Shares of an energy drink company Celsius companies (NASDAQ: CELH) crashed on Wednesday after the company reported financial results for the third quarter of 2024. The results disappointed investors at both the top and bottom levels. As of 11:45 a.m. ET, Celsius shares were down 10% and had hit new 52-week lows.
The headlines for Celsius were disturbing. Third quarter revenue fell 31% year over year to $266 million. And net income fell a whopping 92% to $6.4 million. There’s no way to put a positive spin on these numbers, but they do have a reasonable explanation.
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Celsius moved its distribution to its partner, PepsiCo. Temperatures were growing so quickly at the time that Pepsi ordered more inventory than necessary because it could not predict demand and wanted to keep products on the shelves. Now Pepsi orders less because it uses the inventory it already has on hand.
This is not ideal. That said, Celsius can still track sales in multi-point retail locations (such as convenience stores and drugstores). These sales were still up 7% year over year, meaning consumers are still buying Celsius’ products. But the sales are not currently reflected in the company’s financial results as Pepsi is correcting the inventory problem.
On the one hand, Pepsi’s stock will stabilize at some point, and Celsius’ earnings will therefore more accurately reflect retail sales. Plus, the company is still gaining market share in energy drinks, which is important. Moreover, it is still a profitable business even with the current headwinds. In short: there is reason for optimism.
On the other hand, the energy drink category is currently tepid, with other smaller brands gaining market share as well. That leaves investors wondering how much of a moat Celsius has in the long term.
Personally, I believe there are better days ahead for Celsius. But I don’t blame investors for their concerns in light of the third quarter results.
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