Nongfu Spring Earnings: Channel Expansion of Tea Leads Resilient Sales and Profit Growth

Narrow-moat Nongfu Spring delivered strong interim results that beat Refinitiv consensus and our estimates. Reviving on-the-go demand as well as efforts to solidify point-of-sale coverage drove resilient sales growth for ready-to-drink tea and water. Nongfu Spring raised its 2023 top-line growth guidance from the low teens to the mid- to high teens, consistent with our pre-earnings view that previous guidance was conservative. We lift our 2023 revenue estimate and expect the company to hit the high end of this guide. But our net margin projection is slightly below the company’s expectations, as we forecast elevated channel expenses while Nongfu pushes forward new products and expansion in distribution.