Vita Coco Company, Inc. (COCO) September 16, 2026 Conference Transcript

Welcome, everybody. It's our pleasure to have Vitacoco with us today. We've got CFO Corey Baker and Chief Sales Officer Charles Van Ness, and I would love to just jump right in. It's been fun to watch you guys. It's a 22-year-old story that's just been in the public eye the last five or so, and so it's been real fun to get to know, but maybe start just talking a little bit about the category and the category health. Some of, you know, just kind of what drives it and how you're confident in future growth.

Yeah, I mean, you know, we're looking at that as the coconut water category is taking share of the overall beverage category. It's growing at a very healthy clip. I think it's up 28% year-to-date in the U.S. We're seeing very healthy growth internationally. A lot of the major retailers are growing very healthily, Walmart and some of the others. It's driven by, we see basically consumer growth. About two-thirds of it is coming from new households in the U.S., about one-third from the same households buying more. And that is driven by two big intrinsic drivers. One, people want functionality from their beverages. They want it from a lot of food as well. And they want healthier, natural, better-for-you beverages. So if you have a category and a brand that hits on both, you know, we think there's a lot of potential. From a household penetration perspective, we're still significantly below some of the major juice categories, for example. So with a consumer that's aging down, younger, you know, we see a lot more younger people drinking it. We see a lot of long runway for growth in the U.S. as well as internationally.

And can you touch on just some of the durability of those drivers and how you see the sustainability? You've touched on kind of a long-term 15-ish percent branded coconut water growth expectation. You're running ahead of that now. How do you think about just maybe kind of medium and long-term and just sort of what sustains that double-digit type momentum?

I mean, it all comes down to penetration opportunities to have sustained growth. You've got to have a runway for increased distribution. We believe that around 15% growth for the brand is a good place to be. It'll go in leaps and bounds a little bit. One year, there's more expansion. The other year, but we're feeling very confident about that number. If I look at the U.S., we still see distribution opportunities with our major retailers. You know, you've talked with us a lot about Walmart over the years. Walmart still has stores that have just a few Vitacoco SKUs. Well, we think they should, you know, they should have more Vitacoco SKUs and category space. So that's an opportunity. Then if you look at places like C-Store, you know, a couple of years ago, we talked about having two or three items in a store. We're now talking to retailers about having full shelves. And I think, you know, as this progresses, you can see this, you know, growing into multiple shelves. It's not unimaginable. In the U.S., food service is a channel for us with very low penetration. We historically haven't been strong there. So in the U.S., that's another big focus for us. And then internationally, we have markets where the per capita consumption is still, in the UK, it's less than 50% of what it is in the US. In Germany, it's less than high teens versus US consumption. There's still a lot of runway in those markets as well, which coincides with distribution growth.

You mentioned Walmart. It's gotten a lot of attention in the last couple of years, deservedly, but sometimes there's going to be too much attention. But we've done some channel checks. We see where there's certainly stores that look like there's room for outside. How would you kind of frame your expectations for how that might look going into next year? We're, you know, a few more stores, some, you know, just qualitatively maybe an idea of kind of what might be the next leg of that particular piece of the puzzle.

I mean, I will say as a disclaimer, you know, we love disclaimers. Walmart, you don't know until, you know, until you're in the store and you see your actual set represented. You know, that reset happens probably end of this year. That's, you know, when they did it last year. And the pitch that we're making to them certainly is, hey, you've got a lot of stores where you have maybe 10 items per store, but they have a lot of stores where they have just a few Vitacoco items. So our main pitch has been, you know, explaining to them that if they just level up the stores where there's, you know, where there's just a few items and the category has a lot less space, there's a lot more growth in that juice section that they can generate. So that's the pitch that we're making. We'll see by the end of the year where we are.

All right. Well, yeah, we'll keep an eye on that. You've mentioned earlier this year having a little bit tighter inventory. How have your customer service levels looked, and how should we think about capacity into 2027?

So, yes, as we talked about the categories growing high 20s in the U.S., that exceeded our expectations, especially earlier in the year, And capacity is quite tight. Service levels are pretty good, but they're impacted by the tightness of capacity of certain SKUs, certain customers, where there's less factory diversification. And we're starting to see improvement. We expect in Q4 we'll fully recover and start to build inventory going into next year. So a little tighter than we would like, but we'll recover soon.

And so if the first half had some timing things and other benefits that had really outsized growth, a very strong but little more reasonable pace gives you some breathing room, setting up next year should be that much better from a CSL perspective.

Correct. And we've been building capacity all along and accelerated capacity and investments to secure more capacity going into next year. So as more capacity comes online, as we get into the end of the year, that allows us to build more inventory to prepare us better for next year.

And a follow-up on that, can you give a sense of how long it takes to add capacity? And to what extent is there also a competitive advantage in the capacity that you have as your starting point at scale in the first place?

Broadly, it varies by factory and partner, but about 18 months to secure a new line, sign up a new partner, put in that line. If it's an existing partner, maybe you can go a little quicker. If it's a partner that has capability already, you could go even quicker, but about 18 months to kind of build out a new line.

And just in terms of the macro environment, there's been cost pressures. Broadly, you've touched earlier this year on seeing some of that yourself. Your guidance points to a second half gross margin step down. Can you just flag or lay out some of the key drivers there and how to put that in the right context?

Sure. There's a few things, and we've talked about it in different ways, but we've seen increases in packaging costs. So Tetra as a primary packaging is taking price increases as well as some of the corrugated driven by energy. We see that as more of a permanent increase that we will look to offset with pricing early next year. Then we've seen fuel-related increases in domestic logistics, so pretty common across the U.S., across the world, that the gas prices are driving increased lane rates. And then ocean freight is a combination of we've seen the indexes. The indexes are indications of the trends, not what we pay. We don't buy those exact routes. We don't buy everything at spot, but there has been inflation in ocean freight. We see those, the transportation-related costs, no structural changes, so we view those a bit more temporary. So we'll evaluate as we move through the year how much pricing we need to take going into next year. Ultimately, we feel comfortable with our gross margins, target high 30s approaching 40, and we'll manage the pricing discussions with the retailers next year to deliver in that range.

And you've been clear that if some of the cost pressures are sticky enough, pricing is certainly the expectation. It sounds like you're getting a little better visibility on that. When you've taken pricing recently, your elasticities have been fairly favorable. Do you have a sense of what to expect in terms of how that looks or where the consumer is? And is your pricing expectations, can you give any sense of magnitude? Is it modest? What might be ahead in terms of how that looks?

I could maybe tackle them separately to talk about elasticity. I agree. We've been, you know, we took a couple steps over the last couple years, and each time the category has held up growth nicely, which indicates that I think there's a willingness to pay by the consumer, which I think then goes back to what we spoke about earlier. People are willing to pay for functional benefits, functional beverages that are, call it, better for you, made the right way, natural ingredients, whatever it is. So, you know, we're encouraged with that. I think it's hard to say exactly, you know, how the consumer is going to respond going forward. I think there's a lot of talk about, you know, the consumer landscape and how it's evolving. So will that exact elasticity be there coming years? I don't really know. But I think from what we're seeing, if you look at the consumer, we're quite positive that, you know, that we can take the right measures to hold up our gross margins. Like in the end, you know, our goal is to deliver the business model that Corey, you know, discussed, which is approaching 40's gross margin is what makes our business model work. You know, then it flows down and gets to high teens and EBITDA. So we're very focused and dedicated on delivering that. And as far as I can see at the moment, I think it looks good that we will be able to do that. Will it be there every quarter? Probably not, but in the long run, we will be.

And the level of inflation, the level of pricing is not substantial. And what you've seen historically is premium beverages, functional beverages hold up. We're not a large away-from-home player, so consumers seek out those functionality and continue to purchase. If we're not facing extreme inflation, that we're going to move prices at substantially.

And on the sea freight or ocean freight piece that you touched on, we've seen those rates come up. There's certainly volatility we've seen over the last few years. What visibility do you have on what might be ahead? Is there a reason to expect the elevated versus recent levels cost to be sticky? Is it a supply issue? And maybe for those of us who don't kind of have the world map memorized, what are some of the key areas of focus? I think there's very little, if anything, you've got going through the Middle East that gets a lot of attention. But how do we think about just what the outlook or expectations are for sea freight going forward?

Broadly, we continue to believe, and I think much of the industry, there's no structural change to the demand on ocean freight. There's significant capacity available, significant capacity coming on board. Maybe some elements of ships slowing down to conserve fuel and those kind of things, but longer term, all indications are that ocean freight will be stable. There's a significant amount of capacity coming with new ships. The visibility is hard. The index has come out on Thursday. It's always checking in. We are buying ocean freight every day and have some sense of what we're seeing for markets. So we continue to believe the inflation we're seeing is temporary. Our rates are predominantly Southeast Asia to East Coast, Asia to West Coast, and then Brazil to East Coast are the main rates. The indexes tend to track more Shanghai, New York, Shanghai, LA, not much on the Brazil, so we've got a bit of a mix. So we don't pay index rates, we have contracts, etc., but the indexes are indicative, and we think those will be, the increases will be temporary.

And so if we watch some of these rates and see directional moves, even if obviously that's not literally what you might be paying, can you get a sense of the flow through time, you know, just from, you know, if I'll make up a number, if it dropped by half today, when would that be the impact you would see flowing through your P&L?

Broadly, it's about a quarter. Not perfect. Brazil's a bit faster, depending on inventory levels, but about a quarter, you would see that start to flow. So as we get closer, coming out of Q2, when we get guidance, we've got visibility to at least the next quarter plus on what it looks like. And as of now, we have a pretty good visibility through the end of the year.

And one last one back on the pricing. I think we've got a sense of where the consumer is and how it all seems quite manageable. But just curious, as you think about other beverages, other beverage segments or categories, there's been a lot of pricing in those as well. How do you think about price gaps and the competitive positioning, you know, coconut water and yourselves versus other alternatives as well?

I mean, we obviously look at a lot of these things, as many other people do as well. I would say we are quite happy with the sort of relative price point where the category is today, very premium to many categories that we source from, whether that is sports drinks, isotonics, or juices, or even premium water. So there is a premiumness that is there that helps us support our ambition of 40% gross margin. So our first ambition is monitor if the consumer is willing to pay this and make sure the business model works. I think the other benefit that we have is we source from multiple different categories. We source from sports drinks. We do source from premium waters and enhanced waters, juices. So, you know, I think that there's so much movement in the categories in general that there's always something, so to say, to source from, and sometimes maybe these sourcing levels will vary a little bit. It also varies based on what the trends are, you know. So, yeah, that's the way we look at it, you know, but we mainly look at the business model and make sure that that works.

And then just recently you announced the Cobra acquisition. Um, unpack that for us a little bit, maybe give the strategic rationale and, um, you know, just how to think about how that fits into your portfolio.

I mean, we, you know, we, we love the coconut water category. We think it has global potential to continue to take share from total beverage. Um, in the U S there's a very nice super premium segment. And with this acquisition, we're now able to play in the super premium segment in the U S, um, with the product that We believe is probably a better product. From a taste perspective, we control the full supply chain from the nuts all the way down to packaging it and bringing it to the U.S. So in the long run, we just believe it's a very nice opportunity to expand our share in the category to play in the super premium segment, which I think is very attractive. So that's the strategic rationale. These opportunities don't always come along that frequently. So when you see one and it fits your portfolio, we put our best foot forward, and we're feeling pretty good about it. I think the integration is going, maybe Cora can talk more about it, is going pretty much on plan.

Yeah, to Charles' point, it gets us into a category. We believe in the category. It has a lot of runway to growth, so it's a segment we don't play in. It's a profitable company, so we got it for what we think is a fair price. If integration is on or slightly ahead of schedule, it is fundamentally what we know, coconut water. So it's a real nice addition for what we think is a really nice product with distinct advantages in the integrated manufacturing.

And it's a smaller business. Its branded piece is smaller still. For anybody who might not be familiar, can you just explain some of what's differentiated and how it's its own sort of sub-segment and just how to think about the product and then also, you know, kind of what your hopes and, you know, kind of plans might be looking ahead even further?

I can talk a little bit. So it's a unique breed of coconut, grows in Thailand, Nam Hom coconut. So it is sweeter, quite a bit sweeter than our traditional coconut water. Turns pink when oxidized. So that's kind of a unique consumer angle. So it's quite a clean, nice tasting product. It is unique to that region of Thailand. And because we're extracting the water and packaging it on site, we're able to control that quality quite tightly, which we think is a distinct advantage to other competitors.

And what's kind of ahead for that? I imagine there's lots of ways you could push that further. How do you think about the opportunity for this new piece of the business?

I mean, in the first place, we're very focused on expanding production capacity. So that's, you know, one of the things that we do have a lot of experience with. We have a lot of engineers. We have an office in Singapore, and we have people that we can deploy. So they're actively working with the team there to expand the capacity. That's focus number one. And then it's a matter of, you know, servicing the customers, the customer base that is there today, and slowly building, you know, new businesses, whether that is, you know, with new customers, or, you know, small segments within current portfolios. So, you know, we're slowly going to build the brand out a little bit, but then the first focus is really getting it integrated properly, understanding the business, doubling the capacity. And this segment of the category is very high growth at the moment, so we think it's, you know, at all levels attractive to play with.

And does it, and if so, how might it impact or change how you think about any of your long-term financial goals?

It is today predominantly private label. So what we've talked about is gross margin is lower in a percentage. It sells at retail about 80% more than our brand, so it's quite a premium product. So on a per-ounce basis, it's quite good. And then no impact to our EBITDA margin. It's quite low overhead, additional overhead needed to run it, so no change to our long-term EBIT targets.

And how about the branded opportunity? Would we be right to think that's something that you can develop and push, and what would that look like?

That's what we're looking at right now. So, you know, we just acquired a brand, so we're integrating it. We're learning, we're working with the team to understand exactly what that means. But to Corey's point, it's predominantly a private label business for us now. And I think the branded opportunity is very nice. You know, it all comes down to, in this, if you're selling such a premium product, you need a very high quality product to sell. Like we believe, because we are so good at controlling, you know, we can control this in our own system from soup to nuts, that the product is superior, so that would make me believe we know coconut water, we know how to brand coconut water. You know, we need to learn a little bit, but that's our ambition to ultimately build that out and to have a real branded position in that segment over time as well. At Walmart.

We want everything at Walmart. One last one on capital allocation. Obviously, you just did an acquisition. Part of the IPO color a few years ago, five years ago, was potential for a bit of a platform or broader portfolio that I think with the growth you've had on the core and without the need for other acquisitions, I think the discipline you've shown seems appropriate. But, you know, is that, are there adjacent categories still on your radar? How do you think about, you know, when and how that might evolve?

Yeah, I don't think our capital allocation has changed. We just did M&A, so we're quite busy right now. So we're not actively looking to do another one. You know, the core business remains the priority, and that's where our core investment will go. Coper is a really nice, very, very close acquisition that uses cash and adds on to the core. Innovation, we've balanced share buybacks each quarter with a subset of our board to deploy capital back to shareholders, and we'll continue to monitor M&A, but no distinct near-term goals.

Sounds great. Well, thank you both for your time. Great to have you here, and I appreciate all the color. Thank you. Thanks for having us.