Has La Croix Lost Its Fizz?

National Beverage, producer of La Croix flavored fizzy water, has been criticized for the tone and substance of its recent filings.

On Forbes, Jim Collins calls CEO Nick Caporella’s statement “bizarre” and points out the contradictions in its explanation for reduced revenues:

La Croix sales are falling due to litigation, but that litigation will not have a material adverse effect the company’s operations.  That is the most self-contradictory messaging I have read in 26 years of reading quarterly SEC filings. It makes no sense.

I have to admit I have not followed National’s reporting closely, but the 10-Q does contain another significant red flag for shareholders.  In November National declared a $2.90 special dividend payable on January 29th, a payment that amounted to $135 million. That value exceeds the stated value of the company’s property, plant and equipment by about $32 million.

Why would a company give away such a large chunk of capital?  Well, usually it is a sign of the presence of a shareholder with a significant stake, often an insider.  That is certainly the case here.

As of National Beverage’s last proxy filing on September 6, 2018, CEO Nick Caporella beneficially owned 73.4% of National Beverage common stock and the company’s President, Joseph Caporella, who is Nick’s son, owned another 1.0%.

So if you bought National Beverage stock because you like the product (I am a fan of the pamplemousse flavor) and loved the widely-hyped “hipster cred” of the La Croix brand, you also bought into a company with dreadful corporate governance.

That dreadful corporate governance includes the CEO and his son, who control 3/4 of the stock and serve as 2/5 of the company’s board, which could explain the decision to make such an excessive dividend payment. Slate calls the CEO’s statement “deranged.” He is unlikely to get much oversight from his board.

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