Vita Coco Co.: Business Could Beat FY24 Guidance

Core Viewpoint - The Vita Coco Co. is expected to meet or exceed its FY24 guidance due to strong demand, product innovation, expanded distribution, and international growth, leading to a reiteration of a buy rating [1][4]. Financial Performance - COCO reported a 1.8% increase in revenue to $111.7 million, with coconut water sales growing by 0.6%, despite a tough comparison from the previous year [2]. - Gross margins expanded significantly by 1100 basis points to 42.2%, surpassing consensus estimates of 35.4% [2]. - Adjusted EBITDA was reported at $21 million, exceeding expectations of $16 million, while EPS reached $0.24, ahead of the consensus estimate of $0.18 [2]. Guidance Updates - Management raised FY24 net sales guidance to $500 million to $510 million, reflecting a growth of 1% to 3% [3]. - Gross margin guidance for FY24 was also increased to a range of 37% to 39%, indicating a 100 basis point improvement [3]. - Adjusted EBITDA is now expected to be between $76 million and $82 million, implying a 16% growth at the midpoint [3]. Product Innovation and Market Expansion - New product launches, such as Vita Coco Treats and Vita Coco Farmers Organic, are anticipated to contribute to growth, with initial responses being positive [5][6]. - Increased investment in Europe, particularly in Germany and the Benelux countries, is expected to drive international sales growth, which accounted for approximately 14% of total sales in 1Q24 [6]. Margin Potential - COCO's current gross margin of 42.2% suggests that the company has the potential to exceed its margin guidance for FY24 [7]. - The company is less locked into forward shipping contracts, allowing for flexibility in responding to changes in freight rates [7]. Valuation Metrics - The projected revenue for FY24 is $500 million, with an expected adjusted EBITDA margin of 16.4% [9]. - The implied share price target is $38.26, with a current share price of $26.86, indicating a potential upside of 42% [8][11]. Competitive Positioning - COCO continues to perform well against peers in the US beverage manufacturing industry, with a higher growth outlook and potential for margin expansion [10].