Celsius insulated from trade war by having production within China

By Hank Schultz contact

- Last updated on GMT

Celsius insulated from trade war by having production within China

Related tags: tariff, Trump tariffs, Sports drink

Having production in China has insulated fast growing energy drink brand Celsius from any potential fallout from President Trump’s trade war. Celsius has more than doubled its store count to China to 25,000. The brand is now sold in 47 cities in the country.

The company’s flagship product, a beverage called Celsius, is sold as a dietary supplement and contains a blend of taurine, guarana extract, green tea extract, glucuronolactone and ginger extract. The Celsius Heat line extension was launched in early 2017. It also includes 300 mg of caffeine and 2 grams of L-citrulline, an amino acid that is part of the body’s nitric oxide pathway.  Boosting nitric oxide stimulates vasodilation and blood flow and has been linked to athletic performance increases. 

Brand backed by Hong Kong billionaire 

Celsius Holdings appears to be well capitalized, with an influx of $16 million in 2015 from a group led by Hong Kong businessman Li Ka-Shing, who according to Forbes​ magazine is the richest person in Asia. Def Jam co-founder Russell Simmons also participated in that investment. In November of 2016 the company entered into a partnership with Li’s A.S. Watson group, which is the largest international health and beauty retail group in Asia. The brand was initially being distributed in Asia in Hong Kong and Macau. 

A group led by Li reportedly put another $15 million into the company in March of 2017 to help build out the launch in mainland China, where Celsius is making a major push in partnership with Qifeng Food Technology Co. Ltd. 

CEO John Fieldy said those early investments into the Chinese market are now bearing fruit, especially in light of the trade tension between the two countries.

“In China, we have a distinct advantage. We are producing in country, sourcing all materials locally, and we are supported by local investors and partners. With operations localized, we're able to reduce the impact of tariffs, have a competitive price innovative product, able to gain mass appeal with local partners are able to leverage their experience and networks to increase our speed to market,”​ Fieldy told analysts during a recent earnings call discussing the company’s second quarter results. 

Earnings details

Celsius stumbled slightly in its second quarter as a result of one of its main copackers being unable to meet demand. As a result, some sales were pushed into the third quarter, which depressed results. The company says it has been working to broaden its manufacturing base to insulate it from future inventory shocks.

Over the last several quarters and years, we've continued to work on solidifying really our production. We are now running product at multiple co-packers. We feel that our inventory has stabilized. We have plans in place to continue to execute and we have our co-packers back online. We actually added another co-packer online in the third quarter. So we feel we have a sufficient amount of supply,”​ he said.

Celsius recorded $9.3 million in revenue in the quarter compared to $10.2 million in the second quarter of 2017. The loss to common shareholders for the second quarter of 2018 was $3 million or $0.07 per basic and diluted share compared to a net income of $380,000 or $0.01 per basic and diluted share for the corresponding period last year.

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