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Monster Beverage (MNST) Q3 Earnings Top, Sales Lag Estimates

Monster Beverage Corporation MNST reported mixed results for third-quarter 2022. It posted better-than-expected earnings in the quarter, while its top line lagged the Zacks Consensus Estimate. Meanwhile, 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 resulted in an earnings decline.

Monster Beverage’s earnings of 60 cents per share beat the Zacks Consensus Estimate of 58 cents but declined 3.9% year over year. The bottom line was impacted by inflationary operational costs for aluminum cans, shipping, freight and other inputs.

Net sales of $1,624.3 million improved 15.2% year over year but missed the Zacks Consensus Estimate of $1,645 million. Unfavorable currency translations hurt net sales by $71.3 million in the reported quarter. On a currency-adjusted basis, net sales rose 20.2%.

Monster Beverage Corporation Price, Consensus and EPS Surprise

 

Monster Beverage Corporation Price, Consensus and EPS Surprise
Monster Beverage Corporation Price, Consensus and EPS Surprise

Monster Beverage Corporation price-consensus-eps-surprise-chart | Monster Beverage Corporation Quote

Net sales to customers outside the United States rose 15.8% to $610.6 million, representing about 38% of the total net sales. On a currency-adjusted basis, sales to customers outside the United States improved 29.3%.

Shares of Monster Beverage rose 3.3% in the after-hours trading session on Nov 3 based on robust third-quarter 2022 earnings. Shares of the Zacks Rank #4 (Sell) company have lost 0.3% in the past three months compared with the industry’s 2% decline.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

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 13% year over year to $1.5 billion. The segment’s sales included a negative impact of $66.3 million from adverse currency rates. On a currency-adjusted basis, net sales for the segment rose 18%.

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 19.3% year over year to $88.8 million in the third quarter. However, currency headwinds hurt the segment’s sales by $5 million. On a currency-adjusted basis, net sales for the segment increased 25.9%.

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, were $26.8 million for the third quarter.

Other: Net sales for the segment, which includes some products of American Fruits & Flavors sold to independent third parties (AFF Third-Party Products), improved 2.1% year over year to $6.4 million.

Costs & Margins

The company witnessed a significant increase in the cost of sales, which caused a decline in the gross profit and the gross margin rate. The cost of sales of $790.6 million escalated 27.2% year over year. The increase in the cost of sales was mainly attributed to the higher logistics costs, increased aluminum can cost and unfavorable geographical and product sales. Elevated ingredients and other input costs, comprising secondary packaging materials and increased co-packing fees, also hurt the cost of sales.

The company’s third-quarter 2022 gross margin contracted 460 basis points (bps) to 51.3%, driven by higher cost of sales resulting from the aforementioned factors, offset partly by pricing actions.

In third-quarter 2022, Monster Beverage remained on track with the mitigation of higher production and distribution costs through pricing actions and lower promotional expenses. It implemented price increases for its products in the United States on Sep 1, 2022. It also brought effective price increases in certain international markets in the third quarter. These actions partly aided the gross margin in the quarter.

Operating expenses grew 20.6% year over year to $415.8 million. The increase can be attributed to higher warehousing and other logistical expenses, elevated payroll expenses, increased selling and marketing expenses, and increased general and administrative expenses.

As a percentage of sales, operating expenses rose 120 bps to 25.6%. Higher operating expense rates mainly resulted from increased distribution costs, and general and administrative expense rates. Selling expenses, as a percentage of net sales, were flat at 9.7%. Distribution costs, as a percentage of net sales, increased 50 bps to 5.1%. General and administrative expenses, as a percentage of net sales, rose 70 bps year over year to 10.8%.

Operating income of $417.9 million declined 6% year over year, driven by a decrease in the gross margin, as well as higher operating expenses. The operating margin contracted 580 bps to 25.7% in the reported quarter.

Other Financials

Monster Beverage ended third-quarter 2022 with cash and cash equivalents of $1,030 million, and total stockholders' equity of $6,815.8 million. Short-term investments, as of Sep 30, 2022, were $1,346.8 million, whereas long-term investments were $72.4 million.

In the reported quarter, the company bought back 3.1 million shares for an average price of $87.78 per share and a total value of $272.9 million. As of Nov 3, 2022, it had $182.8 million remaining under the previously authorized share repurchase plan. Concurrently, the company authorized a share repurchase program to buy back shares worth up to an additional $500 million.

Stocks to Consider

We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Coca-Cola FEMSA KOF, Constellation Brands STZ and Dutch Bros BROS.

Coca-Cola FEMSA currently flaunts a Zacks Rank #1 (Strong Buy). KOF has a trailing four-quarter earnings surprise of 33.7%, on average. It has a long-term earnings growth rate of 10.3%. The company has rallied 5.7% in the past three months.

You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Coca-Cola FEMSA’s current financial-year sales and earnings per share suggests growth of 15.6% and 6.2%, respectively, from the year-ago reported numbers. The consensus mark for KOF’s earnings per share has moved up 3.4% in the past seven days.

Constellation Brands currently has a Zacks Rank #2 (Buy) and an expected long-term earnings growth rate of 11.1%. STZ has a trailing four-quarter earnings surprise of 10.5%, on average. The company has declined 1.5% in the past three months.

The Zacks Consensus Estimate for Constellation Brands’ current financial-year sales and earnings suggests growth of 8.2% and 8.7%, respectively, from the year-ago reported numbers. The consensus mark for STZ’s earnings per share has moved up 14.7% in the past 30 days.

Dutch Bros currently has a Zacks Rank of 2. BROS has a trailing four-quarter earnings surprise of 53%, on average. It has a long-term earnings growth rate of 32%. The company has declined 21.8% in the past three months.

The Zacks Consensus Estimate for Dutch Bros’ current financial-year sales suggests growth of 46.1% from the prior-year reported number, whereas the same for earnings suggests a decline of 26.7%. The consensus mark for BROS’ earnings per share has moved down by a penny in the past 30 days.


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Constellation Brands Inc (STZ) : Free Stock Analysis Report
 
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