Earnings Call: Black Rifle Coffee Co. Reports Mixed Q3 Results, Focuses on Growth
Black Rifle Coffee Company (BRCC) presented a mix of challenges and growth opportunities during its third-quarter earnings call on November 8, 2024. Despite a 2% decrease in revenue on a year-over-year basis, the company reported a 15% increase in adjusted EBITDA and maintained gross margins above 40%.
A partnership was announced with Keurig Dr. Pepper to distribute energy drinks aimed at the $20 billion energy beverage market and younger consumers. CEO Christopher Mondzelewski expressed optimism about expanding market share in coffee and ready-to-drink categories, despite facing challenges such as rising coffee prices and changing consumer shopping habits.
Key Points:
- Black Rifle Coffee Company (BRCC) reported a 2% decrease in revenue but saw a 15% growth in adjusted EBITDA compared to Q3 2023.
- Gross margins remained strong, exceeding 40% in the third quarter.
- The strategic partnership with Keurig Dr. Pepper aims to strengthen the company's presence in the energy beverage market.
- The company focuses on expanding market share in the coffee and ready-to-drink sectors, with an investor event scheduled for January 14 at the ICR Conference in Orlando.
- Management confirmed ongoing discussions with major retailers and a strong cash flow outlook despite rising stock levels.
Company Outlook:
- Revenue guidance was narrowed, with full-year gross margin expectations raised to 42%.
- Positive free cash flow is anticipated for the year due to increased profitability and reduced working capital needs.
- Full distribution in food, drug, and mass markets is now expected by the end of 2026, an extension from previous guidance.
Negative Highlights:
- Revenue saw a slight decline due to previous swaps and changes in consumer preferences.
- Higher green coffee prices and trading costs are expected to pressure margins in 2025.
- Direct-to-consumer (DTC) business growth retains uncertainty due to changing consumer shopping patterns.
Positive Highlights:
- Wholesale sales have increased by 17% year-to-date with a 3% rise in the current quarter.
- The company aims to reach 80% All Commodity Volume (ACV) distribution within a few years, starting with urgent demand channels.
- Strong performance with 85% distribution at Albertsons and 15% growth in the ready-to-drink category.
Shortcomings:
- The company's revenue decline is viewed as a shortfall in growth tied to swap transactions and changing consumer trends.
Q&A Highlights:
- Management confirmed positive discussions with major retailers currently holding 47% ACV distribution.
- Energy margins are expected to be below 40% in the first year due to initial costs but are projected to improve over time.
- The company’s diversified no-sugar energy drink offering is anticipated to target a different consumer base by focusing on health trends.
In summary, Black Rifle Coffee Company is advancing in a competitive environment with strategic focuses on market share growth and product innovation. Its partnership with Keurig Dr. Pepper and commitment to operational excellence are critical in bolstering its position in the coffee and energy beverage markets. Despite some revenue challenges, BRCC's strong gross margins and adjusted EBITDA growth indicate resilience with promising outlooks for the future.
InvestingPro Forecasts: The recent earnings call of Black Rifle Coffee Company aligns with several key forecasts from InvestingPro. The company's 2% revenue decline year-over-year reflects a -2.32% quarterly revenue growth for Q3 2024 seen in InvestingPro data and underscores BRCC's challenges in a competitive market.
Despite the revenue decline, BRCC's clear focus on profitability is evident. An InvestingPro tip states, "Net income is expected to rise this year," aligning with the company's reported 15% increase in adjusted EBITDA. This positive outlook is supported by another InvestingPro tip stating, "Analysts forecast the company will be profitable this year."
The robust gross margins reported above 40% in successive third quarters are corroborated by InvestingPro data, which indicates a gross profit margin of 37.62% over the last twelve months as of Q3 2024. This strong margin performance is crucial for BRCC as it navigates challenges like rising coffee prices and evolving consumer habits.
BRCC's strategic partnership with Keurig Dr. Pepper for energy beverage distribution is especially noteworthy given an InvestingPro tip mentioning, "The stock tends to trade with high price volatility." This foray into the energy beverage market could potentially contribute to future stock price movements as the company expands its product range.
While BRCC takes strategic moves to enhance growth and profitability, it is important to note that InvestingPro data indicates the company has "not been profitable over the last twelve months" and exhibits a negative P/E ratio of -50.52. This highlights the importance of the company's efforts to improve financial performance and achieve sustainable profitability.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and forecasts beyond those mentioned here. In total, there are five more InvestingPro tips available for BRCC that may provide valuable context for understanding the company’s financial health and market position.