Drinking from the Fountain of Growth in the Beverage Space
There are many changes occurring in the beverage industry, with consumers moving away from sugary soft-drinks towards healthier substitutes and “functional drinks”. Which companies are benefiting from these trends, and which companies are getting left behind?
Worst Performers – below are three companies that are not delivering growth in revenues.
The Coca-Cola Company (NYSE:KO) has been the company with the least amount of revenue growth over the last 4 quarters, with revenue down 0.4%. The iconic beverage company with a market capitalization of $182 Billion is one of the most widely held stocks in the world. They are seeking revenue by purchasing it where they can, and have announced two transactions within the last 6 months. In November 2014, they announced that they were buying 19 non-alcoholic ready-to-drink brands in Africa and Latin America from SABMiller plc (LSE:SAB) for $260 million. In August 2014, they announced a deal to buy a 16% of Monster Beverage Corporation (NASDAQ:MNST), and the purchase of many of their non-energy drink business including Hansen’s Natural Sodas, Peace Tea, Hubert’s Lemonade and Hansen’s Juice Products. These transactions are meant to off-set the decline in their core business, the sugary sodas.
National Beverage Corp. (NASDAQ:FIZZ) has been another poor performer, with revenue growth over the last 4 quarters of only 1.3%. FIZZ has a market capitalization of $1.2 Billion, and a diversified portfolio of carbonated soft drinks, sparkling and flavored water products, energy drinks, juice-based products, functional beverages, sports drinks, lemonades and teas. They blamed an especially harsh winter for last year’s performance disappointments, but have high hopes for its La Croix brands of lightly flavored sparkling water which seems to be the only major bright spot in its portfolio of slow-growing brands.
Dr Pepper Snapple Group, Inc. (NYSE:DPS) is another beverage behemoth that has not been delivering revenue growth with revenue growth over the last 4 quarters of only 2.6%. DPS has a market capitalization of $13.8 Billion and has one of the most diversified portfolio of beverages in the industry, with over 50 brands, including 7UP, Snapple and Motts Apple Juice. When you break out their Q3-2014 numbers, you can see that Dr. Pepper declined 2%, Hawaiian Punch declined 2%, Snapple increased 2%, and only a very small innovative brand in Latin America called Penafiel increased 23%. Again, their core business of sugary drinks is the laggard.
Best Performers – So who is delivering rapid growth in the beverage space? Revenue growth is coming from a handful of small companies with a focused portfolio, and usually in a new product category. Here are three winners.
The Alkaline Water Company Inc. (OTCQB:WTER) is a small public company from Scottsdale, Arizona, with only a $12M market capitalization focused on a new water category, called Alkaline Water. While they did start from a small revenue base, their revenue growth over the last 4 quarters is a staggering 688%, and they are now selling over $1M as of their last quarter. Alkaline Water is being billed as a major anti-oxidant that helps regulate PH in your body and make you healthier. The company is doing significant business in California, and is starting its march across the country, having recently partnered with major distributors. It only trades at 4.9x sales, which is about the same as The Coca-Cola Company (NYSE:KO), which has negative growth. As more consumers hear about this product and investors take notice, that could change quickly.
REEDS, Inc. (NYSE MKT:REED) is also a small-cap company, with only an $73M market capitalization, based out of Los Angeles, California that makes natural sodas, non-alcoholic Ginger Brews, root-beer, and Kombucha based teas. They have had revenue growth over the last 4 quarters of 22%, with major growth coming their ginger brews (their Extra Ginger Brew grew 31% over the last year), and some savvy marketing with commercial buys on the Food Network and HGTV, and as of earlier this year, their brews have been deemed kosher.
Monster Beverage Corporation (NASDAQ:MNST) is the only large-cap company on this list, with a market capitalization of $17.6 Billion, which makes it even more impressive. The company started off with their very well-known Monster Energy Drink and became the category leader in this space. They have since expanded into other beverage categories, including teas, sodas, and juices. They have had revenue growth over the last 4 quarters of 7.7%, with LTM revenue of $2.4 Billion. They have been doing so well, that The Coca-Cola Company (NYSE:KO) has purchased a minority stake.
In looking at the beverage space, the more interesting companies are those that are emerging leaders in new product categories. This is where the growth is coming from and are the acquisition candidates of tomorrow. Huge companies saddled with sugary drink portfolios will have no choice but to eventually buy them as consumer habits move away from their product offerings.
