Monster Beverage (MNST) Q3 Earnings Beat, Sales Lag Estimates
Monster Beverage Corporation MNST delivered third-quarter 2023 results, wherein the bottom line surpassed 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.
Monster Beverage’s earnings of 41 cents per share exceeded the Zacks Consensus Estimate of 40 cents. The figure advanced 36.7% year over year.
Net sales of $1,856 million improved 14.3% year over year but lagged the Zacks Consensus Estimate of $1,863 million. Unfavorable currency translations hurt net sales by $29.2 million in the reported quarter. On a currency-adjusted basis, net sales rose 16.1%.
Net sales to customers outside the United States rose 20% to $733.7 million, representing about 40% of the total net sales. On a currency-adjusted basis, sales to customers outside the United States improved 25%.
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We note that shares of this Zacks Rank #3 (Hold) company have gained 3.8% year to date against the industry’s 1.4% decline.
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 13.7% year over year to $1.71 billion and beat our estimate of $1.66 billion. The segment’s sales included a negative impact of $20.2 million from adverse currency rates. On a currency-adjusted basis, net sales for the segment rose 15%.
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 11% year over year to $98.8 million in the third quarter but lagged our estimate of $99.8 million. However, currency headwinds hurt the segment’s sales by $9 million. On a currency-adjusted basis, net sales for the segment rose 21.3%.
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, jumped 57.8% to $42.3 million for the third quarter and marginally missed our estimate of $42.7 million.
Other: Net sales for the segment, which includes some products of American Fruits & Flavors sold to independent third parties (AFF Third-Party Products), grew 4% year over year to $6.7 million and beat our estimate of $6.2 million.
Costs & Margins
The cost of sales was $872.3 million, up 10% year over year and surpassing our estimate of $846.6 million.
The company’s third-quarter 2023 gross margin expanded 170 basis points (bps) year over year to 53%, driven by pricing actions, lower freight-in costs and reduced aluminum can costs. The metric missed our estimate of 53.2%.
Operating expenses grew 13.8% year over year to $473.2 million and surpassed our estimate of $443.2 million. As a percentage of sales, operating expenses contracted 10 bps to 25.5%. Selling expenses, as a percentage of net sales, contract 20 bps year over year to 9.5%.
Distribution costs, as a percentage of net sales, contracted 50 bps to 4.6%.
General and administrative expenses, as a percentage of net sales, expanded 50 bps year over year to 11.3%.
Operating income of $510.5 million rose 22% year over year and beat our estimate of $429.2 million. The upside was driven by an increase in sales and the gross margin. The operating margin expanded 180 bps to 27.5% in the reported quarter, which lagged our estimate of 29.2%.
The company revealed plans to implement additional price increases in certain international markets through the rest of the year in order to mitigate inflationary pressures.
Monster Beverage Corporation Price, Consensus and EPS Surprise
Monster Beverage Corporation price-consensus-eps-surprise-chart | Monster Beverage Corporation Quote
Other Financials
Monster Beverage ended third-quarter 2023 with cash and cash equivalents of $1,773.8 million, and total stockholders' equity of $7,873.1 million. Short-term investments, as of Sep 30, 2023, were $1,236.8 million, whereas long-term investments were $52.6 million.
In the reported quarter, the company bought back 7.3 million shares worth $400 million. As of Nov 2, 2023, it had $282.8 million remaining under the previously authorized share repurchase plan.
Business Developments
Monster Beverage continued with the launch of the Beast Unleashed, which is now available in 43 states. It has been receiving positive feedback for the same and is likely to distribute it across the United States by the end of 2023. MNST revealed plans to launch Nasty Beast Hard Tea in the first quarter of 2024 and expects national distribution by the first half of 2024. The new drink will be available in four flavors.
The company introduced Bang Energy in 12 single SKUs and two multi-pack SKUs in the United States. In Mexico, MNST launched its third Predator SKU with Predator Purple Rain and expanded its Monster Zero-Sugar offering with the launch of Monster Ultra Watermelon in August 2023.
In El Salvador and Honduras, the company launched Reserve White Pineapple, whereas it introduced Monster Ozzy Style and Reign Storm total wellness energy drinks in Puerto Rico.
In Australia, MNST launched Monster Ultra Peachy Keen, Mother Reignbow Sherbet, whereas it introduced Mother Lava Guava in New Zealand. In EMEA, the company launched Monster Nitro Cosmic Peach, Reserve Watermelon and White Pineapple, Juiced Aussie Lemonade, Juiced Chaotic, Ultra Gold, and Ultra Peachy Keen.
Monster Beverage also launched Monster Zero-Sugar in Great Britain in the third quarter. The company announced plans to expand distribution to Poland and the Republic of Ireland in the fourth quarter, and to another 28 markets by the end of the first quarter of 2024. In the quarter under review, MNST launched Monster Ultra Peachy Keen in Japan and Predator in Iraq. Recently, it launched Monster Ozzy Lemonade in Japan.
The company also made its presence felt in India in the premium energy drink segment with Monster and Predator.
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Celsius Holdings CELH, which offers functional drinks and liquid supplements, currently carries a Zacks Rank #2. CELH delivered an earnings surprise of 100% in the last reported quarter.
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