Q3 2024 Earnings Summary
- Celsius is well-positioned to capitalize on the growing sugar-free energy drink market, with over 50% of the category now sugar-free, and the company's products aligning with consumer preferences for better-for-you options.
- Strengthened partnership with PepsiCo is expected to drive growth, entering its third year with more cohesive approaches, increased availability, and expanded placements through aligned incentives and collaborative efforts.
- International expansion into new markets presents significant growth opportunities, with launches in Australia, New Zealand, the UK, Ireland, and France, partnering with strong distributors to bring Celsius to more consumers globally.
- Potential negative impact of up to $15 million in Q4 due to ongoing inventory and sales challenges, indicating continued uncertainty in performance. The company acknowledges that depending on how November and December turn out, there could be pressure on the quarter's results.
- Reduced consumer traffic and challenges in retail channels may negatively impact sales growth. The company noted that the third quarter was troubled with traffic, with reduced traffic in convenience stores, and emphasized the need for consumer traffic to return.
- Possible declining market share due to increased competition, as peers are employing similar strategies with promotions and innovations. The company may start to see year-over-year declines in market share if current trends persist.
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Inventory Levels and Q4 Outlook
Q: Are inventories with Pepsi aligned; could there be a $15 million headwind in Q4?
A: The company is seeing a tighter correlation between sell-in and sell-through in Q4 compared to Q3, but alignment isn't fully matched yet. Depending on November and December trends, there could be up to a $15 million sales pressure or a slight benefit. -
Market Share and Consumer Trends
Q: How can Celsius regain market share and address weaker performance in convenience stores?
A: Since peaking in May, the company faced challenges like reduced foot traffic in convenience stores. They aim to close this gap by increasing availability, securing better placements, and disrupting the path to purchase. Confidence remains strong in the sugar-free and better-for-you movement driving growth. -
New Incentive Structure with Pepsi
Q: How will the new incentive structure with Pepsi drive category acceleration in 2025?
A: The enhanced program with Pepsi focuses on priority periods and deeper alignment. This collaboration aims to expand placements, increase availability, and get Celsius into more consumers' hands, thereby driving growth in the category. -
Guidance Provision
Q: Is Celsius considering providing formal guidance?
A: The company is not providing forward guidance at this time, citing many variables and dynamics affecting outcomes. -
International Expansion Plans
Q: Will Celsius expand internationally more aggressively, and is the right team in place?
A: Celsius announced expansions with partners like Suntory in the U.K. and Ireland, and entries into Australia, New Zealand, and France. They see significant international opportunities but are cautious about timing and sequencing. They're enhancing operations to support global growth. -
Competitive Landscape
Q: How is Celsius adapting to increased competition from Red Bull, Monster, and Ghost/KDP?
A: The increased focus on sugar-free offerings by competitors underscores the opportunity for Celsius in this space. They plan to leverage their strong position in better-for-you products and view competition as a chance to expand over the coming years. -
Pricing Actions
Q: Has Celsius communicated any price increases to the trade?
A: Celsius has implemented a price increase but is cautious about expecting significant benefits in 2025, acknowledging that promotional activities might offset gains. -
Balance Sheet and Use of Cash
Q: How will Celsius deploy its cash; can we expect more vertical integration?
A: The company's strong cash position allows them to be opportunistic. The acquisition of Big Beverages enhances flexibility and helps optimize their orbit model. While they prefer being asset-light, they will consider opportunities offering good ROI. -
Evolving Execution Playbook
Q: How is Celsius adjusting its strategy for next year amid increased competition?
A: Focusing on three growth drivers—attracting new consumers, increasing availability, and boosting consumption occasions—they plan to leverage their Pepsi partnership and implement strategies to drive category growth and disrupt the path to purchase. -
Q4 Sales Expectations
Q: Is it fair to estimate Q4 sales by adjusting scanner data for a $15 million headwind?
A: Yes, that's a fair approach according to the company. -
Visibility on Inventory Dynamics
Q: How does your current visibility on inventory compare to earlier this year?
A: They have good visibility and are working closely with partners. While Q3 involved significant optimization, Q4 is more influenced by category trends than optimization efforts. -
Shelf Space and Resets
Q: How much of the 2025 shelf space is set, and how do you see competition affecting it?
A: Positive feedback from retailers gives confidence in gaining additional shelf space and better placements in 2025. They view competition and potential distribution changes as opportunities. -
Plans to Update on Inventory Impact
Q: Will you update us on inventory impact as the quarter progresses?
A: They're monitoring trends and providing their best estimates but haven't specified plans for future updates similar to Q3. -
Consumer Behavior and Traffic
Q: What consumer behavior changes are needed to accelerate category growth?
A: Increased foot traffic and consumption occasions are needed. While convenience store traffic was down, the better-for-you segment and sugar-free movement remain strong tailwinds. -
Promotional Activities and Innovation
Q: What's different about your promotions and innovations now compared to summer?
A: They're implementing various strategies to drive new category consumption, such as activating Gen Z college programs, leveraging the sugar-free trend, and increasing availability through their Pepsi partnership.