Apple Leads Tech Lower

Seemingly everyone from global conglomerates to content creators is getting in on the beverage space. That’s because beverage products tend to have much higher margins than food products. And if you can market your way through the competitive space, you can make a pretty penny. 🧃

If you need evidence of that, just look at one of the best-performing stocks in the market, Monster Beverage. Since going public about thirty years ago, it has returned nearly 270,000%. It’s almost as if its stock price drank a lot of monster energy. 🤩

Or check out Celsius Holdings continuing the epic run that began when it went public. 🗓️

Or the many creator or celebrity-driven drink brands like Logan Paul’s Prime and Ryan Reynolds’ Aviation Gin. The point is that the beverage space can be a very profitable one. 🍸

And with pricing power on its current products diminishing, Pepsi is looking to beverages to help drive growth. Its newest idea is an expansion to the Gatorade brand, with a new “Gatorade Water.” It’ll launch early next year as an electrolyte-infused, unflavored water product that’s filtered with a seven-step inflation process and contains alkaline and enhanced pH levels. 🌊

The company says roughly 30 million consumers do not buy enhanced water at all. But it’s making the bet that the primary reason is because it’s not from a brand they know and trust. Thus, offering the product under the Gatorade name and packaging could pull new customers into the market.

The brand remains the recovery drink category leader, but Gatorade sales haven’t experienced as strong growth as some competitors. That led to the company expanding its portfolio into energy beverages, protein powders, capsules, and more aimed at those looking to improve their health.

We’ll have to wait and see if this bet pays off. But with the popularity of water brands like “Liquid Death,” anything is possible. 🤷

When people think of the paper industry, they may think of International Paper or Dunder Mifflin. But today, The Wall Street Journal reported on two players looking to create a new industry behemoth. 

U.S. firm WestRock is reportedly nearing a deal to merge with Europe’s Smurfit Kappa Group, creating a global paper and packaging company valued at $20 billion. It would create a new company, which would become the second-largest packaging company by market capitalization.🤝

Atlanta-based WestRock makes packaging for products ranging from medicine to pizza and home-and-garden products. It was formed by a merger of MeadWestvaco and RockTenn in July 2015 and had $21.3 billion in revenues during 2022. Before the news, its market cap was $8.2 billion. 📦

Dublin-based Smurfit Kappa was founded in 1934 to make cardboard boxes and packing boxes for Ireland. However, a merger between Jefferson Smurfit and Dutch Kappa Packaging in 2005 created today’s company. It was approached in 2018 by rival International Paper but rejected several offers. Last year, it had roughly $13.5 billion in sales and has a current $10 billion market cap.

The proposed merger would accelerate Smurfit’s U.S. and Americas expansion while helping improve WestRock’s liquidity, as it has over $10 billion in acquisition-related debt. It could also improve overall performance in a cautious environment for the global paper business. After a pandemic boom, weakening demand and declining containerboard prices have weighed on results. 🔻

A deal could be announced next week if talks progress as anticipated. The combined company would be incorporated and domiciled in Ireland, with global headquarters in Dublin. However, its ordinary share listing would be on the New York Stock Exchange (NYSE), with a premium listing on the London Stock Exchange (LSE). 🌍

Home goods retailers have had a rough time in a post-pandemic environment. That’s because consumers’ discretionary spending has moved from goods to experiences, and housing activity has ground to a halt by high prices, high interest rates, and low existing inventory. And that holds true even in the luxury market, where RH operates. 😬

The luxury home goods company reported adjusted EPS of $3.93 on revenues of $800 million. That topped estimates of $2.60 per share on $786 million in revenues. Operating margins of 20.2% also exceeded guidance, primarily due to faster-than-expected deliveries and a shift of $40 million in advertising costs to the next quarter. 🔺

Looking ahead, executives remain cautiously optimistic. “We continue to expect the luxury housing market and the broader economy to remain challenging throughout fiscal 2023 and into next year as mortgage rates continue to trend at 20-year highs and the current outlook is for rates to remain unchanged until the second quarter of 2024.”

Their longer-term strategy of moving beyond curating and selling products to conceptualizing and selling spaces remains an attractive proposition for investors. It would move the company beyond the $170 billion home furnishings market and into the $1.7 trillion North American housing market.

However, the company still has many steps ahead of it to execute that vision successfully. And for now, the growth slowdown and cautious outlook into 2024 remain the focus of investors.

$RH shares fell about 9% on the news, trading roughly 55% below their all-time highs. 📉