Monster Beverage Corporation MNST reported a better-than-expected top line in first-quarter 2021, while the bottom line lagged the Zacks Consensus Estimate. Moreover, sales improved year over year, driven by continued strong demand for the energy drinks category. However, the ongoing supply-chain disruptions and elevated aluminum can costs hurt earnings.
Higher freight rates and fuel costs, including costs for the import of aluminum cans, as well as aluminum can costs due to higher aluminum commodity pricing, led to higher cost of sales. The company also witnessed increased costs for ingredients and other input costs, including secondary packaging material, co-packing fees and production inefficiencies, which further hurt the cost of sales. Elevated distribution expenses also impacted operating expenses.
Shares of this Zacks Rank #4 (Sell) company have declined 9% in the past year against the industry’s 12.6% growth.
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Monster Beverage’s earnings of 55 cents per share missed the Zacks Consensus Estimate of 60 cents and declined 6.8% year over year. The bottom line was impacted by inflationary operational costs for aluminum cans, shipping, freight and other inputs.
Net sales of $1,518.6 million improved 22.1% year over year and surpassed the Zacks Consensus Estimate of $1,425 million. Unfavorable currency translations hurt net sales by $32.9 million in the reported quarter.
Net sales to customers outside the United States rose 20.4% to $553.4 million, representing about 36% of the total net sales.
Monster Beverage Corporation Price, Consensus and EPS Surprise
Monster Beverage Corporation price-consensus-eps-surprise-chart | Monster Beverage Corporation Quote
Monster Energy Drinks: The segment includes Monster Energy drinks, Reign Total Body Fuel high-performance energy drinks and True North Pure Energy Seltzers. The segment’s net sales increased 20% year over year to $1.4 billion. The segment’s sales included a negative impact of $29.6 million from adverse currency rates.
Strategic Brands: In addition to the affordable energy drink brands, the segment includes a range of energy drink brands acquired from Coca-Cola. The segment’s net sales increased 36.6% year over year to $92.6 million in the first quarter. However, currency tailwinds aided the segment’s sales by $3.3 million.
Alcohol Brands: Net sales for the segment, which includes the various craft beers and hard seltzers purchased as part of the CANarchy transaction on Feb 17, 2022, were $15.2 million in the first quarter.
Other: Net sales for the segment, which includes some products of American Fruits & Flavors sold to independent third-parties (AFF Third-Party Products), rose 3.5% year over year to $5.9 million.
Costs & Margins
The company’s first-quarter 2022 gross margin contracted 640 basis points (bps) to 51.1% on higher freight rates and fuel costs, offset by pricing actions. The higher freight rates and fuel costs included costs for the import of aluminum cans and elevated aluminum can costs due to higher aluminum commodity pricing. Higher ingredient and other input costs resulted from higher secondary packaging materials, increased co-packing fees, production inefficiencies and geographical sales mix.
Operating expenses grew 25.4% year over year to $377.2 million. The increase can be attributed to higher outbound freight, freight inefficiencies and warehouse costs; elevated expenditure for travel and entertainment; higher payroll costs; increased professional service expenses, including accounting and legal costs; and increased commissions, sponsorships and endorsements.
As a percentage of sales, operating expenses increased 60 bps to 24.8%. Higher operating expense rates mainly resulted from increased distribution costs, and general and administrative expense rate. Selling expenses, as a percentage of net sales, declined 60 bps to 8.6%. Distribution costs, as a percentage of net sales, increased 100 bps to 5.4%. General and administrative expenses, as a percentage of net sales, rose 30 bps year over year to 10.9%.
Operating income of $399.5 million declined 3.5% year over year, driven by the company’s operations in EMEA and the Asia Pacific. The operating margin contracted 700 bps to 26.3% for the reported quarter.
Monster Beverage ended first-quarter 2022 with cash and cash equivalents of $1,014.8 million, and total stockholders' equity of $6,866.7 million. Short-term investments as of Mar 31, 2022, were $1,717.6 million, whereas long-term investments were $65.7 million.
In the reported quarter, the company did not buy back any shares. As of May 5, 2022, it had $441.5 million remaining under the previously authorized share repurchase plan.
Stocks to Consider
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Archer Daniels Midland ADM, The Duckhorn Portfolio NAPA and Ambev ABEV.
Archer Daniels, one of the leading producers of food and beverage ingredients, as well as goods made from various agricultural products, presently flaunts a Zacks Rank #1 (Strong Buy). The ADM stock has rallied 33.4% in the past year.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Archer Daniels’ sales and EPS for the current financial year suggests growth of 10.1% and 15.4%, respectively, from the year-ago reported levels. ADM has a trailing four-quarter earnings surprise of 22.3%, on average. ADM has an expected EPS growth rate of 6.4% for three to five years.
Duckhorn currently has a Zacks Rank #2 (Buy) and an expected long-term earnings growth rate of 11.3%. NAPA has a trailing four-quarter earnings surprise of 122.4%, on average. The company has gained 8.6% in the past year.
The Zacks Consensus Estimate for Duckhorn’s current financial-year sales and earnings per share suggests growth of 9.6% and 3.5%, respectively, from the year-ago reported numbers. The consensus mark for NAPA’s earnings per share has been unchanged in the past 30 days.
Ambev currently has a Zacks Rank of 2. ABEV has a trailing four-quarter earnings surprise of 3.3%, on average. It has a long-term earnings growth rate of 9.6%. The company has declined 13.2% in the past year.
The Zacks Consensus Estimate for Ambev’s current financial-year sales and earnings suggests growth of 33.8% and 6.7%, respectively, from the prior-year reported number. The consensus mark for ABEV’s earnings per share has moved up by a penny in the past 30 days.
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Archer Daniels Midland Company (ADM) : Free Stock Analysis Report
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