready to drink protein beverages” generating $1,606.8 million and powder and other protein products generating $116.1 million.

  • Geographic Segmentation: BRBR’s sales are primarily concentrated in the United States. However, the company reports having increased sales internationally, accounting for approximately 13% of their total sales during the last fiscal year.

Industry Trends

  • The nutritional and supplements market is experiencing growth driven by an increase in health conscious individuals and an increased focus on functional foods.
  • The demand for convenient nutrition is also increasing which helps the popularity of on-the-go protein shakes.
  • The protein supplement market is seeing continued growth as more people become health conscious and seek to supplement their diets with protein.

Margins:

  • BRBR’s operating margin sits at around 21%, however, this is not consistent. Looking at last 12 month margin it comes out to around 24%.
  • The gross margin hovers in the 30%-35% range, which is the norm for branded consumer products, though there was a slight drop in this number.

Competitive Landscape: * The company operates in the competitive protein and supplement market, they face competition from many big and small companies alike. Some of the major players include Glanbia, Iovate Health Sciences, and Nutrabolt among many others. They also face competition from smaller startups and private labels, making the market a very dynamic landscape.

What makes BRBR different? * Focus on Moats: The emphasis is on creating well-known brands that offer strong and defensible competitive advantages. While other companies also focus on improving margins by cost-cutting, BRBR focuses on high returns on capital to ensure lasting profits.

  • Targeted Segments: BRBR targets consumers focusing on health and fitness, as well as the increasing number of consumers who are seeking on-the-go nutrition, allowing the company to cater to different needs of customers.
    • Scale: With over a billion dollars in annual sales, BRBR has a major size advantage, especially over smaller competitors in the market.

Financial Analysis

  • Recent Performance: The most recent results for the three months ended June 30, 2023 showed strong sales numbers with sales up 22.5% year over year. However, this is still lower than earlier trends of upwards of 30% growth, meaning growth may be slowing. Net earnings have increased to 37.2 million from 11.2 million in the prior year same quarter. Earnings per share grew by a significant 174% to 0.33 from 0.12. This shows good improvement in bottom line results which should be rewarded by the market. * Revenue Growth: Looking at the prior year, the company had great sales growth, with net sales increasing almost 25% year over year, though as shown by their latest results this growth is starting to slow. Looking at the three month ended June 30th, sales increased 22.5%, and for the first six months of the year it increased to 23.9%. * Operating Margin Improvement: In a notable trend over the past few years, operating margins have greatly improved from single digits in the early years of the company to upwards of 21% in 2022. Looking at their most recent quarter, this figure is closer to 24%, which is a good development for shareholders. * Balance Sheet: The company has a healthy balance sheet with cash of $186 million and low liabilities. * Share Dilution: Even with strong growth prospects, the dilution from issuance of common shares and stock options has been moderate, and is a minor concern for existing shareholders. Stock based compensation did come down year over year from the most recent quarter.

Moat Rating: 3/5

  • BRBR’s business has a moat, which we have rated as 3 /5, this moat is based on its brand strength of Premier Protein, its supply network, and its size advantage. This moat is classified as “narrow,” as although the company has established a sizable market position and enjoys good brand loyalty, competition is likely to chip into the company’s returns in the future, especially since they don’t have any specific unique product or formula.

Legitimate Risks Affecting the Moat and Business Resilience: * Competitive Pressures: The nutritional and beverage market is highly competitive, which could lead to pricing pressure. There is strong competition from companies such as Glanbia, Iovate Health Sciences, and Nutrabolt, as well as an increased pressure to produce products that are in line with trending nutrition concepts, which can reduce BRBRs market share if they are unable to deliver. * Commodity Costs: The cost of materials has fluctuated a lot in recent times and has contributed negatively to the company’s gross margin, but the company has been trying to implement cost control measures to mitigate any supply chain costs that reduce profitability.

  • Technological Disruption: Rapid advancements in technology, especially in food and beverage manufacturing, could make BRBR’s process or product less appealing over time. * Changing Preferences: The company needs to keep up with nutrition trends or else its consumer base could shift their preference to another competitor who has products in line with the latest trends. * Economic Recession A drop in consumer spending, due to potential recession, could lead to consumers cutting back spending and ultimately lowering revenue. * Acquisition Risk: If the company makes any major acquisition to fuel growth, there could be integration risks, or the acquisitions may simply not provide any return, potentially destroying shareholder value.

Understandability: 2/5

  • BRBR’s business model is straightforward, with the company’s focus on protein-based nutritional products and distribution. However, there is difficulty in understanding the complex financial statements, and how these relate to the business’ value. The number of adjustments the company has made to non operating costs, and other tax items makes it difficult to estimate the actual earnings of the company. Therefore, we rate the understandability as 2/5 as a moderately complex business.

Balance Sheet Health: 4/5

  • BRBR shows good overall balance sheet health. The current ratio has a good reading of 1.9, which means that current assets almost double current liabilities, making the company well equipped to pay off any immediate debt, or handle operational costs. * The company has very little debt on their balance sheet and has significant cash reserves, implying a lower risk to shareholders.
  • The company reports good liquidity and ability to generate high cash flows from its operations.
  • Their equity has been growing, especially in comparison to its liabilities.
  • We rate the balance sheet as 4/5 (Very Healthy) as there are a few concerns with the non-operating expenses and their long term liabilities.

Recent Concerns and Controversies

  • Lowering Earnings Guidance In its most recent results the company has lowered the earnings guidance for full year 2023. The company said that while pricing actions are working, consumers are starting to buy less, and that this trend will reduce sales, reducing the expected earnings for the whole year. However, the management has emphasized that they expect to achieve a 20% increase in adjusted EBITDA.
  • Pricing Concerns: The increase in sales has mostly been driven by price increases rather than an increase in volume, with that trend also likely to continue in the near future.
  • Slowing Growth: The revenue growth has also shown a decline and is much lower than earlier levels of 30%-40%, with the latest results showing around 22.5% growth.

  • Goodwill Impariment: Management also seems to be overpaying when acquiring companies which leads to goodwill that they must eventually impair. They recorded a $117 million goodwill impairment in 2021. Further impairments may be possible in the future.

  • Inventory: The company was also seen to be using a large increase in inventory to bolster operating cash flows. This practice is sustainable in the short term, but needs to be followed closely to see how long the company intends to continue with it.