Third-quarter results beat expectations: Where was the strength?

  • Third-quarter revenue in 2026 rose 33.7% year over year, above Goldman Sachs’ forecast of 23.7% and the Visible Alpha consensus of 26.0%. Excluding the contribution from the Copra acquisition, organic revenue still grew 18%; growth came from both existing operations and acquisitions.
  • Standard-case volume rose 26.6%, below Goldman Sachs’ forecast of 28.4%; net average selling price per case, however, rose 5.7%, well ahead of the bank’s forecast of a 3.7% decline. The revenue beat was therefore not driven by volume exceeding the model across the board; revenue per unit also played a key role.
  • Gross margin was 38.0%, above the consensus of 36.9%; revenue expansion diluted expenses, and operating margin rose by about 3.3 percentage points year over year to 18.6%. Earnings per share reached $0.58, above the consensus of $0.47 and $0.40 a year earlier.

Demand is strong, so why are retail figures under pressure?

  • Year to date, U.S. branded retail sales have risen about 27% year over year; management reported that European retail scanner sales rose 54%. Recent container shortages, however, have reduced supply service levels, leaving some stores out of stock and weighing on recent scanner sales trends.
  • Management said supply improved in October and expects it to continue recovering in the fourth quarter, with strong shipment growth replenishing channel inventories. This improvement depends on a recovery in transportation and restocking, while recent retail data have also been constrained by shelf availability.

Full-year guidance was raised, so why will fourth-quarter profit still decline?

  • The company raised its 2026 revenue guidance from $790 million–$805 million to $810 million–$820 million, and increased its expected growth rate for branded coconut water to just over 20%. Its private-label business also benefited from new and resumed orders and the consolidation of Copra.
  • Full-year adjusted EBITDA guidance rose from $154 million–$161 million to $170 million–$175 million, while gross-margin guidance remained at about 40%. Goldman Sachs estimates that the new guidance implies fourth-quarter revenue growth of about 37% and an EBITDA decline of about 5%, compared with growth of about 33% and 89%, respectively, in the first three quarters.
  • Fourth-quarter gross margin is expected to be about 33%, down about 2 percentage points year over year and below the previous consensus of 34.5%. Higher ocean freight, domestic transportation and packaging costs will hit costs first; price increases intended to offset them will not begin until early 2027.

How much of the cost increase can 2027 price increases absorb?

  • Long-term contracts have not fully insulated the company from higher freight rates: it still pays fuel or demand surcharges and has purchased higher-premium spot containers to secure supply. European route rates have fallen from their July peak, and management expects other routes to gradually normalize as well.
  • The company plans to raise prices by product and market in early 2027 to cover structural cost increases at factories and in packaging, among other areas. Achieving gross-margin targets for branded and private-label products also assumes some relief in ocean freight costs. If freight rates remain high, the company may raise prices again during the year.
  • Goldman Sachs still expects gross margin to fall to 38.0% in 2027, down about 2.15 percentage points year over year. Besides cost pressures, the company must contend with a high comparison base from tariff refunds—which contributed 2.4 percentage points to gross margin year to date—and a mix drag from Copra’s lower-margin business.

Why was the price target cut when earnings forecasts were raised?

  • Goldman Sachs raised its earnings-per-share forecasts for 2026 and 2027 by $0.11 and $0.07, respectively, to $2.07 and $2.27. However, because of stockouts and near-term margin pressure, it cut its 12-month price target from $90 to $85, while maintaining its buy rating.
  • The change lies in valuation multiples: the price-to-earnings multiple used with equal weighting in the target price fell from 37.5 times to 33 times, and EV/EBITDA fell from 26.5 times to 23 times. Goldman Sachs remains optimistic about long-term growth from household penetration, channel coverage, price increases and new products, but is more cautious about the valuation it assigns to near-term earnings.