- The Orca Fin
- Posts
- Celsius Catches Cold
In partnership with
You have seen me deconstruct 10Qs and 10Ks. Now let’s deconstruct an earnings call transcript and explain why I do the QoQ sequential check. Consider this post as more educational than actionable.
So, I was a big believer in Celsius (CELH) and we had a beautiful run into the middle of the year. It made a double top and then it tanked. Were there warning signals?
Could a diligent investor have figured out there was a problem with CELH? It was there in the numbers, for sure. See for yourself. The inconsistency in revenue growth and the fluctuations would scare the daylights out of even the most discerning investor.
CELH - Income Statement Highlights
Beyond the Numbers
Here is where it gets interesting with CELH: listen to the most recent quarter’s earnings call. It left me perplexed. It came across as if the CEO was gaslighting.
The big reason I was all gungho about CELH was its partnership with Pepsi. Now that massive concentration has come back to bite them in the arse. It seems like Pepsi is unstocking CELH stuff to the point that it is hurting Pepsi’s numbers.
The problem doesn’t seem to be localized to CELH, there is a general problem with the economy.
When you look at the third quarter that we're reporting on today, it was troubled with traffic. We saw a lot of our major retailers talk about reduced traffic and convenience. We need traffic to come back.
There is more and John gave it away. When you hear a CEO say the following, there is a problem. Judge for yourself.
Revenue was further impacted by reduced unit velocity and softer macroeconomic conditions.
What about pricing? Before we get to that, do you know you are not supposed to consume more than one Monster can in a day? I am not making this up, read the warning label.
John goes on and on about incentive programs with Pepsi to the point of feeling sorry about having to do it.
We believe that our incentive program with Pepsi featuring priority periods and aligned resources should provide additional tailwinds for us going forward.
It gets worse. According to John, the whole energy drink space is growing at roughly 2%. Who gets the market share? However, John kept ranting about the promotional activities with Pepesi (that is discounts for you).
We do have a variety of promotional activities planned for Q4 as well. The category is highly promotional as we know.
There are some positives though.
The Positives
International expansion is big for CELH. In October they expanded into Australia and New Zealand.
As for the deal with Pepsi, consider the following:
We believe that our incentive program with Pepsi featuring priority periods and aligned resources should provide additional tailwinds for us going forward.
CELH recognizes revenue when the product is shipped to a distributor like Pepsi. Pepsi is clearing inventory. What happens when they restock? wink wink.
There is also this small thing about vertical integration. CELH bought their long-term copacker. You can drive cost optimization with stuff like this.
We believe that vertical integration like this co-packer acquisition is a capital efficient growth driver and another way we are investing in our long-term vision to become the leading energy drink brand in the United States.
Concerns
Pricing power is not there.
In regards to pricing, we have discussed, talked about that on prior calls. We did roll out a price increase. But we have said we're being cognizant of that, that we don't expect significant benefit into 2025. So we expect as promotional activities and opportunities exist, where we can gain leverage, we will. But we're not – we have not provided the amount, nor have we provided any additional guidance that we will have additional leverage or pricing flow through our financial statements in ‘25. We're being conservative on that.
The economy is in a troubled state.. CELH is certainly concerned about pricing. However, there might be a trade here. Pepsi has to restock and CELH will record those as revenue. Your guess is as good as mine as to how to time it.
We do have a variety of promotional activities planned for Q4 as well. The category is highly promotional as we know.
You can now see why an innocuous earnings call gives so much insight into the economy.
Invest Wisely with The Daily Upside
In this current market landscape, we all face a common challenge.
Many conventional financial news sources are driven by the pursuit of maximum clicks. Consequently, they resort to disingenuous headlines and fear-based tactics to meet their bottom line.
Luckily, we have The Daily Upside. Created by Wall Street insiders and bankers, this fresh, insightful newsletter delivers valuable market insights that go beyond the headlines. And the best part? It’s completely free.