GAAP margins were impacted by 78% general & administrative (G&A) growth related to legal fees, Big Beverage M&A and its new center for global excellence. Excluding this, EPS fell from $0.17 to $0.14 Y/Y. 

Gross margin was powered by lower freight and raw materials costs. It remains focused on capturing more supply chain efficiencies through its Big Beverage co-packer purchase and other parts of its operations.

CELH trades for 31x 2025 EPS. EPS is expected to grow by 17% this year and by 22% next year. I expect modest upward profit revisions following this report. I don’t think revenue will rise much.

Alani Nu:

Celsius has agreed to acquire Alani Nu for $1.8 billion ($1.65 billion net tax benefits). The purchase will be funded by $900 million in new debt, $375 million in cash on hand & stock. Alani Nu will be paid $500 million in restricted shares representing 8.7% of CELH stock and $1.3 billion in cash. The shares will be locked for two years to help align incentives between the two companies. One of the owners of Alani Nu is called “Congo Brands.” Key members from that leadership team will stick around as advisors for Celsius, which is good. Ideally, they’d have more formal roles with the combined company, but this is still far better than nothing.

“Importantly, following the transaction, we will have ample balance sheet capability for additional growth investment.”

CEO John Fieldly

At first glance, I did not like this acquisition. It calls into question CELH’s belief in re-accelerating growth on its own and finding market share gains. When digging into the deal, I’ve moved from quite negative about it to neutral. I still would love Celsius to be showing signs of delivering organic growth on its own. If that were already happening, I’d feel great about this M&A. But it isn’t. 2% Y/Y retail sales growth is not impressive. So why am I now slightly more upbeat on this news?

The price tag was quite compelling. I imagined them paying a hefty multiple for the latest fad brand that had a real chance of fizzling out just like this one does. Instead, they got a great deal. Celsius is paying 3x revenue and 12x EBITDA for a company that has compounded sales at a 50% clip since 2022. This is expected to be accretive to EPS in year one, and would have actually raised CELH’s EBITDA margin for 2024 by a point (if they already owned this). Celsius expects to build on this with $50 million in expected synergies over the next two years. Furthermore, the brands are quite complementary. Alani Nu skews more female and is lifestyle-oriented compared to Celsius’s fitness brand theme. Both are within the sugar-free niche that has risen from 39% of category sales to 51% since 2020.

“When we look at any cannibalization potential, it’s fairly low. This is truly incremental.”

CEO John Fieldly

The transaction is expected to close in Q2 and give Celsius a 16% market share position (Alani has 3.6%).

“The added breadth of the combined platform is expected to further strengthen the company's position with ample resources for ongoing investment… We see significant growth potential by applying Celsius' strong channel and digital marketing, product development and expansion strategies to help Alani Nu grow. We see opportunities to continue to grow Alani New's national distribution, including key coastal metro markets, drive continued flavor and format innovation and expand globally.”

CEO John Fieldly

Pepsi:

As a reminder, Celsius generates revenue when it distributes units to Pepsi (distribution partner), not when a can is sold in a 7/11. When Celsius was delivering triple-digit growth, Pepsi got aggressive with orders. Celsius and category growth then slowed while Pepsi fixated on optimizing its supply chain. That included reducing orders from Celsius. Despite still reasonably strong retail-level sales data, this led to a massive revenue headwind. For context, Pepsi’s move reduced revenue by $124 million in Q3 and by $9 million in Q4. Revenue would have declined by 2% Y/Y without this. Still not good.

On the last call, Celsius told us that inventory resets would wrap up this quarter. It said resets would be a thing of the past as we moved into 2025. It backed off of that a bit this quarter to a point of me thinking these could continue. All it said was that “communication is strong and it looks forward to a productive 2025.” I wanted to hear a reiteration of this headwind being gone.

Market Share & Competition:

Market share trends remain solid for Celsius when looking at a 12-month basis, and weak on a 3-month basis. For the year, Celsius retail volume rose by 22% Y/Y to greatly outpace 5% category growth. That’s really good. In the all-important U.S. Multi-Outlet (MULO) + Convenience category share rose from 10.2% in 2023 to 11.8% in 2024. Again, really good. Unfortunately, that was entirely related to large Y/Y share gains during the 1st half of the year. For Q4 specifically, retail sales rose by just 2% Y/Y even without the Pepsi headwind. Q4 market share continued to fall on a Y/Y basis from 11.4% to 10.9%. Not ideal. What’s going on here? 

The category overall was very weak all year, but that shouldn’t impact market share. Instead, this seems to be related to highly successful Red Bull and Monster sugar-free launches (especially Red Bull). The team thinks this offers proof of concept for their sugar-free niche, but that’s only true if they stop ceding market share every single quarter. Next, revenue was impacted by heavier promotional activity including the fully rolled-out incentive program with Pepsi. This program is meant to motivate Pepsi to sell more Celsius through favorable pricing. When Celsius charges Pepsi less per can, revenue directly suffers.

While all of these issues greatly held back 2024 results, the start of 2025 is not looking all that much better. Nielsen scanner data has fallen off a cliff for Celsius in January. Through the first few weeks of the year, retail volume declined modestly Y/Y. Leadership acknowledged the disappointment on the call. It reminded us that it’s currently lapping the wildly successful launch of Celsius Essentials and is still dealing with all of the headwinds already discussed. Additionally, it thinks promotion timing is impacting this short-term data.

Distribution.

The company expects distribution points to rise by 15%-20% Y/Y in 2025. Highlight of the call. As long as pricing and sales velocity don’t tank, this positions them reasonably well to beat 15% revenue growth consensus estimates. It’s enjoying a lot more demand from grocery vendors “leaning more heavily into energy.” Alani Nu is also expecting “sizable distribution gains.”

More Notes:

This wasn’t a good quarter. 

I realize the stock is up 40% after hours, but this report does nothing to give me more confidence in Celsius turning the tide. Aside from strong gross margin, it continues to lose market share and cite quite creative reasons to explain this every quarter. The Alani Nu purchase hints at them losing confidence in their ability to organically grow their own brand, although I will say the price tag was quite compelling. The slow start to the year is notable, but expected 17.5% Y/Y growth in distribution is also notable in a good way.

Simply put, I’m still not interested in adding to my stake and also not interested in letting this grow to a much larger portion of the portfolio today. To be candid, this report made me slightly less bullish on the name.

They have to prove the brand isn’t structurally decaying, and that did not happen this quarter. I plan to take advantage of this price action to sell 40% of the stake and to bring it right back to 2% of holdings. I want this to be my smallest position right now. I’ll send the portfolio update as soon as I make this transaction tomorrow morning. Have a great night.