It has been about a month since the last earnings report for Monster Beverage (MNST). Shares have added about 4.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Monster Beverage due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Monster Beverage Q2 Earnings & Sales Beat Estimates
Monster Beverage posted impressive second-quarter 2020 results. Despite adverse impacts of the ongoing COVID-19 pandemic, sales improved on a sequential basis in the second half of the quarter with stores reopening in a phased manner. Further, the company has been witnessing a shift in consumer preference since mid-March with a spike in demand for at-home consumption.
Solid performance in its online, club store, mass merchandiser and grocery and related businesses provided some cushion to the top line, which was hurt by weak traffic in the convenience and gas channel along with softness in EMEA. However, the food service on-premise unit remains drab. That said, management doesn’t foresee any material impact of COVID-19 and also noted that it is not facing any supply-chain disruption, currently.
Monster Beverage’s earnings of 59 cents per share rose 9.9% year over year and outpaced the Zacks Consensus Estimate of 48 cents.
Net sales of $1,094 million edged down 0.9% year over year but surpassed the Zacks Consensus Estimate of $1,007 million. Moreover, gross sales (net of discounts and returns) fell 0.9% to $1,274.3 million. Adverse impacts of the COVID-19 pandemic hurt sales to a large extent, mostly in the EMEA region and the Strategic Brands segment. Also, unfavorable currency fluctuations weighed on net and gross sales by $18.2 million and $21.6 million, respectively.
Monster Energy Drinks: The segment’s net sales rose 0.8% year over year to $1.03 billion due to adverse impacts of COVID-19 and a negative impact of $16.8 million from unfavorable currency rates.
Strategic Brands: Apart from its affordable energy drink brands, the segment includes a range of energy drink brands acquired from The Coca-Cola Company. The segment’s net sales declined 24.7% to $59.6 million in the second quarter. Currency headwinds marred the segment’s results by $1.4 million. Moreover, the segment was most affected by COVID-19 impacts, particularly in the EMEA region where the lockdown was for an extended period of time.
Other: Net sales in the segment, which includes some products of American Fruits & Flavors sold to independent third parties (AFF Third-Party Products), grew13.8% year over year to $5.1 million.
Costs & Margins
The company’s second-quarter 2020 gross margin expanded 40 basis points (bps) to 60.3%. Operating expenses decreased10.7% year over year to $252.2 million, driven by reduced costs related to sponsorship and endorsements of $19.8 as well as lower travel and entertainment costs to the tune of $10.1 million as a result of the ongoing pandemic. Notably, as a percentage of sales, it declined 250 bps to 23.1%. Selling expenses, as a percentage of net sales, decreased 240 bps to 8.8%. Meanwhile, distribution costs, as a percentage of net sales, expanded 20 bps to 3.6%. General and administrative expenses, as a percentage of net sales, contracted 20 bps to 10.7%.
Operating income of $407.3 million grew 7.5% year over year. Moreover, the operating margin expanded 2,900 bps to 37.2% in the reported quarter.
Monster Beverage ended the second quarter with cash and cash equivalents of $921.3 million, and total stockholders' equity of $4,2221.5 million.
In the reported quarter, the company bought back 0.3 million shares for $15.6 million (excluding broker commissions), with an average price of $52.88 per share. As of Aug 4, 2020, it had $441.5 million remaining under the previously authorized share repurchase plan.
Strategies on Track
Monster Beverageremains committed to product launches and innovation to boost growth. The company is now working toward new product launches in 2020. The company introduced Monster Energy brand energy drinks and Reign Total Body Fuel high-performance energy drinks in a few countries during the second quarter. Apart from these, other notable launches include Fury Gold Strike in Honduras and Salvador, Predator Gold Strike in Nigeria, Ultra Paradise in Argentina and Puerto Rico, Monster Mango Loco in Guatemala, El Salvador and Honduras, Monster Energy Mule and Mother Tropical Blast in New Zealand, Juice Monster Pacific Punch in Spain, Juice Monster Pipeline Punch in Romania, Juice Monster Mango Loco in Switzerland, and Monster Ultra Paradise in Austria, the Baltics, Hungary, Denmark, Spain and Poland.
Currently, Juice Monster Pacific Punch and Juice Monster Pipeline Punch are available in 10 and 21 markets across EMEA and expected to be expanded in additional two and eight markets, respectively, in 2020. Also, Juice Monster Mango Loco and Monster Ultra Paradise are now available in 35 and 14 markets in EMEA and will be soon available in 10 and seven more markets, respectively, in 2020. In addition to these, Espresso Monster in Milk and Vanilla flavors are available in 20 markets in EMEA and will be launched in 2 more markets. Monster Hydra Sport, which was introduced in Spain, will be available in another market by 2020. Encouraged by the performance of Reign, the company plans to expand it to six more markets in 2020. Monster Mule, which was launched in Poland, is anticipated to be launched in additional nine markets in 2020.
For the third quarter, the company intends to launch Predator in Ethiopia and additional six EMEA markets — Bosnia, Croatia, Ghana, Romania, Russia and Slovenia — in 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 6.99% due to these changes.
At this time, Monster Beverage has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Monster Beverage has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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