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Top 3 Beverage Stocks: Summer Earnings Reveal Key Trends

As temperatures rise and consumers seek refreshment, the beverage industry and consumer staples sector gears up for its busiest season. Summer often brings increased sales and heightened investor interest in beverage stocks. The "Summer Beverage Wars" are heating up this year, with three key players vying for dominance. Recent earnings reports from these companies offer a valuable snapshot of their performance, strategic moves, and broader industry trends.

Earnings Reports Reveal Varying Paths to Growth

The most recent quarterly earnings reports of 2024 paint a picture of these beverage giants' success and challenges. Each company has adopted strategies to navigate the evolving consumer landscape and macroeconomic pressures.

Coca-Cola: A Global Giant Navigating Headwinds

Coca-Cola's (NYSE: KO) recent stock performance has been relatively stable, with a 3-month performance of +8.27% and a year-to-date performance of +7.08%. Coca-Cola’s earnings report for the first quarter of 2024 reported revenue of $11.3 billion, a 3% increase year-over-year. Net income reached $3.177 billion, a 2% increase, translating to an earnings-per-share (EPS) of $0.74, also a 3% rise. While indicating modest growth, these figures were impacted by a decline in operating margin due to a combination of items affecting comparability and currency headwinds.

Despite these challenges, Coca-Cola highlighted several positive trends driving its performance. The company experienced strong organic revenue growth of 11%, fueled by volume growth in developing and emerging markets, particularly Latin America. Trademark Coca-Cola and Coca-Cola Zero Sugar emerged as key growth drivers, underscoring the enduring power of the company's flagship brands.

Coca-Cola's management emphasized its strategic focus on digital capabilities and targeted marketing efforts. The company is leveraging digital tools to deepen its relationship with consumers, gather valuable data, and drive transactions. Marketing campaigns have successfully connected consumption occasions with consumer passion points, contributing to volume growth and value share gains. Looking ahead, Coca-Cola has updated its full-year 2024 guidance, projecting organic revenue growth of 8-9% and comparable EPS (non-GAAP) growth of 4-5%.

PepsiCo: Margin Expansion and Strategic Investments

PepsiCo (NASDAQ: PEP) has also shown positive momentum, with a 3-month performance of +3.56% and a year-to-date performance of +1.23%. PepsiCo’s earnings report for the second quarter of 2024 revealed revenue of $22.5 billion, reflecting a modest 0.8% increase year-over-year. However, net income climbed to $3 billion, a significant 12% increase, translating to an EPS of $2.23, up by 13%.

Despite facing headwinds in its North American convenience foods segment and dealing with product recalls at Quaker Foods North America, PepsiCo achieved strong gross and operating margin expansion, resulting in double-digit EPS growth. The company's organic revenue growth reached 1.9%, with a core EPS of $2.28.

PepsiCo's management announced plans to enhance productivity initiatives further and make strategic commercial investments to stimulate growth. These investments will optimize value propositions within certain parts of its North American convenience foods portfolio, strengthen advertising and marketing efforts, and leverage its extensive distribution network for more precise market execution. Based on these initiatives, PepsiCo has updated its full-year 2024 guidance, anticipating organic revenue growth of approximately 4% and core constant currency EPS growth of at least 8%.

Celsius Holdings: Riding the Energy Drink Wave

Celsius Holdings (NASDAQ: CELH) has witnessed the most dramatic stock performance of the three, with a three-month performance of -26.59% and a year-to-date performance of +7.34%. Celsius Holding’s earnings report for the first quarter of 2024 revealed substantial growth, with revenue surging to $355.7 million, a 37% increase year-over-year. Net income reached $64.8 million, an impressive 106% increase, translating to an EPS of $0.27, up 108%.

Celsius's strong performance is attributed to its successful capture of market share in the rapidly expanding energy drink category. It holds an 11.5% share in the U.S. energy drink market, a significant gain driven by its popular CELSIUS Essentials line, innovative product launches, and effective marketing campaigns.

The company is also aggressively pursuing international expansion, with plans to launch in Australia, France, Ireland, New Zealand, and the United Kingdom in 2024. While inventory fluctuations with its largest distributor pose a potential challenge, Celsius remains optimistic about its long-term growth prospects.

Evolving Tastes, Rising Costs, and Strategic Maneuvers

The most recent earnings reports from Coca-Cola, PepsiCo, and Celsius reveal a beverage industry in transformation, shaped by shifting consumer preferences, mounting cost pressures, and distinct strategic approaches by each company.

Healthier Choices and Energy Drinks Fuel Growth

A clear trend emerges towards healthier options and functional beverages. Celsius's meteoric rise, driven by its "better-for-you" energy drinks, exemplifies this shift. This has prompted traditional soda giants Coca-Cola and PepsiCo to diversify their portfolios with low-sugar alternatives and even enter the energy drink market. PepsiCo's recent acquisition of a significant stake in Celsius underscores the growing demand for performance-enhancing beverages.

Inflationary Pressures and Pricing Strategies

Rising costs are a concern across the industry. Coca-Cola and PepsiCo have implemented price increases to offset inflation, impacting their margins. However, Celsius, benefiting from lower freight and material costs, has managed to expand its margins, showcasing the potential for agile companies to thrive in this challenging environment.

Distinct Paths to Success

Each company is navigating the changing landscape with unique strategies. Coca-Cola leverages its digital prowess to boost consumer engagement and drive sales, while PepsiCo focuses on productivity initiatives and targeted commercial investments. Conversely, Celsius is capitalizing on the burgeoning energy drink market through product innovation and aggressive international expansion, including the successful launch of CELSIUS Essentials.

Investor Considerations: A Balancing Act

For investors, the summer beverage wars present a mix of opportunities and considerations. With its strong financial performance and expansion plans, Celsius offers a high-growth potential, but its reliance on a single distributor and high valuation requires careful assessment. Coca-Cola (KO) and PepsiCo (PEP), with their global reach, diversified portfolios, and brand recognition, provide stability and potential for long-term value appreciation, making them attractive to more conservative investors.

The beverage industry is in flux, with consumer preferences evolving and companies adapting to maintain their competitive edge. While the war for summer dominance continues, the battleground is clearly shifting towards healthier options, functional beverages, and innovative strategies that cater to a new generation of consumers. Investors should closely monitor these trends and company performance to make informed decisions in this dynamic market.

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This Financial Stock's Earnings Signal a Buying Opportunity

Most investors would look at consumer staples stocks for protection against the whipsaws that the market can bring during cycles. While this theory tends to work over time and has worked over time, it is a widely accepted model. However, markets aren’t a simple model. They are dynamic, and each cycle is different, and today is no exception. This is why the financial sector might be a better place to be when trying to hedge away some of the cycle risk.

Banking stocks are in the spotlight this time. Investment banks like Goldman Sachs Group Inc. (NYSE: GS) are highly dependent on the business cycle and interest rates, which drive the volume of investment banking deals, sales, and trading volatility. That might be different from the place to be right now. On the other hand, other banks like Wells Fargo & Co. (NYSE: WFC) are more exposed to the commercial side of the industry, which is not as dependent on the business cycle.

Others stand in the middle of the spectrum, being exposed to investment banking and commercial banking activities to cushion the cycle. One such bank is Citigroup Inc. (NYSE: C), which will show investors this sort of diversification in its second quarter 2024 earnings results. Despite the stock trading lower by over 2% after the release, growing concerns will be cleared away by Wall Street expectations.

The Growth Engine Behind Citigroup Stock

Digging into the bank's quarterly earnings presentation, investors will notice a common trend: growth in every aspect of Citigroup stock's operations. Starting with the commercial side of the business, Citigroup saw a 6% revenue jump over the year.

Revenue increased due to higher net interest income (NII), a widely followed metric for banking earnings. The rising level of branded credit card usage is behind this profit metric, which is responsible for 8% of the revenue growth in that segment alone.

Most investors are aware of the rising trends in credit card usage now that most American consumers are feeling the choking effects of inflation. While that was the main driver on the commercial side, investors can take a look under the hood of the economy by dissecting Citigroup's investment banking side.

Investment banking revenues rose by 60% over the year, leading to higher bank profits. Now, investors need to understand that investment banking activities are highly dependent on the business cycle and interest rates. Low interest rates and flexible financing typically encourage more mergers and acquisitions (M&A) and other debt or equity issuance activity.

With the promise of interest rate cuts on the horizon, expected by September 2024, according to the CME's FedWatch tool, corporate activity may have been picking up, bringing Citigroup into the eye of the storm of potentially higher profits ahead.

This could be why Wall Street analysts felt comfortable with a forecast for up to 22% earnings per share (EPS) growth rate for the next 12 months. Of all these analysts, those at Oppenheimer are the positive outliers, as they slapped a valuation of $86 a share for Citigroup stock, daring it to rally by 33.5% from where it trades today.

More than that, rising profits across commercial and investment banking activities enabled Citigroup management to boost shareholder rewards. Dividend payouts are now up to $2.12 a share for shareholders, which at today's prices represent an annual dividend yield of 3.3%, which at least lets investors keep up with inflation rates.

What Citigroup Stock's Numbers Reveal About the Economy

Despite the growing revenue and profit numbers across the bank’s segments, there is one caveat. The Federal Reserve reports that current credit card delinquency rates are back to levels not seen since 2011, which is a huge warning sign.

This is a warning about the state of the U.S. consumer economy as consumers wait for a government bailout through interest rate cuts. In the meantime, banks like Citigroup are building up a war chest in case these rising credit card balances become delinquent.

Citigroup’s investor presentation shows that non-conforming loans rose to $2.3 billion this quarter, an annual jump of 59%. This means that loans at Citigroup that are considered delinquent jumped by 59% on the year, which says a lot about the consumer discretionary sector.

Investors can put a blaming finger on this statistic to understand why Nike Inc. (NYSE: NKE) and Starbucks Co. (NASDAQ: SBUX) took a dive recently to trade near their 52-week lows.

More than that, the allowance for further credit losses increased to $1.9 billion, showing worsening consumer expectations. While that may not affect Citigroup stock much, as investors know the bank can cushion the cycle, it is a robust data reference for making other investment decisions in different sectors.

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Social Platform Stock Hits New Highs: Is More Growth Ahead?

Reddit, Inc. (NYSE: RDDT) has been on an impressive run, recently achieving a new all-time high and up almost 40% YTD. The question now is whether this momentum and sector outperformance can continue after the stock pulled back nearly 10% from its recent highs and has a growing short interest.

So, let's take a closer look at some key metrics, technical analysis, upcoming earnings, and overall sentiment to understand the potential trajectory of Reddit's stock in the near-to-mid-term.

Bullish Momentum: Reddit Reaches All-Time High

Reddit's stock has soared nearly 40% year-to-date, with an outstanding 88% surge from its 52-week low set in April. More recently, the stock surpassed its previous post-IPO high of $74.90, reaching a new all-time high (ATH) last week of $76.74. This higher timeframe breakout and price reclaim signals strong bullish momentum.

From a technical analysis perspective, Reddit's chart displays an extremely bullish setup. Shares are consolidating above the previous resistance zone near $70, which has now turned into support. If the stock can continue to hold above this zone, alongside rising moving averages, a breakout above its recent highs might propel the stock above the $80 mark. This consolidation phase is crucial as it demonstrates the stock's ability to sustain its gains and potentially launch another upward move.

Reddit's Earnings as a Stock Catalyst

With earnings on the horizon, it's essential to consider this as a significant factor influencing the stock's momentum. Reddit last posted its earnings data on May 7, 2024. The company reported a loss of $8.19 per share for the quarter, missing analysts' consensus estimates of a $2.34 loss by a substantial margin. However, the business generated $243 million in revenue, surpassing the consensus estimate of $213.99 million and reflecting a 48.4% increase compared to the same quarter last year.

Steve Huffman, Co-Founder and CEO of Reddit commented, "It was a strong start to the year and a milestone quarter for Reddit and our communities as we debuted as a public company. We see this as the beginning of a new chapter as we work towards building the next generation of Reddit."

For the upcoming second quarter, Reddit estimates revenue between $240 million and $255 million and adjusted EBITDA between $0 and $15 million. These figures are well ahead of Wall Street's consensus of $227.5 million, suggesting a positive outlook that could further boost investor confidence.

Analyst Upgrades Reflect Confidence in Reddit's Growth Potential

Analyst sentiment towards Reddit remains bullish, with a Moderate Buy rating based on 16 analyst ratings. Recent actions include Loop Capital boosting its target from $60 to $75 on July 3, Needham & Company LLC raising its target from $63 to $75 in June, and Citigroup increasing its target from $65 to $70 in May while maintaining a buy rating.

While the bullish momentum and positive analyst actions paint a promising picture, it's important to note the growing bearish sentiment. Short interest in Reddit's stock has increased significantly, with 27.6% of the stock's float, or 8.43 million shares, sold short. This high short interest could catalyze a substantial short squeeze, potentially driving the stock higher if momentum continues and shorts are forced to cover their positions.

Watching Reddit's Momentum: Key Factors to Monitor

Reddit's stock has shown remarkable performance and technical strength, positioning itself for potential further gains. The upcoming earnings report will be a critical factor, with positive expectations potentially driving the stock higher.

While analysts' upgrades and strong revenue forecasts support the bullish sentiment, the high short interest adds an element of volatility that could amplify any upward movement. Investors should watch closely as earnings season approaches, as it may determine whether Reddit's momentum will continue or if the stock might face new challenges.