Shares of energy drink company Celsius Holdings(NASDAQ: CELH) crashed on Wednesday after the company reported financial results for the third quarter of 2024. The results disappointed investors on both the top and bottom lines. As of 11:45 a.m. ET, Celsius stock was down 10% and had hit new 52-week lows.
Celsius' business pulled back in Q3
The headline numbers for Celsius were troubling. Q3 revenue was down 31% year over year to $266 million. And its net income dropped a staggering 92% to $6.4 million. There's no way to put a positive spin on these numbers, but they do have a reasonable explanation.
Celsius moved its distribution to its partner, PepsiCo. Celsius was growing so fast at the time that Pepsi ordered more inventory than needed because it couldn't predict demand and wanted to keep products on shelves. Now, Pepsi is ordering less as it works through the inventory it already has on hand.
This isn't ideal. That said, Celsius can still track sales in multi-outlet retail locations (such as convenience stores and drug stores). These sales were still up 7% year over year, meaning consumers are still buying Celsius' products. But the sales aren't showing up in the company's financial results right now because Pepsi is correcting its inventory issue.
Can Celsius bounce back?
On the one hand, Pepsi's inventory will stabilize at some point, and Celsius' revenue will consequently more accurately reflect retail sales. Moreover, the company is still gaining market share in the energy drink space, which is important. Furthermore, it's still a profitable business, even with the current headwind. In short, there's reason for optimism.
On the other hand, the energy drink category is tepid right now, and other smaller brands are also taking market share. That makes investors question how much of a moat Celsius has for the long term.
I personally believe better days are ahead for Celsius. But I don't blame investors for their concerns in light of Q3 results.
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Jon Quast has positions in Celsius. The Motley Fool has positions in and recommends Celsius. The Motley Fool has a disclosure policy.
