Gerald Pascarelli

Gerald Pascarelli asked about the confidence in Vital Farms' long-term EBITDA targets, given the current 12% expected margin for the year, which is 400 basis points below the 2030 midpoint. He inquired about the specific levers available to drive operating leverage and achieve those targets, and if the targets embed a certain range of rate increases in a more normalized environment.

Answer

Thilo Wrede, CFO, clarified that the 12% implied margin for the year is within the 12-14% EBITDA margin range previously targeted for 2027, indicating the company is on track for its 2030 goals. He emphasized that as Vital Farms grows, it continues to benefit from scale, particularly in operating expenses, with SG&A scaling efficiently. While volume-driven growth impacts gross margin, operating expenses are not growing at the same rate, leading to scale benefits.

Gerald Pascarelli sought clarification on whether Alani's Q4 inventory benefit constituted a pull-forward in revenue and asked for a comparison of Alani's 102% shelf space growth to Core Celsius's transition in 2022, considering similarities, differences, and the current competitive landscape.

Answer

Chairman and CEO John Fieldly clarified that Alani's Q4 load-in was more an opportunistic move, leveraging Pepsi's distribution capabilities, rather than a pull-forward, as evidenced by rapid depletion of LTOs. He noted that while Celsius's 2022 expansion benefited from Bang's lost space, Alani's gains are driven by overall category expansion and increased female consumption, with retailers expanding energy shelf presence due to the portfolio's strong momentum and Pepsi's distribution confidence.

Gerald Pascarelli inquired about the significant negative delta between Celsius's reported 44% core growth and the 13% scanner growth in measured channels, specifically asking about the mechanics driving this variance and the impact of the prior year's inventory optimization program.

Answer

Chairman and CEO John Fieldly and CFO Jarrod Langhans explained that the variance was due to numerous factors, including timing, sequencing, promotional changes, and a lower base from the prior year's inventory optimization. They reiterated that the 13% scanner growth is a good barometer of business health and that the 'Live Fit Go' campaign is driving excitement for 2026.

Gerald Pascarelli asked about the significant negative delta between core Celsius's reported 44% growth and the 13% growth seen in measured channels, inquiring if a lower add-back to the depressed year-ago base period was a factor and seeking an explanation for the wide variance.

Answer

CFO Jarrod Langhans explained that the variance was due to numerous factors including product mix, promotions, timing of acquisitions, customer orders, and a lower net benefit from the prior year's inventory optimization program. CEO John Fieldly added that the 13% scanner growth is a good barometer of business health, and the 'Live Fit Go' campaign is driving excitement for 2026.

Gerald Pascarelli questioned the revenue contribution from the Costco channel during the quarter, specifically asking if there was a benefit from a promotional program.

Answer

CEO John Fieldly confirmed that the club channel is a significant and growing part of the business and that a promotional activity at Costco provided a sales uplift in the quarter. CFO Jarrod Langhans quantified this, stating that the portfolio's sales in the club channel grew approximately 17% in Q2, partly driven by that specific promotion.

Gerald Pascarelli asked about management's level of confidence that core Celsius revenue trends will improve, given numerous tailwinds like new innovation, shelf space gains, easier comps, and a new marketing campaign.

Answer

CEO John Fieldly expressed strong conviction, stating that the tailwinds are favorable. He noted that the toughest year-over-year revenue comparisons will be over in the next 4-5 weeks, leading to much easier comps starting in June. He cited improving velocity, strong brand alignment with consumer trends, better gross profits, and the leverage of a portfolio strategy as key reasons for his confidence in accelerating growth for the core Celsius brand in the back half of the year.

Gerald Pascarelli asked about the rationale and timing of the Alani Nu acquisition, questioning if the recent slowdown in Celsius's core portfolio expedited the decision to pursue a large-scale M&A deal.

Answer

CEO John Fieldly asserted strong confidence in the core Celsius portfolio and its 2025 innovation plan, stating the slowdown did not expedite the deal. He framed the acquisition as a strategic opportunity to build scale, noting the combined entity will hold approximately 16% market share. He emphasized that the deal is a natural fit to gain leverage through the infrastructure Celsius has built, including its recently acquired co-packing facilities.

Gerald Pascarelli asked for Philip Morris International's perspective on New York's proposed significant excise tax increase on nicotine pouches, considering the potential for other states to adopt similar measures and the impact on the promotional and competitive landscape.

Answer

CFO Emmanuel Babeau stated that Philip Morris International is aware of the proposal and views it as counterproductive to public health benefits, as it undermines the objective of providing better alternatives to smokers. He noted that U.S. states often act independently, but reiterated that such a shortsighted approach to excise taxes on vastly better products is a wrong idea.

Gerald Pascarelli from Needham & Company asked for an explanation of the currency dynamics in Q2, where a previously guided benefit did not materialize despite a weaker U.S. dollar, and how to think about the currency tailwind going forward.

Answer

CFO Emmanuel Babeau attributed the variance to the significant negative impact of the Swiss franc. He explained that the company has major cost exposure in Switzerland, and the franc's volatility at period-end led to transactional losses that largely offset the benefits from a weaker dollar against the euro.

Gerald Pascarelli asked CEO Rahul Goyal if bolt-on M&A or a more aggressive push into Beyond Beer would become a more significant part of Molson Coors' future capital allocation strategy. He also asked CFO Tracey Joubert if there's a specific spot price threshold for the Midwest premium that could jeopardize the company's PBT guidance for the year.

Answer

CEO Rahul Goyal confirmed that M&A capital deployment would likely lean more towards the Beyond Beer space to fill portfolio gaps, though beer acquisitions would be considered if they augment the business and drive growth. CFO Tracey Joubert explained that while an extensive hedging program is in place, the Midwest premium is a difficult and expensive commodity to hedge, with limited liquidity. She noted it remains a headwind, with October prices at an all-time high, but did not specify a PBT risk threshold.

Gerald Pascarelli asked if bolt-on M&A or a more aggressive push into beyond beer will become a larger part of the capital allocation strategy, and for CFO Tracey Joubert, if there's a spot price threshold for the Midwest premium that could put PBT guidance at risk.

Answer

CEO Rahul Goyal confirmed that deploying M&A dollars will likely lean more towards the beyond beer space to fill portfolio gaps, though beer ideas that drive top and bottom-line growth will also be considered. CFO Tracey Joubert stated that while the Midwest premium continues to increase and hit an all-time high in October, the company has an extensive hedging program to mitigate volatility. She noted it's a difficult and expensive commodity to hedge, but did not provide a specific price threshold for PBT guidance risk.

Gerald Pascarelli of Needham & Company, LLC asked about capital allocation, questioning if persistent volume declines might necessitate larger-scale or more aggressive M&A to accelerate the portfolio's shift into more attractive beverage subsectors.

Answer

President and CEO Gavin Hattersley reaffirmed the company's commitment to its 'string of pearls' M&A strategy. He noted that the company's strengthened balance sheet now allows for 'bigger pearls,' citing the recent acquisition of Fever Tree's U.S. business as a prime example of this evolved approach, representing an investment well north of $100 million.

Gerald Pascarelli of Needham & Company sought to clarify the assumptions regarding share repurchases that are embedded in the high single-digit underlying EPS growth guidance for 2025.

Answer

CFO Tracey Joubert clarified that the guidance assumes, at a minimum, repurchases consistent with their systematic 10b5-1 plan. She also pointed out that EPS growth is influenced by other factors, including a lower effective tax rate outlook for 2025 (22-24%) and foreign exchange impacts, and that the pace of buybacks could be moderated by capital needs for investments like Fever-Tree.

Gerald Pascarelli inquired about the feasibility and timeline for rerouting Brazil shipments to international markets if tariffs remain, and whether such a move is practical for the entire supply chain. He also asked if trade discussions indicate optimism for a lower negotiated tariff rate from Brazil, potentially influenced by U.S. inflation from Brazil coffee.

Answer

CFO Corey Baker explained that rerouting involves developing new packaging and obtaining factory/retailer validations, a process that could take 3-9 months. He stated they aim to reduce the weighted average tariff rate from 23% to near 20% by the end of next year if 50% Brazil tariffs persist, but may not fully exit Brazil for U.S. demand due to strategic reasons like shorter East Coast lead times. CEO Martin Roper confirmed hearing public discussions from both sides about making near-term progress on trade deals, specifically hoping for relief on the 40% reciprocal tariff.

Gerald Pascarelli asked about the process and timeline for rerouting shipments from Brazil to international markets if tariffs remain in place, and whether it's practical to reroute all Brazil shipments given the current supply chain. He also inquired if trade discussions indicate optimism for a lower negotiated tariff rate from the 50%, specifically considering the impact of Brazil coffee inflation on the U.S.

Answer

Corey Baker, Chief Financial Officer, explained that rerouting shipments involves developing new packaging and obtaining factory/retailer validations, a process that can take three to nine months. He noted that efforts began in August/September, with a goal to reduce the weighted average tariff rate from 23% to around 20% by the end of next year, though some sourcing from Brazil for the U.S. may continue for strategic reasons like shorter lead times. Martin Roper, Chief Executive Officer, confirmed hearing public discussions from both sides about making near-term progress on trade deals, expressing hope for relief on the 40% reciprocal tariff.

Gerald Pascarelli asked how the company plans to balance the growth of its consistent legacy Stoker's MST business while prioritizing the modern oral rollout. He also requested any early consumer learnings from the new pouch brands.

Answer

CEO Graham Purdy highlighted a strong synergy, as there is significant overlap between stores targeted for Modern Oral and the existing Stoker's MST portfolio, enabling cross-selling. He added that Stoker's MST continues to have runway for growth. CRO Summer Frein shared that consumer feedback on the pouches has been "incredibly positive," citing the variety of nicotine strengths, mouthfeel, and moisture as key differentiators driving high reorder rates.

Gerald Pascarelli from Needham & Company inquired about the strategy for managing growth in the legacy Stoker's MST business while prioritizing the modern oral rollout. He also asked for any early consumer feedback or learnings from the launch of the new pouch brands.

Answer

CEO Graham Purdy explained that a strong overlap exists between Stoker's MST retail locations and target stores for modern oral, creating cross-selling synergies. He added that the legacy MST business remains strong with continued growth opportunities. CRO Summer Frein shared that consumer and retailer feedback on the new pouch brands has been 'incredibly positive,' highlighting unique product attributes and strong reception at promotional events like the PBR World Finals.

Gerald Pascarelli of Needham & Company asked how the company balances driving growth in its consistently performing legacy Stoker's MST business while simultaneously prioritizing the early-stage rollout of its modern oral products. He also requested any early learnings or feedback from consumer reception of the new pouch brands.

Answer

CEO Graham Purdy explained that there is a strong strategic overlap between stores targeted for Modern Oral and the legacy Stoker's MST portfolio, creating cross-selling synergies that benefit both. He added that Stoker's MST continues to have a significant growth runway. Chief Revenue Officer Summer Frein shared that consumer and trade feedback on the pouch brands has been overwhelmingly positive, highlighting the products' unique nicotine strengths, mouthfeel, and moisture, which is validated by increasing reorder rates and strong engagement at events like the PBR World Finals.

Gerald Pascarelli pointed out that while ON! volume growth was strong, the brand lost category share, and he asked about initiatives to protect its position. He also questioned if the updated EPS guidance accounts for potentially higher investment spending behind ON! in the second half of the year.

Answer

CEO Billy Gifford attributed ON!'s performance to a focus on brand equity and targeted trial inducement via RGM analytics, cautioning against reading too much into a single quarter's share data due to shipment timing. CFO Sal Mancuso confirmed that the full-year guidance contemplates continued investment to support ON!'s trial, awareness, and conversion, as well as the broader smoke-free product pipeline.

Gerald Pascarelli requested clarification on the timing of a $41 million operating income impact in the wine business and the cadence of the associated $100 million in cost savings.

Answer

CFO Garth Hankinson clarified that the $41 million impact will be spread throughout the fiscal year rather than hitting in a single quarter. Regarding the cost savings, he stated that of the $100 million for Wine & Spirits, approximately $55 million is expected in fiscal '26, with the full run-rate benefit being realized in fiscal '27 and '28.

Gerald Pascarelli asked about the long-term growth runway for Sun Cruiser, its initial repeat purchase rates, and the company's confidence in cycling its aggressive 2025 rollout.

Answer

CEO Michael Spillane expressed strong confidence in Sun Cruiser as a long-term portfolio contributor, stating they are applying lessons learned from the Truly launch to ensure a thoughtful and sustainable rollout. While not sharing specific repeat rates, he noted the ramp of the business has been solid and they are supporting it with new offerings like a Lemonade variety pack.

Gerald Pascarelli asked about the decision to enter the hemp-derived THC market, questioning the timing and the company's view on its impact on traditional cannabis sales, as well as the planned distribution channels.

Answer

Executive Chairman Boris Jordan explained that the entry follows a three-year effort to develop a fully compliant and commercially viable supply chain for safe, tested products. He stated that Curaleaf believes the hemp-derived market is a multi-billion dollar opportunity that is too large to ignore. The company plans to launch with edibles and beverages, distributing through traditional national distributors in compliant states.

Gerald Pascarelli of Wedbush Securities inquired about Green Thumb's gross margin performance, which exceeded expectations, seeking clarity on the cost environment and the outlook for margins.

Answer

President Anthony Georgiadis acknowledged the strong year-over-year margin improvement, attributing it to team execution. He noted that while quarterly margins are difficult to predict amidst price compression, the company has multiple levers to maintain profitability and is focused on long-term, market-by-market cash flow generation.

Gerald Pascarelli of Wedbush Securities asked for updated thoughts on the New York adult-use market rollout and its overall opportunity, noting the negative near-term sentiment and the state's strategic importance to Cresco Labs, particularly after the Columbia Care acquisition closes.

Answer

CEO Charles Bachtell acknowledged the widespread concern and lack of clarity surrounding New York's rollout but highlighted recent positive developments and increased regulatory engagement. He drew a parallel to the broader cannabis industry, stating that despite near-term challenges, the long-term thesis for New York as a top global market remains unchanged. Bachtell emphasized that the responsibility is on operators like Cresco to work with regulators to establish a viable and successful market structure.

Gerald Pascarelli from Cowen inquired if the mid-teens gross margin target accounts for VFU cost reductions and asked about capital allocation priorities for 2022, specifically regarding M&A versus funding existing TTK partnerships.

Answer

CFO Timothy Oakes confirmed that VFU cost savings are factored into the mid-teens margin guidance but won't have a substantial impact due to the mix of sales. He expects margins to lift sequentially as high-margin recurring revenue begins in late 2022. CEO Raymond Chang added that M&A in extraction is largely complete, and the primary focus for capital deployment will be funding high-return TTK projects, while also seeking leverage through financing partners.