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Monster Beverage (MNST) Q3 Earnings Miss, Sales Beat Estimates

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  • MNST

Monster Beverage Corporation MNST reported a better-than-expected top line in third-quarter 2021, while the bottom line missed estimates and declined year over year. Sales benefited from continued strong demand for the energy drinks category as well as favorable currency. However, the ongoing supply-chain disruptions and elevated aluminum can costs hurt earnings.

Logistics issues, including shortages of shipping containers and global port congestions, higher input costs, and freight inefficiencies, hurt the gross and operating margins in the third quarter. The company could not fully meet the increasing consumer demand in the United States and EMEA in the third quarter due to the shortages in aluminum cans and delays in procuring certain ingredients.

Shares of this Zacks Rank #3 (Hold) company have declined 9.5% in the past three months compared with the industry’s 0.4% fall.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Q3 Highlights

Monster Beverage’s earnings of 63 cents per share declined 3.5% year over year and missed the Zacks Consensus Estimate of 65 cents. The bottom line was impacted by inflationary operational costs for aluminum cans, shipping, freight and other inputs. The company is working to mitigate these costs through measures like reductions in promotions and other pricing actions in the United States and EMEA.

Net sales of $1,410.6 million improved 13.2% year over year and surpassed the Zacks Consensus Estimate of $1,391 million. Favorable currency translations contributed $16.4 million to net sales in the reported quarter.

Net sales to customers outside the United States rose 18.7% to $527.4 million, representing about 37% of net sales.

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

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 14.3% year over year to $1.33 billion. The segment’s sales included a positive impact of $154 million from favorable currency rates.

Strategic Brands: In addition to the affordable energy drink brands, the segment includes a range of energy drink brands acquired from The Coca-Cola Company KO. The segment’s net sales improved 0.2% year over year to $74.4 million in the third quarter. Currency tailwinds aided the segment’s sales by $1 million. However, shortages in NOS concentrate hurt the segment’s net sales for the third quarter.

Other: Net sales in the segment, which includes some products of American Fruits & Flavors sold to independent third-parties (AFF Third-Party Products), declined 26.7% year over year to $6.3 million.

Costs & Margins

The company’s third-quarter 2021 gross margin contracted 320 basis points (bps) to 55.9% due to the elevated aluminum can costs, stemming from higher aluminum commodity pricing and increased cost of importing aluminum cans; higher logistics costs; and adverse geographical sales mix.

The company procured additional quantities of aluminum cans from suppliers in the United States, South America and Asia, owing to the rising consumer demand. However, it continued to witness shortages in its aluminum can requirements in the United States and EMEA in the third quarter. It also felt the pinch of higher aluminum can costs due to elevated aluminum commodity pricing and the costs of importing aluminum cans.

Apart from this, the company saw elevated ingredient and other input costs, including shipping and freight, labor, trucking, fuel, co-packing fees, secondary packaging materials, and increased outbound freight costs, which led to increased costs of sales and higher operating costs in the third quarter.

The company also experienced incremental supply-chain challenges related to freight inefficiencies, trucking availability, shortages of shipping containers, port of entry congestion, insufficient co-packing capacity, and delays in receiving certain ingredients in the United States and EMEA. This led to product shortages in these regions amid the strong demand.

Operating expenses grew 24% year over year to $344.7 million. The increase can be attributed to the higher outbound freight and warehouse costs; elevated sponsorship and endorsement expenses; increased marketing expenses, including social media and digital marketing; and higher payroll costs. Third-quarter operating expenses also included $5.3 million worth of additional expenses for distributor terminations. As a percentage of sales, operating expenses increased 210 bps to 24.4%. Higher operating expense rates mainly resulted from increased selling and distribution expenses.

General and administrative expenses, as a percentage of net sales, were flat year over year at 10.1%. Selling expenses, as a percentage of net sales, rose 90 bps to 9.7%. Distribution costs, as a percentage of net sales, expanded 110 bps to 4.6%.

Operating income of $444.5 million grew 3.1% year over year. However, the operating margin contracted 530 bps to 31.5% for the reported quarter.

Other Financials

Monster Beverage ended the third quarter with cash and cash equivalents of $1,712.7 million, and total stockholders' equity of $6,245 million. Short-term investments as of Sep 30, 2021, were $1,224.1 million, while long-term investments were $28.3 million.

In the reported quarter, the company did not buy back any shares. As of Nov 4, 2021, it had $441.5 million remaining under the previously authorized share repurchase plan.

Better-Ranked Stocks to Consider

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The Duckhorn Portfolio NAPA currently has a long-term earnings growth rate of 9.4% and a Zacks Rank #2 (Buy).

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