LaCroix Seltzer Sales Are in a ‘Free Fall'

LaCroix seltzer owner National Beverage Corp. fell as much as 2.9% on Thursday after Guggenheim cut its price target on the stock, saying industry data show sales are “effectively in free fall.”

Analyst Laurent Grandet, who downgraded the stock March 8 to a sell rating, wrote in a note that LaCroix sales won’t stabilize until at least next year. The price target was cut to $36 from $45. His three main concerns for the brand are:

Increased competition in the sparkling water category, especially from PepsiCo Inc., Nestle SA, and Coca-Cola Co., along with high private label participation limiting pricing power;

The lack of meaningful innovation to offset core declines and bring new news to consumers; and

Inexperience managing a rapidly growing brand, made worse by ongoing missteps in public messaging and crisis resolution

“As a result, we think it’s unlikely that LaCroix can recover to any meaningful degree while in the hands of National Beverage (or in the absence of a strong distribution partner),” Grandet said.

He reiterated that potential M&A is the biggest threat to his bearish stance on the stock, as the falling stock price increases National Beverage’s attraction to potential suitors. LaCroix would do better “in the hands of an owner with strong brand-building capabilities,” with the financial resources and willingness to invest. A private equity buyer seems most suitable; Keurig Dr Pepper Inc. is the only strategic candidate in the U.S., but management has other medium-term priorities forcing its hand.

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