Vital Farms Q3 Earnings Beat Estimates on Higher Sales & Gross Margin

Shares of WK Kellogg Co. KLG have tumbled 8.1% since it reported third-quarter 2024 results on Nov. 7. The leading branded ready-to-eat cereal provider’s top and bottom lines declined year over year. However, both metrics surpassed the Zacks Consensus Estimate.

WK Kellogg’s adjusted earnings per share were 31 cents, surpassing the Zacks Consensus Estimate of 26 cents. This metric decreased from adjusted earnings of 33 cents reported in the year-ago quarter.

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The company recorded net sales of $689 million, surpassing the Zacks Consensus Estimate of $674 million. However, the top line declined 0.4% year over year. In the third quarter, price/mix rose 1.8%, while volume declined 1.1%.

WK Kellogg Co. Price, Consensus and EPS Surprise

WK Kellogg Co. price-consensus-eps-surprise-chart | WK Kellogg Co. Quote

WK Kellogg’s Margin & Cost Details

Adjusted gross profit was $203 million, up from $193 million reported in the year-ago period. Adjusted gross margin expanded 150 basis points (bps) to 29.4% from 27.9%.

WK Kellogg’s adjusted EBITDA came in at $65 million, up 18.2% year over year. The upside can be attributed to stronger top-line performance, sustained operational discipline and the timing of brand-building expenditures. We note that the adjusted EBITDA margin increased 150 bps year over year to 9.5% in the quarter under review.

Selling, general and administrative expenses were $162 million, down 9.5% from $179 million reported in the year-ago quarter. As a percentage of sales, the metric came in at 23.5%, down 240 bps from 25.9%.

KLG’s Financial Snapshot: Cash, Debt and Equity Overview

The Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $47 million, long-term debt of $472 million and total equity of $316 million. KLG generated cash from operating activities of $98 million for the year-to-date period ended Sept. 28, 2024.

WK Kellogg’s 2024 Guidance

WK Kellogg reiterated its full-year adjusted net sales growth guidance while upgrading its adjusted EBITDA growth view.

Adjusted net sales growth for 2024 is projected to be at the lower end of the guidance of 1% decline to 1% growth. Adjusted EBITDA is likely to be in the range of 5% to 6%, an increase from the previous projection of 3% to 5%. The adjusted EBITDA is expected to be in the range of $271-$273 million.

Interest expenses are likely to be in the band of $30-$35 million for the year. Management anticipates depreciation and amortization expenses of $75-$80 million.

KLG’s stock has gained 7.4% in the past three months compared with the industry’s 4.2% growth.

Stocks to Consider

Ingredion Incorporated INGR serves diverse sectors in food, beverage, brewing, pharmaceuticals and other industries. The company currently sports a Zacks Rank #1 (Strong Buy). INGR has a trailing four-quarter earnings surprise of 9.5%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Ingredion’s current financial year’s earnings indicates growth of 12.5% from the year-ago reported number.

Freshpet Inc. FRPT is a pet food company that manufactures and markets natural fresh foods, refrigerated meals and treats for dogs and cats in the United States and Canada. It currently carries a Zacks Rank #2 (Buy). FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.

The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 27.3% and 224.3%, respectively, from the prior-year reported levels.

McCormick & Company, Inc. MKC is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors to the entire food industry. It currently carries a Zacks Rank #2. MKC has a trailing four-quarter earnings surprise of 13.8%, on average.

The Zacks Consensus Estimate for MKC’s current fiscal-year sales and earnings indicates growth of 0.6% and 8.2%, respectively, from the prior-year reported levels.

Zacks Investment Research

Monster Beverage Corporation MNST delivered third-quarter 2024 results, wherein the top and bottom lines lagged the Zacks Consensus Estimate. While the bottom line declined year over year, the top line improved.

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Monster Beverage’s adjusted earnings of 40 cents per share missed the Zacks Consensus Estimate of 42 cents per share. The figure also declined 2.4% from 41 cents in the prior-year quarter.

Net sales of $1.88 billion grew 1.3% year over year but lagged the consensus estimate of $1.92 billion. Unfavorable currency translations hurt net sales by $62.8 million. Net sales rose 4.7% on a currency-adjusted basis and 5% excluding the Alcohol Brands unit.

Monster Beverage Corporation Price, Consensus and EPS Surprise

Monster Beverage Corporation price-consensus-eps-surprise-chart | Monster Beverage Corporation Quote

A Peek Into MNST’s Q3 Performance

Management highlighted that the energy drink category in the United States witnessed lower growth rates, in the convenience channel. However, the convenience channel showed signs of improvement in October. Outside of convenience stores, the category is expanding at a stronger pace across various retail channels. Nonetheless, the energy category grew globally and has demonstrated resilience.

Monster Beverage has been reviewing opportunities for price increases internationally. The company is making a roughly 5% price increase on its core brands and packages, effective Nov. 1, 2024, in the United States. For the fourth quarter, the company is continuing to monitor opportunities for further pricing actions in its international markets. It had a market share leadership in the energy drink category for its entire outlets combined in the United States for the 13 weeks ended Oct 26, 2024.

Per the Nielsen reports for the 13 weeks through Oct 26, 2024, for the company’s combined outlets, including convenience, grocery, drug, and mass merchandisers, sales in dollars in the energy drink category with energy shots rose 1.9% year over year. Its energy brands sales, including Bang, fell 0.6% in the 13-weeks. Monster’s sales were down 1.8%. Reign’s sales dipped 2.9%. While sales of NOS and Red Bull increased 2.9% and 5%, respectively, sales of Full Throttle declined 5.4%.

Net sales to customers outside the United States rose 3.6% to $760.1 million, representing about 40.4% of the total net sales. On a currency-adjusted basis, sales to customers outside the United States improved 12.1%.

Insights Into MNST’s Segmental Performance

Monster Energy Drinks: Sales of this segment, which includes Monster Energy drinks, Reign Total Body Fuel high-performance energy drinks, Reign Storm total wellness energy drinks, and Bang Energy drinks, rose 0.8% to $1.72 billion. The segment’s sales included a negative impact of $52.8 million from adverse currency rates. On a currency-adjusted basis, net sales for the segment rose 3.9%.

Strategic Brands: In addition to the affordable energy drink brands, the segment includes a range of energy drink brands acquired from Coca-Cola as well as the Company’s affordable energy brands Predator and Fury. The segment’s net sales grew 14% year over year to $112.6 million. Currency headwinds hurt sales by $10 million. On a currency-adjusted basis, net sales for the segment rose 24.1%.

Alcohol Brands: Net sales for the segment, which includes The Beast Unleashed, Nasty Beast Hard Tea, and several craft beers and hard seltzers, fell 6% year over year to $39.8 million, due to the soft sales volume of craft beers.

Other: Net sales for the segment, which includes some products of American Fruits & Flavors sold to independent third parties (AFF Third-Party Products), dipped 11.5% year over year to $5.9 million.

Analysis of MNST’s Costs & Margins

The cost of sales was $881.2 million, up 1% year over year. The company’s gross margin expanded 20 basis points (bps) year over year to 53.2%. However, excluding the impact of Alcohol Brands Inventory Reserves, the gross margin for the third quarter was 53.7%. The Alcohol Brands Inventory Reserves affected gross profit, while the margin increase was driven by pricing actions, lower freight-in costs, and Bang Inventory Step-Up, somewhat offset by higher promotional allowances for the Bang Energy and Alcohol Brands Inventory Reserves.

Operating expenses grew 9.9% year over year to $519.9 million, due to higher costs associated with sponsorships and endorsements, increased payroll expenses, and expenses related to intellectual property claims. The expenses were impacted by a $16.7 million provision and $1.2 million in legal expenses referred to as Hansen Expenses. As a percentage of sales, operating expenses expanded 210 bps to 27.6%.

Selling expenses, as a percentage of net sales, increased 90 bps year over year to 10.4%. Distribution costs, as a percentage of net sales, fell 20 bps to 4.4%. General and administrative expenses, as a percentage of net sales, jumped 150 bps year over year to 12.8%.

MNST’s Financial Health

This Zacks Rank #3 (Hold) company ended the third quarter with cash and cash equivalents of $1.6 billion, and total stockholders' equity of $5.8 billion.

In third-quarter 2024, Monster Beverage repurchased 11.3 million shares for an average price of $47.32 per share, amounting to $534.7 million. As of Nov. 6, 2024, roughly $500 million was available for repurchase under its earlier authorized repurchase program.

Shares of this Zacks Rank #3 (Hold) company have gained 21.6% in the past three months compared with the industry’s decline of 3.8%.

Three Stocks Looking Good

We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Ingredion INGR, Vital Farms VITL, and Vita Coco Company COCO.

Ingredion is a solutions provider specializing in nature-based sweeteners, starches and nutrition ingredients. It currently sports a Zacks Rank #1 (Strong Buy). INGR has a trailing four-quarter earnings surprise of 9.5%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate Ingredion’s current financial-year EPS indicates growth of 12.5% from the year-ago reported numbers.

Vital Farms offers a range of produced pasture-raised foods. It presently carries a Zacks Rank #2 (Buy). VITL has a trailing four-quarter earnings surprise of 82.5%, on average.

The Zacks Consensus Estimate Vital Farms’ current financial-year sales and EPS indicates growth of 27% and 88.1%, respectively, from the year-ago reported numbers. The consensus mark for VITL’s EPS has been unchanged in the past 30 days.

Vita Coco develops, markets and distributes coconut water products under the Vita Coco brand name in the United States, Canada, Europe, the Middle East, Africa and the Asia Pacific. The company currently has a Zacks Rank of 2. COCO has a trailing four-quarter earnings surprise of 17.6%, on average.

The Zacks Consensus Estimate for COCO’s current financial-year sales and earnings suggests growth of 3.5% and 29.7%, respectively, from the year-ago reported figures.

Zacks Investment Research

Brown-Forman Corporation (BF.B) is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 22.41, higher than the industry average of 16.31x and the S&P 500’s 22.61x. However, this premium valuation raises concerns about whether BF.B can meet these expectations, especially considering its low Value Score of D, which suggests that it may not be a strong value proposition at current levels.

Brown-Forman has underperformed, with shares down 6.2% in the past three months, trailing both its industry’s 3.7% decline and the broader Consumer Staples sector's 1.5% dip, while the S&P 500 saw an 11.9% gain. BF.B is also trading below its 50 and 200-day moving averages, indicating potential weakness in the stock's momentum.

Current Pressures on BF.B

Brown-Forman has been grappling with soft performance due to lower volumes across brands and regions, which have been a significant drag on its top and bottom lines. The company's first-quarter fiscal 2025 results highlighted these struggles, with both revenues and earnings falling short of expectations.

Brown-Forman's sales decline across various categories reflects several factors that impacted its overall performance in the first quarter of fiscal 2025. This decline was driven by lower volumes of Jack Daniel's Tennessee Whiskey, impacted by shipment timing issues in key markets such as the United States, UAE and U.K. Additionally, the strong U.S. dollar hurt sales in markets like Türkiye.

Weaker sales trends across geographic regions in the first quarter of fiscal 2025 also weighed on Brown-Forman's performance. This was due to the prior year’s more favorable shipment timings, influenced by inventory replenishment and the rollout of its pricing strategy. Currency impacts and the Finlandia divestiture added pressure, though higher Jack Daniel’s prices in Türkiye and increased Jack Daniel’s Tennessee Apple volumes in Brazil helped mitigate losses.

The company also saw reduced gross and operating profits influenced by variable input costs, elevated inventory levels and transition service agreements following the divestiture of brands like Finlandia and Sonoma-Cutrer.

Can Growth Initiatives Turn the Tide for BF.B

Brown-Forman's premiumization strategy has been a key focus, with the company successfully pivoting toward premium and super-premium brands over the years. The company has been strategically reshaping its portfolio over the last couple of decades to focus on premium and super-premium brands.

The company’s portfolio of premium and super-premium brands mainly includes the iconic Jack Daniel's and Woodford Reserve. Jack Daniel's and Coca-Cola RTD have been strong additions to the portfolio, which reflect progress on its commitment to premiumization of its portfolio. Also, the company has successfully integrated the two super-premium brands – Gin Mare and Diplomático, in the Rest of the Portfolio category.

Looking ahead, Brown-Forman is optimistic about fiscal 2025. Management projects a return to growth in organic net sales and organic operating income, supported by gains in international markets and normalizing inventory trends. The company’s confidence is bolstered by its strong portfolio, effective pricing strategy and ongoing global expansion across various regions.

For fiscal 2025, Brown-Forman anticipates organic net sales growth of 2-4% driven by strength in both emerging and developed international markets. Similarly, organic operating income is expected to grow by 2-4%. Gross margin improvements are also anticipated, supported by a favorable price mix and the continued evolution of Brown-Forman’s premium-focused portfolio.

Investment Opinion on BF.B

BF.B’s elevated valuation and recent underperformance relative to peers are concerning. The company is faced with lower volumes across brands and regions, which have impacted both top and bottom lines. However, the company's premiumization strategy and portfolio reshaping efforts highlight its potential for long-term growth. Current investors should retain their positions in BF.B stock, while new investors might wait for a more favorable entry point. Brown-Forman currently carries a Zacks Rank #3 (Hold).

Three Picks You Can’t Miss

We have highlighted three better-ranked stocks in the broader sector, namely Freshpet, Inc. FRPT, Vital Farms VITL and Coca-Cola Europacific Partners CCEP.

Freshpet, a pet food company, has a trailing four-quarter earnings surprise of 132.9%, on average. FRPT currently sports a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Freshpet’s current financial year sales and earnings indicates growth of 27.3% and 224.3%, respectively, from the prior-year reported level.

Vital Farms, which provides pasture-raised products, currently sports a Zacks Rank #2. VITL has a trailing four-quarter average earnings surprise of 82.5%.

The Zacks Consensus Estimate for Vital Farms’ current financial year sales and earnings indicates growth of 26.3% and 88.2%, respectively, from the prior-year reported level.

Coca-Cola Europacific Partners produces, distributes and sells a range of non-alcoholic ready-to-drink beverages. CCEP carries a Zacks Rank #2.

The consensus estimate for Coca-Cola Europacific Partners' current financial year’s earnings per share indicates growth of 6.5% from the year-ago reported figures. The consensus sales estimate suggests a year-over-year growth of 25%.

Zacks Investment Research