Suja Life (SUJA) Q3 2026 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Tuesday, Nov. 10, 2026

CALL PARTICIPANTS

• Head of Investor Relations - Michael K. Mougias
• Chief Executive Officer - Maria D. Stipp
• Chief Financial Officer - Jeff Pedersen

TAKEAWAYS

• Net Sales -- $76.4 million, representing 3.3% growth year over year and including $2 million of shipments moved from the fourth quarter into the third.
• Adjusted EBITDA -- $10.5 million, a $9.6 million increase versus the prior year period, reflecting significantly lower marketing expenses compared to the previous year's launch of Slice.
• Gross Profit Margin -- 43.9%, a decrease from 46.3% in the prior year, driven by higher promotional investment, unfavorable fixed-cost absorption, and increased freight and packaging costs.
• Suja Core Segment Revenue -- $74.8 million, growing 3% year over year supported by volume gains in the refreshers platform and wellness shot multipacks.
• Emerging Brands Segment Revenue -- $2.7 million, an increase of 3% as new distribution for the Slice brand built more slowly than management anticipated.
• Market Share -- 9.1% of the natural healthy beverage category, representing a 30-basis-point increase during the quarter.
• Club Channel Sales Growth -- Nearly 20%, driven by incremental programming for wellness shots and green juices.
• Convenience Channel Sales Growth -- Over 40%, although management noted this growth was achieved from a small existing base.
• Mass Channel Sales Growth -- 6% during the third quarter, with management identifying additional room for distribution expansion.
• Marketing Expense Ratio -- 10.5% of net sales, compared to 23.2% in the prior year period, as the company moved away from one-time launch investments.
• Household Penetration -- 11.2%, up from 9.6% a year ago, as the company reached more consumers through expanded retail placement.
• Average Spend Per Buyer -- Nearly $31, representing 9% growth year over year.
• Total Distribution -- Nearly 10% growth in the quarter, even as store traffic headwinds impacted individual placement velocities.
• Refreshers Platform Sales Growth -- Over 40%, reflecting rising velocity as the company expanded distribution.
• Boosted Juice Sales Growth -- More than 18%, supported by the brand's repositioning around functional health benefits.
• Full-Year Net Sales Outlook -- $351 million to $354 million, representing projected growth of 7.5% to 8.4% for the fiscal year.
• Full-Year Adjusted EBITDA Outlook -- $68 million to $70 million, reflecting an expected 70% increase compared to 2025 results.
• Implied Fourth-Quarter Net Sales Guidance -- $83.7 million to $86.7 million, assuming current grocery channel conditions persist.
• Implied Fourth-Quarter Adjusted EBITDA Guidance -- $17.8 million to $19.8 million, including the impact of shifted marketing dollars into retail trade programs.
• Net Debt and Liquidity -- $163 million in total debt and $15.5 million in cash, with $100 million in undrawn capacity as of Sept. 28, 2026.
• Effective Interest Rate -- 5.7%, a reduction from 9.7% at the end of last year following a debt refinancing in August 2026.
• Year-to-Date Capital Expenditures -- $18.6 million, primarily for capacity expansion at the Oceanside, California, manufacturing campus.
• Promotional Intensity -- An increase of more than 6 percentage points in the dollar share of natural healthy beverages sold on promotion across the grocery category.
• Annual Interest Expense Outlook -- Approximately $18 million, consistent with the company's previous guidance.
• Operating Expenses -- $36.5 million, a decrease from $41.4 million last year, driven by lower marketing spend and partially offset by higher transportation costs.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• Stipp stated, "the grocery pressure that began in July has intensified," noting that softer store traffic and deeper price cuts from competitors are reducing promotional returns.
• Pedersen warned that the company expects "continued pressures from commodities like oil" to impact packaging and inbound freight costs through the end of the year.
• Stipp indicated that "distribution only creates value when it turns," highlighting the risk of lower velocities for core single-serve items in conventional grocery.

SUMMARY

Suja Life, Inc. (NASDAQ:SUJA) reported increased net sales and adjusted EBITDA during the third quarter, driven by volume gains in core beverage lines and expanded retail distribution. Management noted that while the company gained market share, it faced intensifying pressure in the conventional grocery channel and reduced consumer traffic. In response, the company lowered its full-year outlook to reflect current macroeconomic conditions and shifted marketing investment toward retail trade promotions to maintain competitiveness.

• Management reported that softening grocery traffic led to lower sales velocities for core products. CEO Stipp stated, "the grocery pressure that began in July has intensified."
• The company is transitioning its marketing approach to a social-first model expected to launch in the first quarter of 2027 to increase brand awareness.
• Operational efficiency gains and vertical integration provided control over production costs. Stipp noted, "Owning our production gives us more control over our costs and our supply."
• Management expects a slower start to fiscal 2027 due to difficult year-over-year comparisons and persistent pressure in the grocery channel.
• The company added its sixth high-pressure processing machine to its Oceanside facility to expand production capacity by the end of 2026.
• Stipp stated that management is focused on expanding the natural healthy beverage category while increasing brand household penetration.

INDUSTRY GLOSSARY

• HPP: High-pressure processing, a cold pasteurization technique used to preserve beverages without high heat.
• NHB: Natural Healthy Beverage, the category in which Suja's organic juices and shots compete.
• TDP: Total Distribution Points, a metric measuring the breadth and depth of a product's presence in retail stores.
• Refreshers: A functional cold-pressed juice platform within the Suja Organic brand.
• Boosted Juice: A juice line featuring added functional ingredients for specific health benefits.
• Multiserve: Larger format beverage containers intended for multiple servings.

Full Conference Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the Suja Life Third Quarter 26 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mike Mougias, Head of Investor Relations. Please go ahead.

Michael K. Mougias: Good afternoon. And welcome to Suja Life's third quarter 26 earnings call. Joining me today are Maria D. Stipp, Chief Executive Officer and Jeff Pedersen, Chief Financial Officer. Our earnings press release was published this afternoon and can be found on our Investor Relations website. Today's call is being webcast there as well. And a replay will be made available shortly after the call. Before we begin, a reminder that today's discussion will include forward looking statements. These statements reflect our current expectations and are covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 2000. They are subject to risks and uncertainties that could cause actual results to differ materially.

For more on those risks, please see today's press release and our most recent SEC filing. We assume no obligation to update these statements. We will also refer to certain non GAAP financial measures. You will find reconciliations to most comparable GAAP measures in today's press release and our SEC filings. We are unable to reconcile forward looking non GAAP measures without unreasonable effort. With that, I will turn the call over to Maria.

Maria D. Stipp: Thank you, Mike, and good afternoon, everyone. The third quarter showed what this business can do in an environment where consumers remain under pressure. Net sales grew 3% to $776.4 million ahead of the outlook we gave you in August. That includes approximately $2 million of shipments that moved from the fourth quarter into the third. Adjusted EBITDA was $10.5 million, a $9.6 million increase versus last year. 3 things stand out to me this quarter. First, consumers are choosing our brands. Suja gained share again this quarter, and our newer lines, like our refreshers, are leading the way. Second, we are winning where shoppers are going with strong growth in club and convenience.

And third, we are managing the business for profitability. We expect adjusted EBITDA to grow roughly 70% this year, with margin expanding about 7 points to nearly 20%, while investing deliberately behind our brands. That discipline is especially important given the continued pressure in grocery. Which is shaping our near term expectations. I will walk through each of these and how we are adapting our plans in response. Jeff will then take you through the numbers and our updated financial outlook. Let me start with share. In the third quarter, our share of the natural healthy beverage rose approximately 30 basis points to just over 9% according to Nielsen. Year to date, we are up more than a full point.

And in the quarter, among the category's 5 largest manufacturers, Suja was the only 1 to gain share. Those gains came amid increased promotional activity across the category and pressure on household budgets. In grocery, the percentage of natural health beverage dollars sold on promotion in the quarter increased more than 6 percentage points versus a year ago. Despite that increase, the added promotion did not translate into overall category growth. We chose carefully where to put our promotional dollars. We stepped up support behind our shots and refreshers, but we did not chase the deepest discounts in grocery where they were not paying back.

And our share gains show that consumers are still choosing our brands even with more promotion in the market. Second, shoppers continue to seek better for you products. They are buying them in different places, and we are following them. In the third quarter, our Nielsen measured sales in club grew nearly 20%. In convenience, they grew more than 40% from a small base. And in mass, they grew about 6% with more room ahead. In August, I told you we would expand our programs in club and mass. Club is our clearest win so far, driven by incremental programming on Suja organic green juices and wellness shots.

We also said we would work arm in arm with our retail partners. And we did. Through top to top sessions with several of our largest customers. Those conversations have helped secure meaningful new distribution with more reset meetings still to come. And we keep investing in our brands. Marketing was 10.5% of net sales in the quarter, weighted toward bottom of funnel programs that helped drive purchases at shelf. Where we have the most work to do is conventional grocery, our largest channel. Weaker store traffic across the industry continues to weigh on our sales velocities. Despite that headwind, we grew distribution nearly 10% in the quarter. Which tells you retailers continue to want our brands on their shelves.

Each of those placements is selling less on average than a year ago. Some are newer items that can take time to build, and some are core single serve items in grocery. Distribution only creates value when it turns. So our focus is on both. Continuing to earn new distribution and making every point work harder through better placement, sharper price pack architecture, and marketing that converts at the shelf. When we spoke in August, we expected a stronger fourth quarter driven by new distribution, seasonal programs and our commercial actions, those actions are in place, and the fourth quarter is historically our strongest season for wellness shots. But the grocery pressure that began in July has intensified.

Store traffic is softer. Retailers are cutting prices more deeply and promotions are delivering lower returns. As a result, we no longer expect the fourth quarter step up we planned for. And we are lowering our full year outlook which assumes today's grocery conditions hold through year-end. We will discuss this more in a moment. Turning to our brands. Suja Organic cold pressed juice continues to lead our growth. Reflecting the work we did in 2023 and 2024 to reposition the brand around functional benefits. Our refreshers platform grew more than 40% in Nielsen measured dollars in the third quarter. With velocity still rising as we added distribution. Our boosted juice grew more than 18%.

And our larger multi serve formats continue to build in the quarter. Green juice, the platform that started this brand, softened in grocery in the quarter. Even as it helped drive our club growth. Reinvigorating it is a priority. Wellness shots remain 1 of the fastest growing segments in beverage, up double digits this quarter. Our multipacks continue to grow with some consumers shifting from single serve to multipacks as shots become a part of their daily routines. Our single serve shots were softer in the quarter. That brings me to Vibe Organic. Vibe pioneered this category, and it remains 1 of our top priorities.

Part of running a portfolio of brands is giving each 1 what it needs at its stage of growth. For Vive, over the coming quarters, that means working on sharper single serve price pack architecture and promotion. Leading with multipacks, and exploring innovation built around ingredient forward benefits. it is the same playbook that is driving growth in Suja Organic Juice today. Finally, slice. Year to date, Slice net sales are up 31%. And emerging brands adjusted EBITDA loss narrowed by $9.1 million versus last year's third quarter. In the quarter, growth slowed to 3% as a better for you soda growth moderated and new distribution turned more slowly than expected.

We are resetting expectations and looking to concentrate slice where it is working. That brings me to the third point. How we are managing the business. Stepping back, this has been a year of real change for Suja. We became a public company Our category tightened. And we have streamlined how we operate. I think about Suja's history in 3 chapters. The first was proving we could build these brands. The second was proving that we could make them laugh. This next chapter is about scaling with intention and that means making choices. We brought our marketing, sales, and innovation teams together into 1 commercial organization.

So we can plan further ahead move faster with our retail partners, And we are directing investment into channels and platforms, and programs with the clearest returns. Owning our production gives us more control over our costs and our supply, and that is what creates room to make choices. It does not make us immune to inflation, particularly in fuel, packaging, and other inputs. But it helps us absorb these pressures and keep investing to grow our brands. While expanding profitability this year. Our priorities ahead are clear. First, building velocities across our portfolio. Including in our core greens juices, single serve shots, and vibe.

As part of that, we expect to launch a new marketing model in the first quarter of 27. it is full funnel, and it is social first. It puts more of our spend behind what is already working. And it reaches consumers where they spend their time. Most consumers discover us at the shelf, or through word-of-mouth. And so that is where we are focused. The experience at the shelf, and what people hear about us from their friends family, and trusted sources. Having marketing sales, and innovation in 1 commercial organization is what makes that possible. Second, deepening our penetration in existing accounts and capturing white space in channels where we are underdeveloped.

We are in the selling season for 27 placements, we are encouraged by the early progress. Third, innovating to capture new consumer opportunities with new formats and adjacent categories that build on our platform. And throughout, grow profitably through scale These priorities will take time to show up in our results, so I want to be clear about how we see the next several quarters. We expect net sales to grow by roughly 8% this year, but we will exit 2026 at a softer run rate. Looking beyond 2026, we expect continued pressure in grocery, and difficult comparisons in the first half of 27. Particularly in the first quarter.

Our new programs and innovation are expected to reach shelves over the course of the year with their contribution building progressively. So we expect a slower start to 2027. But top line growth improving as the year progresses. Through this period, we expect to continue gaining share. And when the category picks back up, we believe we will be in a strong position to benefit. We will provide our formal outlook on our fourth quarter call in March. That said, our conviction in the long term opportunity has not changed. We are not just taking share in an existing category. We are helping build a new segment of the beverage aisle.

Household penetration rose to 11.2% from 9.6% a year ago. And spend per buyer grew 9%. To nearly $31. Even so, only about 11% of US households buy our brands today, which leaves substantial room to grow. Consumers continue to look for beverages that do more for them, and taste great. And that is exactly where our brands compete. We have leading brands, a vertically integrated platform built over a decade, and retail partners who rely on us to grow the category. Our focus now is on turning those strengths into more consistent profitable growth. We have work to do, and I am confident in our ability to deliver. With that, I will turn it over to Jeff.

Jeff Pedersen: Thank you, Maria. Good afternoon, everyone. I will start with detail on our third quarter results, and then walk through our updated outlook for the full year. Net sales for the third quarter ended 09/28/2026 increased 3.3% to $76.4 million. Compared to $74 million in the prior year period. As Maria mentioned, that was ahead of the $71 million estimate we shared in August. Growth was primarily driven by volume gains across key products and new distribution, partially offset by higher trade investment in wellness shots, where our cost position allows us to stay competitive in a more promotion driven environment.

Third quarter net sales also benefited from approximately $2 million of shipments that we had expected in the fourth quarter. Looking at our segments, Suja Core net sales increased 3% to $74.8 million. Reflecting 3 dynamics. First, cold pressed juice continued to grow led by our refreshers, the largest contributor to Suja Core's growth year to date. Second, wellness shot multipacks continue to grow, while single serve shots were softer. And third, the higher trade investment I mentioned weighed on net sales growth. In emerging brands, slice net sales increased 3% to $2.7 million. That said, growth in Better For You soda has slowed this year, and new distribution has built more slowly than we expected.

Gross profit was $33.5 million or 43.9% of net sales. Compared to $34.3 million or 46.3% in the prior year period. That was below the approximately 47.8% we estimated in August. Historically, the third quarter has been our lowest gross margin quarter. Given a lower mix of wellness shots. 3 factors drove the decline. First, higher promotional investment in a more competitive environment. Second, unfavorable fixed cost absorption in our supply chain as category softness reduced production volumes. And third, higher inbound freight and packaging costs both tied to higher oil prices. Ongoing efficiency improvements across our operations along with favorable purchase prices on key produce inputs are partially offsetting these pressures.

We expect gross margin to improve sequentially in the fourth quarter as production volumes rise seasonally and these efforts continue. SG and A expenses were $36.5 million or 47.8% of net sales. Compared to $41.4 million or 56% in the prior year period. 3 items stand out. Marketing was $8 million or 10.5% of net sales, compared to $17.1 million or 23.2% last year. The decrease primarily reflects lapping in onetime launch investment behind Slice in the third quarter of 25. Freight costs increased driven by higher carrier rates as fuel prices and labor availability pushed transportation costs up. Additionally, we recognize onetime costs including $1.5 million in organizational restructuring, which are excluded from adjusted EBITDA.

Net loss was $8.3 million compared to a net loss of $14.6 million in the prior year period. This quarter's net loss included about $6.7 million of onetime items, including a $1.8 million loss on debt extinguishment related to the refinancing and $1.5 million of restructuring costs. Adjusted EBITDA increased $9.6 million to $10.5 million or 13.8% of net sales compared to $1 million or 1.4% last year. In dollars, this was slightly below what we expected in August. The margin came in below our estimate of approximately 15.2%, reflecting the gross margin pressure I described. The year over year increase primarily reflects lower marketing expense as we lapped last year's Slice launch.

Partially offset by lower gross profit and higher freight costs. On a segment basis, Suja Core adjusted EBITDA increased 4% to $13 million. Emerging Brands adjusted EBITDA was a loss of $2.4 million, an improvement of $9.1 million compared to the third quarter of 25. Now to the balance sheet. In August, we completed the refinancing we mentioned on our last call. It includes a new $165 million term loan that matures in 2031. We also increased our revolving credit facility and our delayed draw term loan to $50 million each. Both remain undrawn. Our effective interest rate is now 5.7%, compared to 9.7% at the end of last year.

As we said at the time, this was a cost of capital transaction. And we did not add leverage. Interest expense in the quarter was $3.3 million compared to $7.6 million a year ago. Connection with the refinancing, we recognized a $1.8 million loss on debt extinguishment which is excluded from adjusted EBITDA. As of 09/28/2026, we had cash of $15.5 million and total debt of $163 million, with $100 million of undrawn capacity under our revolving and delayed draw facilities. Capital expenditures were $18.6 million year to date, as we continue to expand our capacity adding our 6th HPP machine in our Oceanside, California campus by year-end. Turning to our outlook.

As Maria noted, we are lowering our full year outlook to reflect continued pressure in grocery. For the full year-ending 12/28/2026, we now expect net sales of $351 million to $354 million and adjusted EBITDA of 68 million to $70 million We continue to expect net interest expense of $18 million as previously communicated in our August refinancing announcement. And a base tax rate of 26.1%. To help with your modeling, our outlook implies fourth quarter net sales of $83.7 million to $86.7 million and adjusted EBITDA of 17.8 million to $19.8 million A few things shape the fourth quarter. About $2 million of shipments moved into the third quarter.

We expect trade investment to stay well above last year's level in a highly promotional environment, which weighs on both net sales and gross margin. And our outlook assumes today's grocery conditions hold through year-end. Against the fourth quarter last year that benefited from stronger velocities. We also expect marketing to be lower as a percentage of net sales in the fourth quarter. As we redeploy upper funnel marketing dollars into trade programs, to stay competitive in a heavily promoted category. As we outlined in August, we have been shifting investment from upper funnel marketing into trade.

Because trade is recorded as a reduction of net sales, while marketing sits in SG and A, this shift reduces reported net sales and gross margin but is largely neutral to adjusted EBITDA. Together with cost actions across the company, including freight optimization and tighter management of operating expenses, that supports adjusted EBITDA margin expansion despite lower gross margin. As Maria mentioned, we will provide our formal 2027 outlook on our fourth quarter call in March. To help frame how we are thinking about next year, I would point to a few considerations. First, the first quarter of 26 benefited from favorable shipment timing and the timing of promotional activity, which we discussed in our first quarter call.

So it is a demanding comparison. Second, our planning assumes continued pressure in grocery. Third, the contribution from new innovation and programs will build through the year rather than arrive at the start. Fourth, we expect promotional intensity to remain elevated and our planning does not assume a near term recovery. And fifth, we will be lapping a significant customer program that we do not expect to repeat. Taken together, we expect 2027 to start slower with growth improving as the year progresses, and to come in below our long term algorithm. In closing, the third quarter showed the strength of our brands and the durability of our business model in a demanding environment.

We have lowered our cost of capital, We are managing the business for profitability, and we are focused on the actions Maria described to rebuild velocity and position Suja for consistent long term top line growth. With that, I will turn it over to the operator for Q and A.

Operator: Thank you. This time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press *11 on your telephone. And wait for your name to be announced. To withdraw your question, please press *11 again. Our first question comes from Bonnie Herzog with Goldman Sachs. Please go ahead.

Bonnie Herzog: All right. Thank you. Hi, everyone. So I think I understand the pressure in the grocery channel know, given the macro environment. But I guess I am trying to understand why you are not seeing enough of your core customers still purchase your brands even if it is in other channels? I guess, they left the category entirely, or are you possibly losing share? Maria, I know you mentioned your taking share, but I guess I am trying to understand if this is ultimately a channel issue or more of a brand issue. And then in thinking about that, what is your strategy with promotions?

You know, I guess, how willing are you to ramp promo spend even further to potentially drive volume? Thanks.

Maria D. Stipp: Yes. So great question. First off, I mean, I think let's talk about the channels. We. In Nielsen for Q3, we were down in the food channel by 1.7%, and we were up significantly in mass club and C stores, which tells you we are translating our trade support where consumers are going. So I think that is part of part of your question. And so while we are raising our promo support in grocery to match our competitors, We are also very well aware of the channel shifting that we are seeing as consumers are looking for those promo dollars. And our retailers are telling us that in many cases, consumers are just chasing price.

And so we are seeing channel shifting happen, and we are adjusting our plans to go after that business. Second to that, when you ask about, you know, increasing our promo, we definitely have. So we have increased our promo dollars quarter to quarter and year over year in order to compete. We did make a decision and followed through with it. That moved our, you know, higher level marketing dollars where we are using campaigns as an example. And really went right after price and promotion at retail. And that has, you know, worked for us.

We have been able to maintain and grow share albeit 0.9% according to Nielsen in Q3, which 1 could say is on the lower side. But we are proud of that given that the category is down. So it is a very competitive environment for sure, but we continue to take share. And, you know, we are con. Always focused on really grabbing new distribution, growing our innovation, and really continuing to fuel that pipeline of growth.

Jeff Pedersen: Yeah. I would piggyback on that, Bonnie, and say that the other thing is we are looking at our business and across all of these channels. Significant growth is coming for us in our multipacks. And I think that is a good sign of consumers really looking for value as you see some of this channel shifting. But that is also helping to support the know, a lot of the transition to routinization that we are seeing from a lot of our consumers as well.

Bonnie Herzog: So maybe just a quick follow-up on that. So you touched on the category is declining. So just trying to understand then where are these consumers that, you know, potentially were drinking juice going? You know, where's the category they are losing share? You know? 2, you know, which audio. Thanks.

Maria D. Stipp: Yes. So in the spirit of just understanding that natural healthy beverage category, cold pressed juice was up you know, 1.5 share. Shots were up 1.3. Proteins were point 4, and coconut water was up 1.8. And then there are significant size categories as spite of natural healthy beverage that are down. Kombucha's down 1.8. Better for you sodas down 2.3. Smoothies. So these are all share losers in the category, smoothies and pasteurized juices. So those categories are large, and they drag quite heavily on the category if that helps frame it. Okay. Thank you. I will pass it on.

Operator: Thank you. Our next question comes from Kaumil Gajrawala Jeff. Please go ahead.

Kaumil Gajrawala: Hey, guys. Good afternoon, I guess, for you guys. I guess I am digging into the same sort of, line of questions we are we wanna under. I wanna understand a little bit more on the promo side. Is it that the there is been increased promo activity to try to address an industry issue that perhaps has not been effective? Or I am just trying to get, you know, inside of some of your commentary around I guess, the impact of the promos are, and how you are gonna go. You know, how you are going about things maybe differently in the coming in the coming quarters?

Maria D. Stipp: Yeah. So I will start at a high level, which is what we have feedback from our retail partners. Number 1, they need to in. Increase their foot traffic. Particularly in grocery. As I was mentioning, you have consumers you know, moving to different channels. So grocery needs to put traffic. And they are willing to, you know, really drive value to get that foot And so they have been very proactive with their partners, and it is not a category specific conversation. This is going on across the entire score, and you are seeing it in all of the categories.

If you listen to Albertsons or any of the any of the earnings calls, I think they explained it very well. So we are not immune to that. We have had the. I think all of us step up on promo The entire category, I think, is up almost 6% in promo versus where it was. And so it is a category wide request, to try and drive consumers to the segment and continue to drive foot traffic. Traffic.

Jeff Pedersen: Yeah. And we started to invest incrementally in promo again to match competition. We certainly do not wanna dilute the category, Kaumil, but we are we are all continuing to invest into Q4. And invest in areas where we think we can drive real return. Again, this kinda goes back to what I was mentioning to Bonnie earlier where we see some growth in multipacks, and that and I. that is a great sign for consumers and routinization. So we are definitely investing in promotional activity there. To help kind of drive the, to drive the ring as the consumers are, you know, maybe making less trips to the store than they were in the past.

Maria D. Stipp: I think what we have seen, maybe to, you know, continue to answer the question is when we run promotions, and I think we have seen the data across the board, it is not that people are not participating. They absolutely are participating in those promos. So that is the good sign. The bad sign is the velocity rates do not match what they used to be. In the spirit of the pull off the shelf. And so that really is the trick. And our focus into the future, which is not only to drive promos, to drive traffic, but to make it sticky and to drive those velocity rates north of where they are today.

Kaumil Gajrawala: I got it. Are retailers shifting their focus on the category in any way? Is it getting. Is the category itself getting maybe more shelf space, less shelf space? Yeah.

Maria D. Stipp: I understand that the call not Yeah. No. I would say we continue to hear very good signs. You know, we have conversations with them. it is happening right now. Right? We are we are in the spirit of selling season. Resets happen, you know, early next year all the way through springtime, and so we have gotten great indications of continued distribution growth and continued focus on the natural healthy beverage category. So that is been very positive. Okay.

Kaumil Gajrawala: Got it. And then on gross margins, they came in at least lower where I had expected it to be. Is there, any big you know, big pieces in there that we should be aware of as we are modeling out the year?

Jeff Pedersen: Specifically for Q3, Kaumil, I would say there is kind of 3 elements in there. The first is the shift in incremental promotion. So we redeployed some upper funnel marketing dollars that would show up below gross margin. We redeployed those up into trade, which would be, a contra revenue item. So that does drive down, your net revenue and your gross margin. it is largely neutral from an EBITDA perspective. that is part of it. Another part that we saw was a little bit of negative absorption. Due to reduced production volume. So we had some additional costs to deal with there.

And then there were also some cost pressures largely tied to oil prices, inbound freight, and some of the commodity inputs like our packaging, were affected. As we look to Q4, we do have some initiatives, around, operational efficiency. And freight efficiency to help offset some of this, but we do, we are expecting continued pressures from commodities like oil that we will have to continue to deal with. Okay. Got it. Thank you.

Operator: Thank you. Our next question comes from Christian with Bank of America. Please go ahead.

Christian: Hey, it is Christian on for Peter. Thanks for taking our question. First question. If I remember correctly, the cold and flu season and New Year's are key for your business. So if you guys can talk about how you are preparing for that in terms of, you know, your supply chain and marketing. And did you guys see a strong benefit from cold flu season in New Year's last year? And is that also contributing to the tougher setup for 4Q and 1Q of next year? And I have a follow-up. Thank you. Thank you.

Maria D. Stipp: Yeah. So this is the cold and flu season that we are in as of right now. I cannot tell you how many people I know that are dealing with it. Or have just begun. So, sadly, that is true. So we build a lot of programs around that, around immunity season, immunity boost. We do a lot of campaigns at store level around that. You will see a lot of secondary locations of wellness shots in stores starting from now all the way through into the New Year. So that is a tremendous piece of our focus. We are lapping a pretty sizable flu season last year, that is for sure true.

And then what was the second part of your question?

Christian: The second question is if I understand this correctly, the Q4 sales guidance implies sales down about mid single digits. And I appreciate the color you guys gave for 2027, especially, you know, in terms of the first half. But how should we be thinking about applying that exit rate to 1Q and then, you know, should we assume improvement? Or is that the. Not the right exit rate to use for the first quarter of 2027? And that is it. Thank you.

Maria D. Stipp: Yeah. So, we expect 2027 to be a growth year. I will start with that. But the start will be slower given a first quarter comparison that included a heavy flu season as you just described. And we expect growth to build each quarter with new distribution and our retailer programs and our innovation that will start coming online in the early spring. So while we are coming in below our growth algorithm, those are some of the main drivers. Perfect. Thank you.

Operator: Thank you. Our next question comes from Sean McGowan with ROTH Capital Partners. Please go ahead.

Sean McGowan: Hi, thanks for the opportunity to ask questions. First 1 is, is there a point in. Or what is the point in 2027 at which the year over year cost comparisons on freight and packaging kind of get easier because you are lapping that year over year comparison?

Jeff Pedersen: I would say, Sean, the majority of the pressures that we started to see came in Q3. There were a little bit of ramping on, on raw material inputs. Into Q1 and Q2, but there was a pretty significant step up in fuel for both freight in and freight out in Q3 that we expect into Q4. We also saw some we saw less labor availability for carriers to be able to carry our product. From a freight perspective, and that also contributed to the rate increase. So about halfway through the year, we would expect to see a softer lap next year.

Sean McGowan: Okay. that is helpful. Thank you. And then a little bit more on Slice, if you do not mind. Is it sounds like you are kinda dialing back a little bit there because of softness in category, but it just seems kind of early in its recovery or its reintroduction to be pulling back?

Maria D. Stipp: Yeah. So I would not say we are pulling back. I would say that the category is showing softness. If you look at the data, in the NHB section where you have the cold better for you soda, but Slice is up 6%. Which we are very proud of. And if you look at just natural beverage in the cold set, we are number 2 to Olipop. While we really have no number 3s, 4s, or 5s in the category. So we feel good about that.

And then, also, we have launched our dirty soda line, our orange strawberry We have got a pina colada and a Doctor Pepper dirty soda now that we have just released, and we have added quite a bit of distribution. So when you look at our actual TDPs, those are up, and we have been adding distribution on the brand. So I agree with you that, it is too early to be doing anything in terms of pulling back We are just chasing the flavors and the opportunities at retail. That suit the brand the best, and so we are really hyper focused on that.

Sean McGowan: Okay. So maybe I misunderstood you. I thought you were saying you were down back the marketing. Is that just because you are comping against the launch or relaunch last year, but not much lower than you had planned?

Maria D. Stipp: that is right. Our first year, we over, you know, spent because we were trying to break into a very busy category. So that was, you know, an intentional effort on the marketing side in 2025. 2026, we took a more right sized approach based on the revenue of the brand and then also really building off of our incredible build of distribution in 2025. So, really, it became about you know, keeping our distribution and adding to it in 2026. Okay. Thank you very much.

Operator: Thank you. Our next question comes from Glenn with William Blair. Please go ahead.

Glenn West: Hi, everyone. This is Glenn on for Jon Andersen. Just something from my understanding. I know a lot of people watch this, too. Like, the Nielsen data has been running meaningfully ahead of reported net sales growth and just looking at you know, the month of October, it is been running pretty strong as well. Can you just help us bridge the gap? Like, how much is explained by channel mix or trade investment that you guys are leaning into or like retailer inventories? Just to kinda help us moving forward? Thanks.

Maria D. Stipp: Yeah. So our scan data universe covers roughly about half of our business. And, you know, each provider, whether you are looking at Nielsen or Circana, right, do include different types of databases that do make the numbers somewhat different. You know? We certainly, you know, are using Nielsen in our talking points, and we have curated a database for natural healthy beverage that we believe is the most accurate way to look at the business. it is very interesting you bring this up because, obviously, we see what analysts and investors look at as well and some of those differences.

So we will do our best to share the data and the Nielsen reports that we have to, you know, make sure that we stay on the same page with that.

Jeff Pedersen: Yep. And the Nielsen data that we are looking at is largely mirroring the growth that we have reported here. There are some differences, again, just in terms of ranges of growth, but they are all kind of in the mid single digit range that we have seen for Q3.

Glenn West: Okay. Thank you. And then maybe just quick follow-up, if I can. I think you guys mentioned C store was a bright spot up, like, 40% or so. And then you talked about meaningful kind of distribution gains. Heading into next year. I am just curious if you guys are going to focus more on the C store channel. Maybe you could talk about what you are doing there. Thanks.

Maria D. Stipp: Yeah. So it is. Currently, it is just 3% of our of our business. So it is small. But it is growing meaningfully. And that is, as you say, on the back of increased distribution on our brands. We have found that our wellness shots work very well in locations like Wawa where we have continued to see expanded growth. And we are very much about growing that footprint into 2027. So we have concerted effort on that. not only from a team priority but obviously from an investment as well. Awesome. Thank you, guys. I will pass it on.

Operator: Thank you. Our next question comes from Robert Ottenstein with Evercore ISI. Please go ahead.

Robert Ottenstein: Yes, 2 points of just clarification or elaboration. Can you just give us a little bit more detail in terms of what is going on with your shot business? Is it all just tough comps with the flu season? What was your share on, you know, both of your brands? that is the first question. And then the second, I was a little bit unclear. You did mention you know, some impressive distribution gains. Is that all slice or are you seeing that broadly in 2027? Thank you.

Maria D. Stipp: Yes. So I will start with distribution. We are adding distribution across the board. Some of the bigger, you know, opportunities for us are obviously our boosted juice line is doing very well. Our refresher line is doing well. We have big plans on our shots business. So it is across the board in terms of overall distribution. Gains. So that is that portion of the question. And then as it relates to our shots business, you know, we saw some disruptor brands in the category go after very deep discounts. To the tune of 50 to 60% of their volume being sold on promotion.

Which is sort of an unheard of percentage And so we had decided to take an initiative to match their pricing at retail and then really go after and make sure that we are protecting our market share, which is what has happened. So we were able to protect Vibes market share as well as Suja shots for the most part, and we see our trends in the most recent weeks actually turning around as we have done that. So the spend has been a smart move on our part. We met them toe to toe, and we feel like we are in the right trajectory now.

Jeff Pedersen: Yep. And I would also say that it is scaling up, Robert. It does it does take time to add incremental activity with many of your retail partners. So we saw this starting to come on towards the end of Q3. And expect to have, you know, much greater effect throughout Q4. As we have added incremental promotional activity and opportunities.

Maria D. Stipp: We also, just for added perspective, as we step into 27, going after new distribution, as well as some really exciting innovation. I will be excited to share with you in March. Terrific. Thank you.

Operator: Thank you. I am showing no further questions at this time. Thank you for your participation in today's conference. This concludes the program. You may now disconnect.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.