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How would you react if a company’s management said things like “numbers now that we never dared think about”, or “large enough to make everybody very very happy“? Would it make your ears perk up?

This was exactly what happened to me– as I listened to the Bravo Foods conference call last night.

It was a very interesting call. And I have a lot of good information to share. What follows is my notes of the key points.

Please note that all comments and data in this post are based on my notes from the Bravo Foods conference call and therefore we cannot guarantee 100% accuracy. I have tried to be as objective as possible in sharing this information with you. I do hold shares of Bravo Foods and it is a company I have been tracking for the past few months.

The first big topic of the call– the Bravo Foods distribution agreement with Coca Cola Enterprises (CCE).

Bravo Foods’ distribution agreement with Coca Cola Enterprises is a 10-year renewable agreement that takes effect on November 1, 2005. The agreement was signed on August 30th. According to Bravo’s management, it puts them in a different league.

After the first year, the distribution agreement may be cancelled by either Bravo Foods or Coca Cola Enterprises. Per the agreement, one year’s notice must be given, and therefore the distribution agreement will last a minimum of two years, i.e. until at least November 1, 2007.

During the agreement, Coca Cola Enterprises will do all selling, point of sale, and direct store delivery for Bravo’s products. Bravo Foods’ management will focus on product development, branding and product positioning, and marketing support.

Management said that Coca Cola Enterprises will initially focus on what they are good at– getting Bravo’s products on their red trucks, out on the street, and into the hands of consumers. This includes distribution for vending, educational institutions, and convenience stores (which Bravo’s management often refers to as “c-stores”).

Management mentioned that they are and will be promoting their products to the educational markets. So far their products have passed most school nutritionists’ hurdles.

At their past two conference calls, I have noticed that several shareholders asked for a timeline on when Bravo’s products would be sold in schools. Management has explained that they must talk to and sell each school district on their products individually in order to get Bravo’s milk products for sale there.

When you consider that some school districts may only contain one school, and that there are dozens in each state, this process will just take some time.

Coca Cola Enterprises has the right of first refusal for all new Bravo Foods products.

Bravo’s management said that, in their eyes, this agreement gave them the following benefits:

1. A powerful direct store delivery system for Bravo products via Coca Cola Enterprises. Management said that Coca Cola Enterprises offers Bravo the largest direct-to-store distribution network, with a reach of millions of locations.
2. Access to CCE’s extensive network of 2.4 million vending machines throughout the USA.
3. Savings on distribution costs and sales expenses.
4. Delivery trucks on the street that can keep an eye on cooler inventory and restock as needed.

Coca Cola Enterprises does retain the agreement to take on competing products. This clause remains for the life of the deal. (Bravo Foods’ management responded to investor questions saying they are not worried because they are confident in their products.)

In the eyes of Bravo’s management, they have excelled at branding and co-branding of products, product development, and graphic design– but they have been missing a good product distributor. Coca Cola Enterprises fits this need.

Management kept stressing that the company is better off for this agreement. “It’s a new day for Bravo”, said Roy Warren, Bravo Foods CEO.

Management said their sales goal by year 3 of the distribution agreement was for Bravo’s products to become 1% (one percent) of CCE’s unit volume. That doesn’t sound like a lot, but management said that 1% equated to 420 million individual bottles.

Management also said that the 420 million individual bottles will not be all milk products. Management has stated that they are exploring other bottled beverage variations and that those products would be announced in due course.

How this distribution agreement will affect Bravo’s margins.

With their new distribution agreement, Bravo’s management said they expect their gross margin will drop from about 32% to just under 30%. However, their distribution expenses will drop significantly because they can ship truckloads of their products directly to Coca Cola Enterprises and let CCE handle the rest.

And their management said it is an opportunity to make a lot more money.

Bravo’s management said they had 75 or so brokers covering them on a national level, but now they have hundreds of salesmen from Coca Cola Enterprises. And CCE has contracts with lots of schools.

Some raw sales estimates.

Whenever I listen to a conference call, most people want some hard numbers. Bravo Foods’ management said it was difficult to give guidance because of their “rapid rate of growth”. They said they don’t really know what the numbers will be, but they provided their best idea.

Management said that they are opening a tremendous number of new accounts, and they expect the current quarter’s sales (Q305) to be about $4 million. They pointed out that $4 million in sales would be more than all of last year.

For the fourth quarter (Q405), Bravo’s management said they expect sales of about $6 to $7 million. The CCE distribution agreement will begin in November, and so they said we may not see a boost in sales in the 4th quarter.

Roy Warren (Bravo’s CEO) also provided some very rough estimates for 2006 sales. He said that he expects Bravo Foods to do around $70 to $100 million in sales in 2006.

Mr. Warren’s estimate includes domestic sales of $50 to $60 million, international sales of $15 to $20 million, and sales of “other products” of $5 to $20 million.

Bravo’s management said they are and will be trying to grow sales any way possible. Part of their constraints in domestic sales, however, is that Bravo is limited by their current capacity.

Another hot topic– Bravo’s production capacity limitations.

Bravo management has said they are currently limited in production capacity to 2.5 million units per month until April. In April, their production capacity will be 7.5 million units per month.

This is not to say that Bravo’s management cannot increase production right now. Management specifically stated that they will build capacity as soon as they need to. However, the “shebooya” (”chaboya”?) machine that Jasper can offer them will require a significant amount of money to raise capacity and management is not completely certain that they need it just yet.

Management has stated that they have a “friend of the family” relationship with Jasper, their main supplier, since they have been working together for so long. However, they are not committed to using Jasper for 100% of their production.

However, during the conference call management emphasized that they will be releasing new products next year that “won’t be capacity constrained.”

International growth.

Bravo’s management said they are signing a supply agreement in Canada, and that Mexico, the UK, and the Middle East are all growing markets.

New product– Bravo Breakfast Blenders.

Management announced that they designed this product with 7-Eleven, and that 7-Eleven actually came to them with this product idea. Bravo Breakfast Blenders (read our post here) are a 100% lactose free, low in sugar, high in protein, shelf stable, better for you beverage that will come out in November. They are essential meals on the go made with low fat milk, fruits, and flavorings.

Management has said that it will market this product in a well known health magazine.

Share dilution.

As I write this, Yahoo Finance lists Bravo Foods as having a market cap of about $76 million. However, this data is based on 110 million shares outstanding.

At the call, Bravo’s management stated that if all options and warrants were converted it would result in a worst case of 233 million shares outstanding. This could more than double the number of outstanding shares.

Management did say that they had an influx of cash as some of their warrants were converted into shares. However, they stated the company will need to continue to generate cash to finance their growth and will likely need to do so before November 1.

Management stated that they will not do anything to affect share price. Instead, they said they will arrange for “financing in a manner more consistent with a successful company.” They also said that they can get better financing deals now than they once could.