The distribution partnership between Celsius Holdings Inc. and PepsiCo is already paying dividends as the performance energy drink maker beat analysts’ net revenue expectations for Q3 2022, reporting 98% year-over-year growth to $188.2 million in its latest earnings report this week.
The strong sales performance was marked by 112% growth in North America ($179.5 million), while international sales fell 17% to $8.7 million, driven primarily by a -21% decline in Europe with China and all other markets improving by 30%. Gross profit increased 109% to $78.7 million with margins of 41.8%.
However, earnings per share of $-2.46 missed analyst predictions and net loss attributable to common shareholders was $186.5 million. Results were also impacted by $155.4 million in termination expenses to CELSIUS’ former DSD distribution partners as the company transitions into the PepsiCo delivery network.
“Even with higher sales than originally forecasted in sales mix in the club channel, our margin guidance has stayed consistent for 2022 as we continue to optimize our supply chain and gain incremental efficiencies against rising inflation pressures,” CELSIUS CEO John Fieldly said in an earnings call yesterday. “In addition, with our transition from a significant number of independent distribution partners to the PepsiCo distribution network, this will allow our team to consolidate sales, marketing, distribution efforts with planned associated cost benefits, which we expect to recognize and leverage through 2023 and beyond.”
As the brand continues to onboard with PepsiCo, the company reported an 11% increase in ACV across the U.S. in MULO channel stores and is up 23% in convenience stores. The company added 60,000 new doors in the quarter – about 37,000 of which are in the convenience channel – bringing its total U.S. footprint to around 174,000 locations. Citing IRI data, the company said it has surpassed Bang to become the number three energy drink in MULO accounts with a market share of 4.9%, for the week ending October 23.
Additional non-tracked channels have also continued to perform well, Fieldly said; club channel sales in Q3 were over $34 million – up by over $20 million from Q3 2021 – and Amazon sales “hit a new quarterly record” of around $16 million.
The brand has also benefited from expansions in Walmart, while Kroger and Publix led incremental revenue growth in the grocery channel. Convenience channel sales grew 158% year-over-year, Fieldly added.
During the quarter, Fieldly said CELSIUS placed an additional 550 coolers in retail accounts, marking over 3,500 coolers placed since the beginning of 2021.
“We officially commenced our distribution partnership with PepsiCo subsequently to the third quarter with the distribution to most of our retail accounts transitioning as of October 1, 2022, while early initial track data on both ACV and items carried per store growth indicate impressive gains already gained and exceeding our actual expectations on both these tangible metrics,” he said. “In addition, the transition process with respect to our retail partners, as well as our consumers also have exceeded our initial expectations.”
On the call, CFO Jarrod Langhans noted that although CELSIUS did not officially begin distributing through PepsiCo until October, the company had already begun working with the conglomerate’s operations teams to begin placing CELSIUS in accounts across the country, easing the transition onto blue trucks.
The PepsiCo partnership has shifted some priorities for the company, however. According to Langhans, CELSIUS has delayed a plan to launch its FAST bar brand – currently sold in Finland – in the U.S. as the focus remains on building out the core energy drink line.
As well, the company agreed to settle a class action lawsuit targeting claims made on its cans regarding flavoring ingredients for $7.8 million.
“Although we believe that our claims in the can are accurate, we believe that the cost, energy and focus that would have been needed was better utilized on transitioning over to Pepsi and growing our business,” Langhams said. “In regards to the SEC review, we do not have an update, but we’ll continue to cooperate with any inquiries or requests that are received.”
Looking ahead, Fieldly said the company is continuing to focus on increasing its share of the energy drink category and, during the call’s Q&A portion, noted that recent disruptions to Bang’s distribution amid its ongoing Chapter 11 process has opened up some new opportunities for the brand.
“There is obviously disruption that’s out there with Bang and the distribution network that they have exited and what they’re putting together,” Fieldly said. “So there’s opportunities that are really coming out of normal course of resets that the team is vigorously working to take advantage of, as well as every other brand in the set in the energy category…. When you look at what we were able to capture with Coke Energy when that was going through and being delisted in many retailers, we’re able to take advantage of a lot of that opportunity and gain incremental shelf space on that change.”