Celsius Underwhelms in US, but International Sales are Improving

[bulwnkl]

Revenue increased 402.0 from 325.9 or 23.4% YOY.

Earnings per share was $0.28, 65% YOY helped by lower aluminum and transportation costs.

Changes in revenue from inventory days on hand from Pepsi (aka largest distributor) adversely affected revenue.

International revenues are improving from $15.1M to $19.6M. Yay. I was hoping to see traction here.

Margins improved to 52.0% from 48.8% a year ago, largely from aluminum price and transportation cost decreases.

Conference Call Notes:

Celsius does not provide market share or revenue projections. They excelled at NOT providing market share and volume information. In their further pursuit of not providing information, they did an admirable job of NOT clarifying their current situation. They deserve an award for how well they obfuscated the market share data and growth. I couldn’t make heads or tails out of their discussion, and I have decades of experience with consumer product market share data! If this discussion board offers a 2024 Muddy Water Award, this conference call would be my nomination.

But there are some things that I can tell you from the conference call.

1. Red Bull’s new introductions have bit into Celsius’ market share. You can see them below. Important to note, Celsius contains 200 mg caffeine per can (2 cups of coffee equivalent), and Red Bull gives 80 mg caffeine per can. The combinations of new flavors and heavy promotion caused some Celsius drinkers to give them a try. People who make the switch will be dragging.
   

   
   2. Celsius continues to increase the numbers of flavors. Since Celsius offers 27 sugar free flavors and Red Bull offers two, it might sound crazy, but it’s very beneficial. Retailers CRAVE new news, and consumer product companies work very hard to deliver them. This quarter Celsius announced Sparkling Cola and Sparling Green Apple Cherry (I think was the other one).

2. Consumers may be taking a pause. The liquid refrigerated beverage market was up 2% YOY (this includes, coffee, sports drinks, juice, and energy drinks), which is a significant deceleration from earlier quarters.

3. The shelf reset is complete, and real estate is up by about 35%. Now that is done, they can start the promotions to recapture market share. They also said that in store sales people have been increased significantly (yeah, this is vague, but it’s all I can say).

My impressions of the call were that the team seemed competent, but lacked the will or ability to articulate the current situation. I was disappointed with the call, but I am keenly interested to see how promotions that are combined with shelf space pan out, and if the international sales (4.9% of all sales) pick up steam.

If I were buying today, I’d open a 3% position. I have a 5.7% position, and I will be happy to continue to hold. As I write this, Celsius Holdings is up 3.75%. Why? Maybe the international sales are a little bit of a positive surprise. Certainly, the decelerating revenue growth and stagnating market share are concerning.

With all of that said, the situation of getting real estate then ramping up promotions is as normal as the sunrise. We could well see market share and sales sky rocket. We could see the effects of Pepsi’s inventory adjustments go away. And we might even see Pepsi purchase Celsius. Because of this, I can’t imagine letting go my admittedly dwindling holding before next quarter.

Best,

bulwnkl

[wsm007]

I agree with your take. Here are some additional thoughts:

• Revenue of $402m was better than the $393m consensus, helped by the Pepsi inventory headwind coming in at the lower end of the $20-$30m range the CFO previously gave.
• Some good leverage. Revenue up 23%. Gross margin up 32%. Diluted EPS up 65%, but revenue growth decelerated a lot from 112% last year same quarter. However both Q1 and Q2 this year were hit by Pepsi optimising/destocking, so on a steady state view, revenue growth should look better going forward.
• The category slowed a lot, driven by a switch to water and other drinks, but also due to the consumer being more stretched. Perhaps this is not only a blip and there is a secular move away from energy drinks. If yes, the thesis is dead. But Pepsi management and Celsius management think this is temporary.
• Red Bull and Monster started defending their turf successfully - both with innovation (i.e products similar to Celsius) and decreased pricing. The result was that both maintained/kept market share and Celcius’ market share gains were halted in Q2, and then decreased in the last couple of weekly reads of the data. A ton of questions focused on understanding the market share dynamics. I thought this graph from their deck showed the dynamics the best:
  
  
• Celsius has up till now not followed the pricing decrease. However they had more success/faster growth in Amazon and Club than retail where pricing is generally lower, so perhaps they will need to cut pricing in future q’s. This was the Amazon revenue over time, which outperformed as you can see from that strong sequential growth (in bold):

Amazon $m	Q1	Q2	Q3	Q4	Q1 QoQ	Q2	Q3	Q4
2021			20.6	11.0				-47%
2022	13.8	13.6	15.5	15.0	25%	-1%	14%	-3%
2023	21.8	28.2	22.2	27.9	45%	29%	-21%	26%
2024	28	39.9			0%	43%

• They had a couple of operational headwinds vs what they planned, most notably delayed shelf resets. This may have contributed to the market share decline of the last weeks.
• Margins improved nicely but they may need to hand in some of that in the next couple q’s as they need to invest in SGA & prob pricing to win against the two incumbents.
• International looks promising but not yet firing: up 29% yoy.
• They are confident in the direction of travel and are aiming to gain market share again and are hopeful/confident that that will happen.

→ Lots of headwinds…the market shrinking is probably the most problematic one for me. If that turns, this could be a very good investment. If not, it’s a fight against well entrenched incumbents in a shrinking market, which won’t end well.

-wsm

[Graydrake]

Nice report.

As a side note we spent a week at our cottage with 6 twenty something grandkids last week. One in college and 5 recently out.

All liked Celsius, but the consensus was cost was a heavy driver to other alternatives, mostly out of the specific sector. In their multiple trips to the store one 12 pack purchased

Graydrake