Sizing up Celsius Holdings' (NASDAQ: CELH) performance in the fourth quarter seems to check off all the boxes on the checklist for a blowout financial update. The functional sparkling beverage specialist exceeded top-line expectations and has now posted three consecutive years of triple-digit growth.
Celsius also exceeded earnings estimates. It was rosy in its presentation and pumped about its future. With short interest at a record high earlier this month, it could've been the perfect recipe for a short squeeze. The rally didn't happen right away, though.
Celsius stock opened slightly lower on Thursday following the report and subsequent analyst call but, within minutes, shifted out of reverse. The stock was trading more than 10% higher 45 minutes into the trading day. But let's go over a couple of things that may have initially tripped up investors despite a seemingly solid update.
1. Not every earnings beat the same
Despite its stellar growth and aggressive expansion efforts, Celsius is profitable. It's been in the black for four of the last five years, achieving record bottom-line results for all of 2023.
Celsius posted net income of $0.17 a share in the fourth quarter. Wall Street per-share estimates were as high as $0.22 and as low as $0.10, but the average projection was $0.15. Celsius landed comfortably ahead of the consensus, but it was no match for how things played out the first nine months of the year.
| Quarter | EPS Estimate | EPS Actual | Beat |
|---|---|---|---|
| Q1 2023 | $0.07 | $0.13 | 86% |
| Q2 2023 | $0.09 | $0.17 | 89% |
| Q3 2023 | $0.16 | $0.30 | 88% |
| Q4 2023 | $0.15 | $0.17 | 13% |
Data source: Yahoo! Finance. EPS = earnings per share.
After beating bottom-line expectations by 86% to 88%, a 13% surprise feels pretty mortal. It was also a sharp decline from what it served up three months ago, but let's revisit some of the other sequential hiccups.
Image source: Getty Images.
2. Sequential sadness
The $345 million that Celsius recorded in revenue for the final three months of 2023 is a blistering 95% ahead of where it was during the prior year's holiday quarter. Analysts were holding out for a still impressive 85% year-over-year increase. How can that not be enough? The results may have been a fourth-quarter record, but Celsius posted an all-time high of $385 million in the third quarter.
This isn't as problematic as you might think. Celsius is a functional energy drink. Its most prominent feature is that it triggers thermogenesis, safely raising your body temperature so it can briefly boost your metabolism. If you drink it ahead of exercise or any cardio activity, it will help you burn fat and calories more effectively.
It's not a surprise if folks are less active over the holidays. Despite its stellar growth, this is the third time in four years that Celsius has seen revenue decline between the third and fourth quarters. It's not just the top and bottom lines staging a quarter-over-quarter retreat. Gross margin also took a step back, and obviously, its net income margin followed suit.
Another problematic sequential slip came with its market share on Amazon.com. Celsius finally overtook Monster(NASDAQ: MNST) to become the leading energy drink brand on the e-commerce platform earlier in the year. However, Celsius' share of the energy drink market on Amazon contracted from 21.4% to 19.7% between the third and fourth quarters of last year. Monster's market share increased sequentially to 19.6%, likely explaining why Monster was trading higher on Thursday.
Celsius is still winning
There is still a lot to like in the beverage stock's report. While currently just 4% of the revenue mix, international sales are starting to accelerate. Celsius initiated global expansion efforts last month, so 2024 should be promising on that front.
Momentum is strong, and it seems as if the limited knee-jerk pullback may have actually triggered a short squeeze that sent the shares rallying after the lower open. Bears looking for a big drop may have realized it wasn't coming, scrambling to cover their positions. It's just like a can of Celsius. It doesn't take long to get going, but once your heart is into it, that's when things start to happen.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rick Munarriz has positions in Celsius. The Motley Fool has positions in and recommends Amazon, Celsius, and Monster Beverage. The Motley Fool has a disclosure policy.
