Primo Water Corp. Reports 61 Percent Net Sales Gain In Fourth Quarter

Primo Water Corp., a provider of 3-and 5-gallon purified bottled water, self-serve filtered drinking water and water dispensers sold through major retailers throughout the U.S. and Canada, announced financial results for the fourth quarter and year ended Dec. 31, 2010.

For the fourth quarter of 2010, net sales increased 61 percent to $12.7 million from $7.9 million in the fourth quarter of 2009, consistent with previous guidance. The fourth quarter results include the impact of the Culligan Refill business from the acquisition date of Nov. 10, 2010.

The net loss from continuing operations for the fourth quarter of 2010 was ($10.7) million or ($0.96) per share, compared to ($3.2) million or ($2.22) per share in the same period in the prior year. Additionally, the fourth quarter of 2010 Non-GAAP pro forma fully-taxed result was a loss of ($0.13) per share and the company reported Non-GAAP adjusted EBITDA of $0.2 million. The company does not expect to pay taxes through 2012 as they have sufficient net operating loss carryforwards to offset taxable income.

Sales from the water operations, which consists of the three-and five-gallon purified bottled water exchange service ("Exchange") and the self-serve filtered water vending service ("Refill"), for the fourth quarter of 2010 increased 70.3 percent to $9.5 million compared to $5.6 million in the fourth quarter of 2009. The sales improvement was due to an 11.4 percent increase in Exchange sales driven by an increase in bottle units sold to 1.0 million compared to 0.9 million in the same period of 2009. Exchange same-store unit sales increased 5.1 percent in the fourth quarter of 2010 compared to the same period last year. In addition, sales for Refill accounted for $3.3 million of our total sales in the quarter and the company began recognizing the sales from the acquisition on Nov. 10, 2010. At December 31, 2010, the Exchange and Refill services were offered in the U.S. and in Canada at approximately a combined 12,600 retail locations.

The company's water dispenser sales for the fourth quarter of 2010 increased 38.3 percent to $3.2 million compared to $2.3 million in the fourth quarter of 2009. The increase is due primarily to the addition of several new water dispenser models, which began shipping in the fourth quarter of 2010. The sales increase reversed a trend of decreases in sales during the year as retailers managed their inventory down to clear out older model, higher priced inventory.

Gross profit for the fourth quarter 2010 increased to $3.8 million compared to a gross profit of $1.8 million in the fourth quarter of 2009. The gross profit margin increased 730 basis points to 29.6 percent compared to 22.3 percent in the fourth quarter of 2009. The improvement in gross profit margin is primarily the result of an increased mix of higher margin Exchange sales and the addition of the Culligan Refill business. Exchange and Refill sales represented 72.2 percent of total sales during the quarter compared to 66.3 percent of sales in the fourth quarter of 2009. Gross margins for Exchange and Refill were 27.3 percent and 54.0 percent, respectively, for the fourth quarter of 2010.

"We are pleased to report that Primo Water achieved record results for the fourth quarter of 2010 as we continue our mission of providing great tasting purified water in an environmentally responsible way," commented Billy D. Prim, Primo Water's president and CEO in a prepared statement. "We are on track with our refill acquisition and leverage SG&A expenses with increased sales growth.

Net sales for 2010 decreased 5.1 percent to $44.6 million from $47.0 million for 2009. The decrease in net sales for 2010 resulted primarily from a 35.4 percent decrease in Product sales offset by a 23.2 percent increase in water sales, which includes the Exchange and Refill businesses. For 2010, net loss attributable to common shareholders was ($22.7) million or ($5.81) per share compared to ($14.7) million or ($10.23) per share in 2009. For 2010, the company reported a Non-GAAP pro forma fully-taxed loss of ($1.50) per share and Non-GAAP adjusted EBITDA of ($1.5) million.

Exchange sales increased by 10 percent in 2010 compared to 2009, which was the result of an 11 percent increase in water bottle units sold to approximately 4.3 million units. The increase in units sold was driven by a 14 percent increase in Exchange selling locations to approximately 8,000 at Dec. 31, 2010 as well as an increase in same store units of approximately 5 percent for 2010.  In addition, sales for Refill accounted for $3.3 million since the acquisition on Nov. 10, 2010 from approximately 4,600 locations. Product sales decreased $8.1 million or 35.4 percent to $14.7 million, representing 33.0 percent of total net sales for 2010. We believe the decrease in sales is primarily the result of retailers continuing to manage their inventory levels in anticipation of the new product line, which the company began shipping in the fourth quarter of 2010. Product sales in the fourth quarter of 2010 increased 38.3% compared to prior year. Product sales at retail to end consumers increased 14 percent in 2010 compared to 2009.

The company's overall gross margin increased to 23.3 percent in 2010 from 17.5 percent in 2009, primarily as a result of a higher mix of high margin water sales, which represented 63.3 percent of sales in 2010 compared to 48.2 percent in 2009. SG&A expenses increased $2.7 million or 27.2 percent to $12.6 million for 2010, which is primarily due to an increase in headcount and related costs associated with becoming a public company, costs related to the company's Refill acquisition and costs of operating duplicate back-office operations.

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