Coconut water company The Vita Coco Company (NASDAQ:COCO) missed Wall Street’s revenue expectations in Q3 CY2024, with sales falling 3.7% year on year to $132.9 million. On the other hand, the company’s outlook for the full year was close to analysts’ estimates with revenue guided to $510 million at the midpoint. Its GAAP profit of $0.32 per share was 22.5% above analysts’ consensus estimates.
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Vita Coco (COCO) Q3 CY2024 Highlights:
- Revenue: $132.9 million vs analyst estimates of $138.9 million (4.3% miss)
- EPS: $0.32 vs analyst estimates of $0.26 (22.5% beat)
- EBITDA: $22.93 million vs analyst estimates of $20.43 million (12.2% beat)
- The company slightly lifted its revenue guidance for the full year to $510 million at the midpoint from $505 million
- EBITDA guidance for the full year is $82 million at the midpoint, above analyst estimates of $79.31 million
- Gross Margin (GAAP): 38.8%, down from 40.7% in the same quarter last year
- Operating Margin: 15.5%, down from 17% in the same quarter last year
- EBITDA Margin: 17.3%, down from 19.5% in the same quarter last year
- Free Cash Flow Margin: 6.7%, down from 31.8% in the same quarter last year
- Sales Volumes fell 3.1% year on year (5% in the same quarter last year)
- Market Capitalization: $1.75 billion
Martin Roper, the Company’s Chief Executive Officer, said, “Our sales performance in the quarter was affected by our inventory flow, which was lower than we had planned due to the difficulty in obtaining ocean freight containers that started in the second quarter. We are pleased that we have weathered these shortages and, in late September, saw our product flow and availability in market improving. Based on continued strong category growth and improved inventory levels, we are raising our full year guidance for net sales and adjusted EBITDA."
Company Overview
Founded in 2004 followed by a 2021 IPO, The Vita Coco Company (NASDAQ:COCO) offers coconut water products that are a natural way to quench thirst.
Beverages, Alcohol and Tobacco
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 rise of cannabis, craft beer, and vaping or the steady decline of soda and cigarettes. 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.
Sales Growth
A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years.
Vita Coco is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefitting from economies of scale.
As you can see below, Vita Coco grew its sales at a decent 10.9% compounded annual growth rate over the last three years as consumers bought more of its products.
This quarter, Vita Coco missed Wall Street’s estimates and reported a rather uninspiring 3.7% year-on-year revenue decline, generating $132.9 million of revenue.
Looking ahead, sell-side analysts expect revenue to grow 11.3% over the next 12 months, similar to its three-year rate. This projection is admirable and illustrates the market sees some success for its newer products.
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Volume Growth
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
Vita Coco’s average quarterly volume growth was a robust 6.1% over the last two years. This is good because meaningful volume growth is hard to come by in the stable consumer staples sector. 
In Vita Coco’s Q3 2024, sales volumes dropped 3.1% year on year. This result was a reversal from the 5% year-on-year increase it posted 12 months ago. A one quarter hiccup shouldn’t deter you from investing in a business. We’ll be monitoring the company to see how things progress.
Key Takeaways from Vita Coco’s Q3 Results
We were impressed by how significantly Vita Coco blew past analysts’ EBITDA expectations this quarter. We were also excited its gross margin outperformed Wall Street’s estimates. Looking ahead, guidance was solid. On the other hand, its revenue unfortunately missed analysts’ expectations. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 10.4% to $34 immediately following the results.
Vita Coco had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment.We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.