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Monster Beverage (MNST) Up 6% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Monster Beverage (MNST). Shares have added about 6% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important drivers.

Monster Beverage Beats Q3 Earnings & Sales Estimates

Monster Beverage reported impressive earnings and sales numbers in third-quarter 2019. Its top and bottom lines not only outpaced the Zacks Consensus Estimate but also improved on a year-over-year basis.

The top-line performance was mainly fueled by robust growth for the Monster Energy brand’s energy drinks internationally coupled with strength in its high-performance energy drink, Reign Total Body Fuel, launched in the first quarter.

Q3 Highlights

Monster Beverage’s earnings of 55 cents per share rose 14% year over year and outpaced the Zacks Consensus Estimate by a penny.

Net sales of $1,133.6 million improved 11.6% year over year and surpassed the Zacks Consensus Estimate of $1,106 million. Moreover, gross sales (net of discounts and returns) rose 11.3% to $1,318.3 million.

In the United States, advance purchases due to expectations of price increase, effective Nov 1, 2018, benefited net and gross sales by nearly $16 million and $18 million, respectively. However, top-line growth was partly negated by unfavorable currency, which hurt net and gross sales by $12.2 million and $15.1 million, respectively.

Additionally, net sales to customers outside the United States totaled $379.8 million, up 34.2% year over year. This represented about 34% of total sales in third-quarter 2019, up from 28% in the year-ago quarter.

Segmental Performance

Monster Energy Drinks: The segment’s net sales rose 13.5% year over year to $1.06 billion. Robust gains from the sale of Monster Energy and Reign Total Body Fuel brands were partly offset by a negative impact of $10.8 million from adverse 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 10.9% to $66.3 million in the third quarter. Currency headwinds hurt the segment’s results by $1.4 million.

Other: Net sales at the segment, which includes some products of American Fruits & Flavors sold to independent third parties (AFF Third-Party Products), fell 10.6% year over year to $5.9 million.

Costs & Margins

The company’s third-quarter 2019 gross margin contracted 40 basis points (bps) to 59.4%. Gross margin was mainly impacted by negative geographic and product sales mix, partly offset by gains from increased prices and lower input costs.

Operating expenses rose 3.5% year over year to $277.6 million. However, selling expenses, as a percentage of net sales, dipped 10 bps to 11.1%. Meanwhile, distribution costs, as a percentage of net sales, declined 80 bps to 3.3%.

Operating income of $395.4 million grew 16.4% year over year. Moreover, the operating margin expanded 150 bps to 34.9% in the reported quarter.

Other Financials

Monster Beverage ended the third quarter with cash and cash equivalents of $717.6 million, and total stockholders' equity of $4,108 million.

In the reported quarter, the company bought back 4.3 million shares for $254.3 million, excluding broker commissions. As of Nov 6, 2019, it had $36.6 million remaining to be bought back under the share repurchase plan authorized in February 2019.

Further, management authorized a new buyback program for purchasing shares up to additional $500 million.

Strategies on Track

Monster Beverage remains committed to product launches and innovation to boost growth. Further, the company is making progress with the transitioning of the Monster Energy brand to Coke bottlers. In third-quarter 2019, it launched or transitioned its Monster Energy brand to Coca-Cola bottlers in the Dominican Republic, El Salvador and Honduras. Monster Beverage is planning for additional launches and transitions for the fourth quarter. Going forward, it plans for further launches in the international markets.

How Have Estimates Been Moving Since Then?

Estimates review followed a downward path over the past two months.

VGM Scores

At this time, Monster Beverage has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Monster Beverage has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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