Celsius Shares Decline as Analysts Lower Estimates

Shares of Celsius Holdings experienced a 2.6% decline on Tuesday following a downgrade from Morgan Stanley, which revised its estimates for the company due to concerns over promotional accounting practices and persistent weakness in the energy drink market.

In a recent report, Morgan Stanley highlighted the ongoing inventory reduction by PepsiCo, which has led to further downward adjustments in Celsius’ sales forecasts for the third and fourth quarters. The firm lowered its third-quarter sales estimate for Celsius by 8%, bringing it to $278 million—significantly below the consensus estimate of $322 million.

The reduction is attributed to “promotional accounting” linked to the previously mentioned PepsiCo inventory reduction, which could result in an additional $23 to $27 million in contra-revenue. Additionally, Morgan Stanley revised its gross margin estimate down by 250 basis points to 46.4%, compared to the consensus figure of 48.8%.

Although these short-term issues are viewed as temporary, Morgan Stanley expressed concern about broader trends affecting Celsius. They maintained an Equal-Weight rating on the stock, noting that they do not anticipate a positive catalyst until there is an improvement in scanner data trends. The analysts pointed to stagnant market share and sluggish growth in the energy drink sector as significant ongoing challenges.

Looking ahead to the fourth quarter, Morgan Stanley further decreased its sales estimate by 2.5%, citing ongoing softness in market share and increased competition within the category. They noted that Alani Nu’s Witch’s Brew has been gaining substantial popularity, and anticipated limited innovation from Celsius in the near future will heighten competition.

Moreover, the firm indicated a decline in the percentage of new consumers trying Celsius, with new shopper adoption dropping from 57% in 2023 to 40% over the past year. This trend may reflect broader economic conditions and the maturation of the Celsius brand. Morgan Stanley has maintained a price target of $50 for the stock.