Primo Water Corp. Reports 15.4 Percent Net Sales Increase In First Quarter

Primo Water Corp., a provider of 3- and 5-gallon purified bottled water, self-serve filtered drinking water, water dispensers, sparkling beverage appliances and related consumables announced financial results for the first quarter ended March 31, 2012.

Total net sales increased 15.4 percent to $19.8 million from $17.1 million in the first quarter of 2011. This increase was due to growth in both water and dispenser sales.

Water segment sales for the first quarter of 2012 increased 13.9 percent to $15.0 million compared to $13.1 million in the first quarter of 2011. Sales in the water segment consist of sales of multi-gallon purified bottled water (exchange) and self-serve filtered drinking water vending services (refill). The water segment sales improvement was primarily due to a 31.1 percent increase in exchange sales, driven by a 22.7 percent increase in U.S. exchange sales that resulted from new location growth and an acceleration in same-store unit growth of 5.0 percent for the first quarter compared to 3.0 percent for the fourth quarter of 2011. Water net sales included $0.8 million and $0.2 million in net sales attributable to Canada Exchange for the first quarter of 2012 and 2011, respectively.

Sales in the dispenser segment for the first quarter of 2012 increased 20.9 percent to $4.8 million compared to $4.0 million in the first quarter of 2011. The increase was due primarily to new locations that offer dispensers as well as sell-thru growth at existing locations. Sell-through to consumers increased 51.1 percent compared to the first quarter of 2011 to a record 93,000 units. The company believes that increased water dispenser penetration will lead to increased recurring water sales.

Gross margin increased to 25.9 percent for the first quarter from 16.1 percent for the fourth quarter of 2011 and decreased from the prior year's margin of 29.3 percent. Gross margin in the water segment decreased to 34.9 percent compared to 36.6 percent in the same period in the prior year primarily due to a mix shift to greater sales from exchange, which generates lower margins than refill. Gross margin for the dispenser segment decreased to 1.0 percent from 5.3 percent in the prior year, primarily due to increased sales to lower-margin customers and increased manufacturing costs.

The GAAP net loss for the first quarter of 2012 was $(3.9) million or $(0.16) per share, compared to $(2.1) million or $(0.11) per share for the same period in the prior year. In addition, non-GAAP pro forma fully-taxed net loss was $(1.2) million or $(0.05) per share for the first quarter of 2012 compared to break-even for the same period in the prior year. The primary reasons for the decrease in non-GAAP earnings between the first quarter of 2012 and 2011 are a $0.5 million increase in costs related to the Flavorstation segment, a $0.7 million increase in depreciation and a $0.6 million increase in deferred loan costs related to refinancing the  company’s debt. The primary differences between GAAP and non-GAAP results are debt restructuring costs, non-recurring and acquisition-related costs, non-cash stock-based compensation charges, amortization of intangible assets and the pro-forma impact of full income taxes. The  company does not expect to pay U.S. income taxes in the near future as it has sufficient net operating loss carryforwards to offset taxable income.

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