Celsius Holdings: Q2 Earnings Preview

With Celsius Holdings, Inc. (NASDAQ:CELH) expected to report its Q2 results in the second week of August, I wanted to preview its earnings. The stock is up over 50% since I wrote that its new distribution with PepsiCo, Inc. (PEP) was a game changer and placed a "Buy" rating on the stock.

Company Profile

As a refresher, CELH is known for its namesake energy drink, which the company claims helps burn calories by increasing a consumers' metabolism. The company has funded studies and published them in various scientific journals. Its drinks come in an assortment of flavors, as well as in carbonated and non-carbonated varieties, as well as several flavors that are sweetened with stevia.

In addition to its namesake product, it also sells liquid supplements, drink powders, as well as protein bars CELH also sells pre- and post-workout lines of products under the names Celsius Heat and Branch Chain Amino Acids, or BCCA+Energy.

The company's products can be found in grocery stores, health clubs, convenience stores, mass market retailers, vitamin specialty shops, drug stores and via e-commerce sites.

The company doesn't own its own production facilities, instead relying on third-party co-packers, who charge the company a fee for each case produced. CELH supplies most of the ingredients and packaging materials.

Earnings Preview

For the second quarter, analysts are looking for the company to grow revenue 76.3% to $275.7 million. They are expecting adjusted EPS to climb 175% to 28 cents. CELH doesn't provide formal guidance. The company grew revenue 95% in Q1, so analysts are expecting a slight deceleration.

Analyst expectations for Q2 revenue have been on the rise, increasing 19% over the past 12 months. Estimates are up nearly 12% since early May.

Q2 EPS estimates, meanwhile, are up a penny over the past year. However, they are a down a penny from early May.

Besides its popular demand, CELH growth is stemming from its new distribution deal with PEP. As a result, the company's ACV is now 95.4% versus 69.5% a year ago. That's a big jump, with a lot of that expansion coming in the convenience store category. The company also recently expanded in BJ's nationwide and began a national rollout with Aldi in Q1.

While CELH has jumped up to be the #3 energy drink company in the U.S., most of its gains have been by expanding the category, not just taking share. At its Annual Meeting last month, the company noted that according to Numerator, that 68% of its volume was incremental to the category, with 24% of that coming from bringing in new consumers to the energy drink category and 44% from increased consumption of its existing users.

The company is also expanding its number of flavors to help bring in customers. At its Annual Meeting, CEO John Fieldly said:

"Innovation is key to our portfolio as we capitalize on today's health and wellness trends. Most recently in 2022 and through the first quarter of 2023, we continue to drive an innovative portfolio as we're capitalizing on the changing of preferences with consumers and the growing demand for health and wellness trends. And our core portfolio expanded with our Mango passion fruit. Most recently, just launched a great lemon lime and a green apple cherry. And in 2022, we further expanded upon our Vibe line where we initially started off with a peach pie, now expanded that portfolio, and we see it as a dominant opportunity to expand in the category. Most recently, we launched our Arctic Vibe, which is a great tasting frozen berry, a Fantasy Vibe, Mandarin, Orange Marshmallow. And most recently, we launched an Oasis Vibe, which is a prickly pear lemon flavor, which is on trend with today's consumers and Gen Z."

When looking at past earnings reports, CELH has beaten the consensus revenue number in six of the eight quarters over the past two years. Both misses were in Q4 and generally small.

For EPS, the company has beaten estimates only four of the past eight quarter, including missing the past 3 quarters.

Despite the mixed performance on the EPS line, CELH's stock has generally reacted positively to earnings, with its stock rising the next session 10 of the past 13 quarters, including the past six quarters,

During that stretch, the stock has made a move over 10% or more 6 times, including rising 20% the next session last quarter. Its best performance was a 35.5% increase in Q2 of 2020, while its worst performance was a decline of -25.4% in Q4 of 2022. Market reactions for Q2 results have been varied, from a decline of -6.7% to an increase of 35.5% over the past 3 years.

Overall, revenue growth will be the key numbers that investors will be focusing on. Also look for commentary on international expansion as well.

Valuation

CELH trades around 62.5x the 2023 consensus EBITDA of $180.7 million and over 41.7x the 2024 consensus of $271.2 million.

It trades at a forward P/E of 107.5x the 2023 consensus of $1.34. Based on 2024 analyst estimates of $2.01, it trades at 71.6x.

CELH is projected to growth its revenue over 71% in 2023 and 36% in 2024.

Comparatively, fellow energy drink maker MNST trades at nearly 27x 2023 EBITDA of $2.16B and a forward P/E of 37.8x based on the 2023 consensus of $1.54. It's expected to grow revenue by nearly 13% in 2023.

Sell-side Commentary

Earlier this month, Maxim downgraded the stock to "Hold," saying it was fairly valued following a strong run. The firm, however, noted that CELH continues to gain market share and benefit from the PEP distribution deal.

"Specifically, based on our 2024 revenue estimate, CELH trades at an EV/revenue multiple of 7.7x. This compares to what we believe is the closest comp, Monster Beverage, which trades at a 2024 EV/revenue multiple of 7.2x.," analyst Anthony Vendetti wrote.

Notably, CELH's 2024 growth is projected to be about 3x that of Monster Beverage Corporation (MNST), so I would think it should command an even wider multiple than it currently does.

Conclusion

Given its ACV gains following its distribution deal with PEP, as well as the introduction of new flavors and products, I'm expecting a strong quarter from Celsius Holdings, Inc. Analysts are expecting a lot of growth, but springtime with more distribution in the convenience store channel seems like a winning formula to me.

The focus will mostly likely continue to be on sales, and on that front I expect Celsius Holdings, Inc. to be able to solidly beat estimates once again. While the stock isn't cheap, it likely isn't going to get cheap anytime soon. My "Buy" rating remains unchanged.