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Monster Beverage (MNST) Stock Up on Q4 Earnings & Sales Beat

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Monster Beverage Corporation MNST reported solid fourth-quarter 2018 results, wherein the top and bottom lines outpaced the Zacks Consensus Estimate and improved year over year. Notably, this marked the third straight positive earnings surprise with second consecutive sales beat.

Following the earnings release, shares of the company increased about 7% in after-hours trading on Feb 27.

Q4 Highlights

Monster Beverage’s earnings came in at 43 cents per share, up 22.7% year over year and surpassed the Zacks Consensus Estimate of 40 cents.

Net sales of $924.2 million grew 14.1% year over year and exceeded the consensus mark of $895.8 million. Also, gross sales improved 13.7% to $1.06 billion in the quarter under review.

However, net and gross sales were hurt by $16 million and $18 million, respectively, due to advance purchases by customers in the previous quarter. A pre-announced price hike from Nov 1 on certain Monster Energy drinks led to advance purchases. Net sales were also adversely impacted by $14.4 million from foreign currency translations and by $8.5 million from the adoption of Accounting Standards Codification (“ASC”) 606. Excluding the adoption of ASC 606, the top line grew 15.1% in the fourth quarter.

Outside the United States, net sales to customers totaled $274.3 million, up 30.4% year over year.

Segmental Performance

Monster Energy Drinks: Net sales at this segment, which includes Monster Energy drinks, increased 15.9% from the year-ago quarter figure to $853.3 million. Nonetheless, the metric was hurt by $3.2 million due to the adoption of ASC 606 and $12.4 million from adverse foreign currency rates.

Strategic Brands: This segment includes a range of energy drink brands acquired from The Coca-Cola Company KO. Net sales at this segment declined 5.4% to $65.8 million in the fourth quarter. The downside can be primarily attributed to adverse impact from the adoption of ASC 606 and foreign currency.

Other: Net sales at this segment, which includes some products of American Fruits & Flavors sold to independent third parties, grew 8.5% year over year to $5.1 million.

Costs & Margins

Fourth-quarter 2018 gross margin contracted 240 basis points (bps) to 59.7%. The decline can be attributed to higher certain input costs like aluminum cans, freight and other input costs; lower net sales due to the adoption of ASC 606; geographical mix; and domestic product sales mix. This was somewhat mitigated by rise in domestic sales prices coupled with lower promotional allowances as a percentage of gross sales.

Operating expenses increased 3.8% year over year to $245.7 million. However, selling expenses, as a percentage of net sales, were 11.3%, down 230 bps from fourth-quarter 2017 figure.

Operating income amounted to $306.5 million, up about 14.8% year over year. Also, the operating margin expanded 20 bps to 33.2%.

Other Financials

Monster Beverage ended the fourth quarter with cash and cash equivalents of $637.5 million, and total stockholders' equity of $3,610.9 million.

Effective tax rate in the quarter was 23.1% compared with 24.8% in the prior-year quarter.

Moreover, the company bought back shares about 9.4 million shares worth $536.9 million (excluding broker commissions) in the reported quarter. It had an outstanding authorization to buy back shares worth nearly $20.6 million as of Feb 26, 2019, under its August 2018 repurchase plan. On the same day, the board also authorized a new repurchase program of up to an additional $500 million.

Looking Ahead

Monster Beverage remains confident about its performance, reporting record net sales for the fourth quarter as well as the full year. This was fueled by the company’s strategic initiatives and brand strength, Monster Energy brand drinks in particular. Moreover, the company is well on track with its strategic alignment with Coca-Cola system bottlers.

Furthermore, management remains committed toward product launches to boost growth. Apparently, Monster Beverage is on track to launch Monster Energy Ultra Paradise and Java Monster Swiss Chocolate in the United States. Also, the company intends to roll out the Reign Total Body Fuel line of performance energy drinks along with the Monster Dragon TeaTM line this March. Notably, the company’s one or more energy drinks are being distributed in roughly 155 countries and territories globally.

Monster Beverage will continue to roll out the Monster Energy brand in other geographical markets this year. Apart from these, it plans to launch Predator energy brand in various markets internationally.

Monster Beverage, which belongs to the Beverages - Soft drinks industry, carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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