Monster Beverage (MNST) Q2 Profit Meets, Sales Lag Estimates
Monster Beverage Corporation MNST delivered second-quarter 2023 results, wherein the bottom line met the Zacks Consensus Estimate, while sales lagged the same. Both metrics improved year over year. Results gained from the expansion of the energy drinks category and product launches.
We note that shares of this Zacks Rank #3 (Hold) company have gained 14.3% year to date compared with the industry’s 5.9% growth.
Monster Beverage’s earnings of 39 cents per share met the Zacks Consensus Estimate. The figure advanced 50% year over year.
Net sales of $1,855 million improved 12% year over year but lagged the Zacks Consensus Estimate of $1,867 million. Unfavorable currency translations hurt net sales by $38.4 million in the reported quarter. On a currency-adjusted basis, net sales rose 14.4%.
Net sales to customers outside the United States rose 10% to $715.4 million, representing about 39% of the total net sales. On a currency-adjusted basis, sales to customers outside the United States improved 16%.
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Segmental Performance
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 9.7% year over year to $1.7 billion and matched our estimate. The segment’s sales included a negative impact of $36.3 million from adverse currency rates. On a currency-adjusted basis, net sales for the segment rose 12%.
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 26% year over year to $99.7 million in the second quarter and marginally beat our estimate of $99 million. However, currency headwinds hurt the segment’s sales by $2.1 million. On a currency-adjusted basis, net sales for the segment rose 28.7%.
Alcohol Brands: Net sales for the segment, which includes various craft beers and hard seltzers purchased as part of the CANarchy transaction on Feb 17, 2022, surged 88.2% to $61 million for the second quarter and surpassed our estimate of $37.4 million.
Other: Net sales for the segment, which includes some products of American Fruits & Flavors sold to independent third parties (AFF Third-Party Products), declined 22.2% year over year to $7.3 million and beat our estimate of $6.1 million.
Costs & Margins
The cost of sales was $880.7 million, up 0.6% year over year but lagged our estimate of $971 million.
The company’s second-quarter 2023 gross margin expanded 540 basis points (bps) to 52.5%, driven by pricing actions, lower freight-in costs and reduced aluminum can costs. The metric beat our estimate of 47.3%.
Operating expenses grew 10.7% year over year to $450.4 million and surpassed our estimate of $443.7 million. This was mainly due to increased payroll expenses. As a percentage of sales, operating expenses contracted 30 bps to 24.3%. Selling expenses, as a percentage of net sales, expanded 20 bps year over year to 9.3%. The company continues to witness supply-chain headwinds.
Distribution costs, as a percentage of net sales, contracted 90 bps to 4.4%, driven by reduced freight out expenses, somewhat offset by higher warehouse expenses stemming from rising raw materials and finished product inventories in the United States and EMEA. General and administrative expenses, as a percentage of net sales, expanded 40 bps year over year to 10.6%.
Operating income of $523.8 million rose 40% year over year and beat our estimate of $429.2 million. The upside was driven by an increase in the gross margin. The operating margin expanded 570 bps to 28.2% in the reported quarter, which surpassed our estimate of 23.3%.
Other Financials
Monster Beverage ended second-quarter 2023 with cash and cash equivalents of $1,869.8 million, and total stockholders' equity of $7,841.5 million. Short-term investments, as of Jun 30, 2023, were $1,417.2 million, whereas long-term investments were $62.2 million.
In the reported quarter, the company bought back no shares. As of Jun 30, 2023, it had $682.8 million remaining under the previously authorized share repurchase plan.
Monster Beverage Corporation Price, Consensus and EPS Surprise
Monster Beverage Corporation price-consensus-eps-surprise-chart | Monster Beverage Corporation Quote
Business Developments
On Jul 31, 2023, the company concluded its buyout of all the assets of Vital Pharmaceuticals, Inc. and certain assets of its affiliates for $362 million. The acquired assets include Bang Energy beverages and a beverage production facility in Phoenix, AZ.
Management also implemented price increases in certain markets in the quarter under review, with potential price increases in a number of other markets during the rest of the year. In some markets, this rise was in addition to price increases implemented in 2022.
The company launched Reign Storm in March 2023, which will be part of its wellness energy category. During the quarter, it continued the roll-out of its first flavored malt beverage alcohol product, The Beast Unleashed, in the United States and received positive feedback. Consequently, MNST is on track with the expansion of the distribution of The Beast Unleashed into additional markets, with plans of nationwide distribution by the end of the year.
It intends to launch a hard iced tea extension of The Beast Unleashed, named Nasty Beast Hardcore Tea, later this year or early next year, with a target of nationwide distribution in the first half of 2024. The brand will be available in four flavors — Original, Half & Half, Razzleberry and Green.
Post the successful launch of Monster Energy Zero-Sugar, Monster Beverage revealed plans to introduce NOS Zero-Sugar in 16-ounce cans in fourth-quarter 2023. In the second quarter, the company expanded Java Monster portfolio in Canada with the launch of Java Monster 300 Triple Shot, Mocha and Vanilla. It also launched several products in Latin America in the quarter. In Argentina, MNST introduced its Monster Reserve brand, with the launch of Reserve White Pineapple in June. In the Caribbean, the company expanded its portfolio and introduced a number of products in different countries. Earlier this year, it launched Java Monster Super Coffee, Mean Bean and Loca Mocha in Australia. Consequently, the company expanded the launch of such products to the New Zealand market.
In EMEA, it launched Monster Reserve Watermelon and White Pineapple, Ultra Gold, Ultra Fiesta Mango, Ultra Paradise, Ultra Rosa, Ultra Watermelon, Used Ozzy Lemonade and Used Chaotic in a number of countries. In the second quarter, the company launched additional SK use or BPM, Burn, Nalu, Predator and Reign in certain countries. MNST launched the Monster Energy brand in Egypt in June 2023. As part of its ongoing pan EMEA launch, Monster Beverages expanded the distribution of Monster Energy Lewis Hamilton 44 Zero-Sugar Energy drink to eight additional EMEA markets in the second quarter.
In the second quarter of 2023, MNST launched Monster Reserve Watermelon in Japan and Monster Ultra Sunrise in Korea and Monster Reserve Pineapple in Turkey. It launched Predator in additional regions in India and is planning to introduce the Predator brand in additional countries in the APAC region this year. In July 2023, the company launched Monster Ultra Peachy Keen in Japan and Predator in Iraq. Monster Energy is also likely to be launched in the Philippines later this year.
Stocks to Consider
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely TreeHouse Foods THS, Associated British Foods ASBFY and Celsius Holdings CELH.
TreeHouse Foods, a manufacturer of packaged foods and beverages, currently sports a Zacks Rank #1 (Strong Buy). THS has a trailing four-quarter earnings surprise of 49.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for TreeHouse Foods’ current financial year’s sales suggests a decline of 12.4% from the year-ago reported number.
Associated British Foods is a diversified international food, ingredients and retail group, which currently flaunts a Zacks Rank #1. ASBFY’s expected EPS growth rate for three to five years is 7%.
The Zacks Consensus Estimate for Associated British Foods’ current financial-year sales and earnings suggests growth of 30.4% and 4.2%, respectively, from the year-ago reported figures.
Celsius Holdings currently carries a Zacks Rank #2 (Buy). CELH specializes in commercializing healthier, nutritional functional foods, beverages and dietary supplements.
The Zacks Consensus Estimate for CELH’s current financial-year sales indicates 67.9% growth from the year-ago reported figure, and the same for EPS implies a 154% rise. The company had an earnings surprise of 81.8% in the last reported quarter.
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