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Celsius's (NASDAQ:CELH) Q4 Sales Beat Estimates


Full Report / February 29, 2024

Energy drink company Celsius (NASDAQ:CELH) reported Q4 FY2023 results beating Wall Street analysts' expectations, with revenue up 95.2% year on year to $347.4 million. It made a GAAP profit of $0.17 per share, improving from its loss of $0.09 per share in the same quarter last year.

Celsius (CELH) Q4 FY2023 Highlights:

  • Revenue: $347.4 million vs analyst estimates of $331.5 million (4.8% beat)
  • Adjusted EBITDA: $65.2 million vs analyst estimates of $58.4 million (11.6% beat)
  • EPS: $0.17 vs analyst expectations of $0.18 (6.5% miss)
  • Gross Margin (GAAP): 47.8%, up from 44.4% in the same quarter last year
  • Market Capitalization: $15.7 billion

With its proprietary MetaPlus formula as the basis for key products, Celsius (NASDAQ:CELH) offers energy drinks that feature natural ingredients to help in fitness and weight management.

The MetaPlus formulation includes natural ingredients such as green tea extract, ginger, and guarana seed. Backed by clinical studies, the company states that this combination can enhance thermogenesis, a process that boosts energy and your body's metabolic rate.

Combining the MetaPlus cocktail with athlete and fitness influencer partnerships as well as fun flavors like ‘Arctic Vibe’ and ‘Prickly Pear Lime’, Celsius targets younger, health-conscious individuals who have sworn off soda because of its sugar content and who may be skeptical of more established energy drinks. Fitness enthusiasts, athletes, and those seeking to maintain or lose weight are core customers.

Celsius products can be found in major grocery stores, convenience stores, fitness centers, and nutrition retailers. Popular online marketplaces such as Amazon (NASDAQ:AMZN) sell Celsius products, and the company has its own official e-commerce site, launched in 2015. Consumers can not only buy Celsius products on the site but can locate stores that sell products, learn about the science behind the drinks, or apply to be a brand ambassador (the more Instagram followers, the better!).

Beverages and Alcohol

These companies' performance is influenced by brand strength, marketing strategies, and shifts in consumer preferences. Changing consumption patterns are particularly relevant and can be seen in the explosion of alcoholic craft beer drinks or the steady decline of non-alcoholic sugary sodas. Companies that spend on innovation to meet consumers where they are with regards to trends can reap huge demand benefits while those who ignore trends can see stagnant volumes. Finally, with the advent of the social media, the cost of starting a brand from scratch is much lower, meaning that new entrants can chip away at the market shares of established players.

Competitors that offer energy drinks or alternatives to energy drinks include Monster Beverage (NASDAQ:MNST), Rockstar Energy from PepsiCo (NASDAQ:PEP), and Coca-Cola Energy and Full Throttle from Coca-Cola (NYSE:KO).

Sales Growth

Celsius is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale. On the other hand, one advantage is that its growth rates can be higher because it's growing off a small base.

As you can see below, the company's annualized revenue growth rate of 116% over the last three years was incredible for a consumer staples business.

Celsius Total Revenue

This quarter, Celsius reported magnificent year-on-year revenue growth of 95.2%, and its $347.4 million in revenue beat Wall Street's estimates by 4.8%. Looking ahead, Wall Street expects sales to grow 37.6% over the next 12 months, a deceleration from this quarter.

Gross Margin & Pricing Power

Gross profit margins tell us how much money a company gets to keep after paying for the direct costs of the goods it sells.

This quarter, Celsius's gross profit margin was 47.8%, up 3.5 percentage points year on year. That means for every $1 in revenue, $0.52 went towards paying for raw materials, production of goods, and distribution expenses. Celsius Gross Margin (GAAP)

Celsius has great unit economics for a consumer staples company, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see above, it's averaged an impressive 45.9% gross margin over the last eight quarters. Its margin has also been trending up over the last 12 months, averaging 15.9% year-on-year increases each quarter. If this trend continues, it could suggest a less competitive environment where the company has better pricing power and more favorable input costs (such as raw materials).

Operating Margin

Operating margin is a key profitability metric for companies because it accounts for all expenses enabling a business to operate smoothly, including marketing and advertising, IT systems, wages, and other administrative costs.

In Q4, Celsius generated an operating profit margin of 17%, up 35.4 percentage points year on year. This increase was encouraging, and we can infer Celsius was more efficient with its expenses because its operating margin expanded more than its gross margin.

Celsius Operating Margin (GAAP)

Zooming out, Celsius was profitable over the last two years but held back by its large expense base. It's demonstrated mediocre profitability for a consumer staples business, producing an average operating margin of 5.5%. However, Celsius's margin has improved by 44.4 percentage points on average over the last year, an encouraging sign for shareholders. The tide could be turning.

EPS

Earnings growth is a critical metric to track, but for long-term shareholders, earnings per share (EPS) is more telling because it accounts for dilution and share repurchases.

In Q4, Celsius reported EPS at $0.17, up from negative $0.09 in the same quarter a year ago. This print unfortunately missed Wall Street's estimates, but we care more about long-term EPS growth rather than short-term movements.

Celsius EPS (GAAP)

Between FY2020 and FY2023, Celsius's EPS grew 2,036%, translating into an astounding 177% compounded annual growth rate. This growth is materially higher than its revenue growth over the same period and was driven by excellent expense management (leading to higher profitability) and share repurchases (leading to higher PER share earnings).

Wall Street expects the company to continue growing earnings over the next 12 months, with analysts projecting an average 31.1% year-on-year increase in EPS.

Key Takeaways from Celsius's Q4 Results

We were impressed by how significantly Celsius blew past analysts' revenue and adjusted EBITDA expectations this quarter. On the other hand, its EPS missed analysts' expectations. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The market was likely expecting more, and the stock is down 1.9% after reporting, trading at $66.42 per share.

Is Now The Time?

Celsius may have had a favorable quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

There are numerous reasons why we think Celsius is one of the best consumer companies out there. For starters, its revenue growth has been exceptional over the last three years. And while its brand caters to a niche market, its EPS growth over the last three years has been fantastic. On top of that, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits.

Celsius's price-to-earnings ratio based on the next 12 months is 64.9x. Looking at the consumer staples landscape today, Celsius's qualities as one of the best businesses really stand out, and there's no doubt it's a bit of a market darling. We don't mind paying a small premium for a high-quality business and would argue that it's often wise to hold them over the long term even if expectations are high, but we do note that there seems to be a lot of optimism priced into the stock.

Wall Street analysts covering the company had a one-year price target of $69.36 per share right before these results (compared to the current share price of $66.42).

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