Celsius expects big shelf space gains, possibly the best in its history, says Jim Cramer

Has Wall Street finally lost its appetite for the energy drink stocks mayors recruit? This has some stunning performance over the last 20 years. You think alphabet something from its 2004 IPO with that 7890% gain? Man, if you bought Hands and Natural, which is the company that became Monster Beverage at the same time, you now be up more than 24,000%. Meanwhile, just the last four years, Celsius has rallied more than 4700%. These things have been incredible winners. I mean, you think that they’re AI. You think that they’re, I don’t know, networking or something? But in March and April, both Monster and Celsius turned ice cold. Along with so many other formerly beloved growth stocks, Monster was down more than 15% just over a month for stabilizing. The low fifties have its most recent earnings report. Last Thursday, Celsius plunged over 30% from peak to 12. I was starting to lose faith here, but rebounded a bit going into this quarter on Tuesday. So when we saw the actual numbers, these clients turned out to be justified. Let’s start with Monster, which is given the Bears a lot of ammunition over the past year. After the company last reported in late February, its stock shot to a new all time high in mid March. But the fourth quarter results actually weren’t that good. In fact, they missed one nearly every line. Monster only rallied in response to the core for one reason. They told us that their currency adjusted sales growth had accelerated to 20% in January, which was very impressive. But after the stock peaked and rolled over in March, sentiment quickly turned negative again. It reached a crescendo in April 25th, a week before Monsters first quarter report, when two analysts downgraded the stock on the same day. Hey, one of these truest even hit the one with the dreaded double downgrade that you hear about. That’s that. There you go from buy to sell. They don’t stop at hold arguing that margin expectations were too high, stock was simply overvalued. So what happened? Monster. Puerto Rico? You might think that proved the skeptics wrong, because the stock value 3% the next day. That’s actually not true. Monsters currency adjusted sales growth came in at 15.6%, which would have been fine except everyone got excited about that 20% quote number for January, meaning there was a major D cells, we call it deceleration in February, March that sales were in line. The gross margin proved a bit year over year, but Monsters operating expenses were also quite a bit higher than expected and these guys missed on all the earnings lines. My Monster doesn’t give much formal guidance. The company did disclose the currency adjusted sales grew by 12.9% in April. Clearly things are slowing down. I didn’t like that all at all. Not good. So why did the stock rally in response to the quarter? Two reasons. First, expectations were relatively low going into the quarter and the headline numbers weren’t horrible, even if I can’t call them good either. Second, Monster announced and this was really interesting, a modified Dutch auction style buyback for up to $3 billion of its own stock notice. They thought their stocks very undervalued, which is a substantial chunk of change for a $57 billion company. That said, we’re noting both Co CEOs intend to sell some of their shares back to the company. By itself, insider selling doesn’t necessarily mean anything, but it’s definitely not a positive sign. Take away the buyback announcement. I think Monster would have sold off a lot Celsius, though it’s different from mid March to late April, the stock was more than 30% of its value which was breathtaking. That was largely because Celsius announced an amended distribution agreement with PepsiCo which they already had an existing agreement with and it says to quote and I’m going to quote here’s very little confusing I was I was confused when it came out incentivize and compensate the distributor for its continued focus on the on the end actions to support quote End Quote Celsius products. Nobody knew exactly what that meant. I sure didn’t but the analysts assume that more compensation for Pepsico’s bad news for Celsius. The stock actually dropped 8.5% of the news is people sold first ask questions later. Fast forward to Tuesday morning when Celsius reported its first quarter results. At first glance the look like a mixed quarter. This company posted substantial revenue this they did under 356,000,000 in sales when Wall Street was looking for 390,000,000. But the margins were fantastic. Celsius’s gross margin expanded by 7:40 basis points year over year, much higher than expected, which risen was 7 cent. Earnings beat off 20 cent bases. I like that these guys had 108% earnings per share growth year over year. Now on the cops quote, manager said. The revenue hit came from that quote. Inventory movement, saying quote, so hard to understand for their large distributor, which is PepsiCo, which again, I told you owns a stake in this company. Long story short, Pepsi had a big restock in the first quarter of last year that didn’t repeat itself this year. Celsius also indicated that PepsiCo plans to keep its inventory tighter this year. That’s not great news, especially since we don’t know how long this will last. But it’s a German explanation for the revenue shortfall. And crucially, it’s got nothing to do with demand, which is what I care about. Once the analysts updated their forecast to account for Pepsico’s plan inventory changes, I bet Celsius will be just fine going forward because other than that one issue business real good. Although Celsius doesn’t give much in the way of formal guidance, management reiterated previously stated goal of getting their full year gross margins to the high 40s. Perhaps that was a disappointment because their first quarter gross margin was in the low fifties. But the CFO noted that they’re taking conservative approach to forecasting the remainder of the year thanks to the possibility of rising costs. I get that. I don’t see the costs rising. Plus there are plenty of positives here. Celsius continues to take market share in the energy drink category, reaching 11.4% by the end of the first quarter. Now let’s have a full point. That’s a lot from the fourth quarter and up four points from the same point last year. That’s huge. Hey, by the way, a Celsius steadily gains market share. The top two players in the space, Red Bull and Monster, keep losing share. On top of that, management sound an optimistic tonal though they always are optimists about the spring shelf reset season. Now that’s something we’ve recently seen about when we talked about Constellation Brands, which expects to see big shelf games from Modelo this year. Thanks to the success last year. Celsius expects big shelf gains too, possibly the best in the companies history. Once you gain shelf space, obviously your numbers could go higher. Finally, Celsius has only just started to expand internationally. Canada sales began in January, the UK and Ireland last month. France, Australia and New Zealand are all coming out in the fourth quarter, could be a major source of upside supplies over time all the way the sales miss and Pepsico’s inventory noise. A couple of management’s decision not to commit to a higher gross margin target for the full year led to a modestly negative reaction to Celsius quarter stocks slipping 1.8% on Tuesday. But after looking into the quarter, I’m pretty sanguine about the situation. I guess so is the rest of the street to come around our view as CELH shares jumped more than 6% today? I mean, I’m sure there are some people out there who must be thinking that PepsiCo wants to buy the rest of them or something. By the way, if I were PepsiCo, I would want to buy the rest of them too. Is this growth category Hence? Here’s the bottom line. Saw a small bounce when it reported, but mostly because it also announced a big buyback. I’m not particularly impressed with the latest numbers. Celsius on the other hand, which a company I’d like for a long time, they’ve been on many times, gave us a noisy quarter that masks the true strength of the business. The markets now give me the company credit for the result, but the stock’s still down about 18% from its highs. I think this is a very good entry point, even though I don’t like it up 6 today. At the end of the day though, you want to own shares to the companies taking market share like Celsius, not the ones that are losing share like Monster. And I got to tell you, when it comes to taste, which of course there’s no accounting for, count me in as a Celsius drinker only after four cups of coffee. Let’s go to Brian in Wisconsin. Brian. Hello, Jim. How you doing? I am doing fine. How you doing, Jim? We’re doing good. We’re doing good. Thanks for taking the call and for all you do. No problem on Con Agra. They’ve had a lot of ups and downs and changes over the last 810 years. Wondering what your outlook is for a CGA. OK, thank you for the call. Now here’s what I’m going to tell you. Sean Connelly’s got a decent hand. They’re not the greatest brands, but it yields 4.5%, sells at 11 times earnings. I am never going to criticize anyone for buying with those characteristics. I think you’ll be fine. Let’s go to Scott in my home state of New Jersey. Scott. Jim Cramer. I’ve been watching you since you started on television. My and you you’re certainly. You might Well, you might be 70. Yes, I I am. All right. Good enough. All the wisdom that you’ve imparted. I appreciate that. Thank you. And how about those Phillies, Jim? How about the best team in baseball? Thank you for mentioning last night. Lost. But that’s OK. We just swear it’s they’re they’re bringing great joy to my household. Let’s put it that way. How can I help? They’re bringing great joy to us down here in Margate Land as well. So. Oh, my God. Margate. You must. You might. Oh, my God. You know Jeff Marks, my partner in crime. He goes down to Margate all the time. Yet I used to. I used to be friends with Lucy. I don’t know if you know who Lucy is, but Lucy is right around the corner from me, My girlfriend career. Every day I see it from my building here that happens to be a giant elephant. That’s not make any conclusions. All right, let’s let’s maybe we get to work. Maybe we stay more focused. I’m sorry. Here we go. Get to work. CVS. I’ve been taking a beating on my CVS stock. What do you think? Oh, geez. You know, I think Karen, I think the world of Karen Lynch, I think it yields 5%. But they’re in a very hard category. They’re trying to make healthcare work. They’re trying to make the small format stores work. They have to deal with the current stores. And the problem against Amazon, it may be too much for her to handle, but if she wants to come on and talk, I’m more than welcome because she’s cerebral and she’s got a plan. So that’s my goal. But that’s, you know, the jury’s still out on that one, right, guys, when it comes to the energy drink category, which I care about passionately, you want to own shares of Celsius because they’re gaining share. Unfortunately, Monster is not gaining share and I don’t know, it’s kind of orphaned right here, right? Much more man money, including a really cool piece that we’ve worked on about retail REITs. I want you to know which ones are the greatest. You also get some yield that works all the time. Then I’m focusing on the crux of what’s become a great debate around the feds next route. You do not want to miss this one. And of course all your calls. Rapid fire tonight. System the lighting round so stay wet. Framer Don’t miss a second of Mad Money Follow at Jim Cramer on X. Have a question? Tweet Kramer Hashtag Mad Mentions Send Jim an e-mail to [email protected] or give us a call at one 807 four Three CNBC Miss something? Head to madmoney.cnbc.com.