Industry Overview - The Zacks Beverages – Soft Drinks industry is characterized by strong growth potential driven by rising consumer demand for healthier, functional, and eco-friendly beverages [1] - Companies are innovating and diversifying their portfolios to capture new market opportunities [1] - The industry is experiencing a digital transformation with brands adopting direct-to-consumer channels and subscription models to enhance customer relationships [1] Current Challenges - The industry faces persistent headwinds such as elevated input costs, supply-chain disruptions, and tariff-related uncertainties that pressure margins [2] - Rising packaging and freight expenses, along with volatile commodity prices, challenge profitability [2] - Newly imposed U.S. tariffs on imports from Canada and Mexico create additional financial pressure and uncertainty [6] Consumer Trends - There is a significant shift in consumer preferences towards healthier beverage options, including drinks made with natural ingredients and reduced sugar [4] - Plant-based beverages and functional drinks that promote hydration and energy are gaining popularity among health-conscious consumers [4] - Companies are expanding into adjacent categories, such as ready-to-drink alcoholic beverages, to capitalize on these trends [4] Digital Growth & Innovation - The industry is leveraging digital transformation to enhance consumer engagement and boost growth [5] - Brands are investing in direct-to-consumer platforms and subscription-based models to secure recurring revenue [5] - Product innovation remains a key growth driver, with companies refining their portfolios and launching new products [5] Financial Performance - The Zacks Beverages – Soft Drinks industry currently holds a Zacks Industry Rank of 63, placing it in the top 26% of over 250 Zacks industries, indicating bright near-term prospects [8] - The industry has underperformed the Consumer Staples sector and the S&P 500 Index over the past year, with a collective growth of 0.4% compared to the sector's 3.5% and the S&P 500's 11.9% [10] Valuation Metrics - The industry is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 18.68X, compared to the S&P 500's 21.97X and the sector's 17.75X [13] - Over the past five years, the industry's P/E ratio has ranged from a high of 23.8X to a low of 17.22X, with a median of 21.45X [13] Notable Companies - **Coca-Cola (KO)**: Positioned for long-term growth through strategic transformation and digital investments, with a projected sales growth of 2.4% and earnings growth of 2.8% for 2025 [17][18] - **Zevia (ZVIA)**: Focused on zero-sugar, naturally sweetened drinks, with a projected sales growth of 3.4% and earnings growth of 38.7% for 2025 [21][22] - **Monster Beverage (MNST)**: Continues to perform well in the energy drinks category, with projected sales growth of 5.9% and earnings growth of 14.8% for 2025 [24][25] - **Keurig Dr Pepper (KDP)**: Expected to benefit from growth in the Refreshment Beverages segment, with projected sales growth of 5.6% and earnings growth of 6.3% for 2025 [28][29] - **Primo Brands (PRMB)**: Specializes in healthy hydration with a projected sales growth of 145.6% and earnings growth of 52.5% for 2025 [33]

Investment Rating - The report indicates a moderate growth in total store sales, with a rating of low single-digit growth (LSD) for the latest quad-week [1]. Core Insights - Total store sales increased by 2% in the latest quad-week, driven primarily by the Dairy category, while Frozen and Alcohol categories experienced declines [1]. - The report highlights a mixed performance in the Beverages sector, with non-alcoholic categories showing stable trends for carbonated soft drinks (CSDs), sparkling water, and sports drinks, while ready-to-drink (RTD) tea and coffee saw accelerated sales growth [2]. - In the Tobacco sector, sales growth trends remained stable for the overall cigarette category, although specific companies like IMB experienced a deceleration in growth [3]. Summary by Category HPC (Household and Personal Care) - HPC sales growth improved to 2.0% from 1.5% in the previous month, primarily driven by higher pricing, despite lower volume growth [10]. - KMB continued to show robust sales growth, while PG and CL experienced slight moderation in growth [10]. - KVUE and CHD saw improvements in sales growth, with KVUE benefiting from higher volume growth and CHD from improved volume trends [10]. Beverages - Non-alcoholic beverage sales trends were mixed, with stable trends for CSDs and sparkling water, while RTD tea and coffee saw accelerated growth [2]. - Alcoholic beverage sales trends modestly decelerated across all categories, with some companies like BF showing improved trends [2]. Tobacco - Overall sales growth in the cigarette category remained stable, but IMB saw a deceleration in growth trends [3]. Food - Sales in the Food category decelerated in the latest quad-week, contrasting with the growth seen in HPC [1]. Private Label - Private label's dollar share growth remained modest at the total store level, with slight fluctuations across various categories [9].

Market Overview - Volatility has returned to Wall Street, driven by tariff fears and high inflation impacting consumer sentiment [1][2] - Consumer sentiment index dropped to 50.8 in May, a 2.7% decline from April, marking one of the lowest points in 75 years [5] - Since January, consumer sentiment has decreased by nearly 30%, with short-term inflation expectations rising to 7.3% in May from 6.5% [6] Federal Reserve and Inflation - The Federal Reserve is unlikely to implement interest rate cuts in the near term, maintaining a cautious stance despite signs of easing inflation [8] - The consumer price index rose by only 0.2% in April, with a year-over-year increase of 2.3%, the smallest since February 2021 [7] Tariff Impact - President Trump's announcement of sweeping tariffs raised concerns about a potential global trade war, leading to market sell-offs [9][11] - A recent 90-day trade truce with China has temporarily calmed the situation, delaying additional tariffs [10] Investment Opportunities - Recommended focus on safe-haven stocks, particularly low-beta consumer staples with high dividend yields [3][4] - Philip Morris International Inc. (PM) has an expected earnings growth rate of 13.7% for the current year and a dividend yield of 3.09% [14] - Nomad Foods Limited (NOMD) has an expected earnings growth rate of 7.3% and a dividend yield of 3.80% [16] - Zevia PBC (ZVIA) shows a significant expected earnings growth rate of 38.7% for the current year [17]

Investment Rating - The report does not explicitly provide an investment rating for the industry or specific companies mentioned [20]. Core Insights - The report highlights key takeaways from the Global Staples Forum 2025, focusing on various companies such as Kroger Co., General Mills, Constellation Brands, and others, discussing their performance and outlook in the consumer staples sector [3][5]. - It emphasizes the impact of macroeconomic factors, including inflation and consumer spending trends, on the performance of consumer staples companies [5][6]. Summary by Relevant Sections - **Kroger Co. (KR)**: Key insights from the Global Staples Forum 2025 indicate a positive outlook for the company, driven by strong consumer demand and strategic initiatives [3]. - **General Mills (GIS)**: The report discusses the company's resilience in the face of economic challenges, highlighting its product innovation and market positioning [3]. - **Constellation Brands (STZ)**: Insights reveal a focus on premium product offerings and expansion strategies that are expected to drive growth [3]. - **Celsius Holdings**: The report notes the company's strong performance in the beverage sector, capitalizing on health trends among consumers [3]. - **Zevia PBC (ZVIA)**: Key takeaways indicate a growing market for zero-calorie beverages, positioning Zevia favorably within the industry [3]. - **Vita Coco Co. Inc. (COCO)**: The report highlights the increasing popularity of coconut water and its potential for continued growth in the beverage market [3]. - **Kimberly-Clark Corp. (KMB)**: Insights from investor meetings suggest a strong focus on sustainability and innovation in product offerings [3]. - **Colgate-Palmolive Co. (CL)**: The report discusses the company's strategies to maintain market share amid competitive pressures [3]. - **Consumer Cyclicality**: The report reviews the outlook for consumer discretionary spending, indicating potential challenges for certain segments within the consumer staples industry [5][6].

Financial Data and Key Metrics Changes - First quarter net sales were $38 million, a decrease of 2% compared to the same period last year, primarily due to increased promotional activity [19] - Gross margin reached a record high of 50.1%, an increase of 440 basis points from 45.7% in the first quarter of last year, reflecting lower product costs and improved inventory management [19] - Net loss improved to $6.4 million from $7.2 million in the prior year, while adjusted EBITDA loss improved to $3.3 million from $5.5 million [21][22] Business Line Data and Key Metrics Changes - Selling and marketing expenses were $15.3 million, or 40.3% of net sales, compared to $15.1 million, or 38.8% of net sales in the prior year [20] - Marketing expenses increased to $6.2 million, or 15.2% of net sales, from $2.7 million, or 7% of net sales in the prior year, due to higher marketing investments [20] Market Data and Key Metrics Changes - The company is seeing robust growth in the better-for-you beverage category, which comprises 25% of all carbonated soft drink growth [51] - The company has expanded its distribution significantly, now reaching 4,300 Walmart stores, up from 800, which is expected to enhance household penetration [49] Company Strategy and Development Direction - The company is focused on three strategic growth pillars: distinctive marketing, product innovation, and expanded distribution [16][82] - The marketing campaign featuring Jelly Roll has generated 2.4 billion earned impressions, indicating strong brand engagement [10] - The company plans to introduce new flavors and variety packs to drive trial and brand awareness [12][14] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about the future, citing a strong growth outlook for the better-for-you beverage category and the company's unique market positioning [7][22] - Despite macroeconomic uncertainties, the company is confident in its ability to drive growth through strategic initiatives and cost-saving measures [22][76] Other Important Information - The company ended the quarter with approximately $28 million in cash and cash equivalents and an undrawn revolving credit line of $20 million [22] - The productivity initiative has led to annualized cost savings of $15 million, which will be reinvested to accelerate future growth [22] Q&A Session Summary Question: Guidance and Top Line Growth - Management expressed confidence in maintaining full-year guidance, citing strong execution and the impact of productivity initiatives [27][28] Question: Performance at Walmart - Management reported positive early sell-through performance at Walmart, with the variety pack being the top seller among Zevia SKUs [33][34] Question: Gross Margin Sustainability - Management believes gross margins in the upper forties are sustainable, despite anticipated tariff headwinds [39] Question: Convenience Distribution - The company is testing single cans in convenience stores, leveraging DSD relationships for distribution [40][42] Question: Tariff Exposure - Tariff exposure is primarily from aluminum, with some secondary impacts from sourcing costs [48] Question: Consumer Behavior Changes - Management noted that it is too early to see significant changes in consumer behavior but believes the company is well-positioned as an affordable option [76]