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Why Is Monster Beverage (MNST) Up 16.3% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Monster Beverage (MNST). Shares have added about 16.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Monster Beverage due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Monster Beverage Q1 Earnings Beat on Strong Top Line

Monster Beverage reported impressive earnings and sales numbers in first-quarter 2020, driven by meager impacts from the coronavirus pandemic. Notably, its top and bottom lines not only outpaced the Zacks Consensus Estimate but also improved on a year-over-year basis. The company notes that the COVID-19 outbreak had minimal impact on its first-quarter results, as its flavor manufacturing facilities, co-packers, warehouses and shipment facilities remained operational, maintaining continued supplies.

However, it stated that its April sales witnessed significant impacts from the pandemic, while bottler/distributor sales to retailers in the United States experienced lesser impacts. Moreover, the company notes that there has been a change in consumer channel preference since the middle of March, with a rise in in-home consumption and a fall in immediate consumption. So far in the second quarter, its sales have been adversely impacted by lower traffic in convenience stores and gas stations along with a decline in food service on-premise channel. Meanwhile, the e-commerce, club store, mass merchandiser, and grocery and related businesses have witnessed stable trends.

Q1 Highlights

Monster Beverage’s earnings of 52 cents per share rose 8.2% year over year and outpaced the Zacks Consensus Estimate of 48 cents.

Net sales of $1,062.1 million improved 12.3% year over year and surpassed the Zacks Consensus Estimate of $997 million. Moreover, gross sales (net of discounts and returns) rose 13.4% to $1,236.1 million. Improvement in gross and net sales was mainly attributed to gains from the Monster Energy brand energy drinks internationally as well as Reign Total Body Fuel high-performance energy drinks. The gains were partly negated by unfavorable currency fluctuations, which hurt net and gross sales by $10.4 million and $11.2 million, respectively.

Segmental Performance

Monster Energy Drinks: The segment’s net sales rose 14% year over year to $992.5 million. Robust gains from the sale of Monster Energy and Reign Total Body Fuel brands were partly offset by a negative impact of $10 million from adverse currency rates.

Strategic Brands: Apart from its affordable energy drink brands, the segment includes a range of energy drink brands acquired from Coca-Cola. The segment’s net sales declined 8.2% to $64.5 million in the first quarter. Currency headwinds marred the segment’s results by $0.4 million.

Other: Net sales at the segment, which includes some products of American Fruits & Flavors sold to independent third parties (AFF Third-Party Products), fell 3.8% year over year to $5.1 million.

Costs & Margins

The company’s first-quarter 2020 gross margin contracted 60 basis points (bps) to 60%. Operating expenses rose 3.9% year over year to $272.2 million, while as a percentage of sales it declined 210 bps to 25.6%. Selling expenses, as a percentage of net sales, decreased 70 bps to 10.3%. Meanwhile, distribution costs, as a percentage of net sales, declined 10 bps to 3.7%. General and administrative expenses, as a percentage of net sales, leveraged 120 bps to 11.7%.

Operating income of $365 million grew 17.2% year over year. Moreover, the operating margin expanded 150 bps to 34.4% in the reported quarter.

Other Financials

Monster Beverage ended the first quarter with cash and cash equivalents of $701.8 million, and total stockholders' equity of $3,870.9 million.

In the reported quarter, the company bought back 10.5 million shares for $579.3 million (excluding broker commissions), with an average price of $55.22 per share. As of May 7, 2020, it had $441.5 million remaining under the previously authorized share repurchase plan.

Strategies on Track

Monster Beverage remains committed to product launches and innovation to boost growth. In first-quarter 2020, the company launched several products in the United States, including a line of Reign Inferno Thermogenic Fuel, two new energy drinks in the Monster Ultra line, a line of Java Monster 300, and a line of Monster Hydro Super Sport as well as NOS Turbo. Further, it launched various Monster Energy brand energy drinks and Reign Total Body Fuel high-performance energy drinks in international markets. Moreover, its affordable energy brand – Predator – was launched in additional international markets, including Mexico, in the first quarter. The company plans to launch the brand to more markets in 2020.

Other notable product launches included the Monster Energy Dragon Tea in Brazil in the first quarter and in China in April 2020. It also added the Burn Dark Energy to its portfolio in Russia, a new Nalu energy tea line in Belgium, and the national launch of Mother Epic Swell in Australia, after a limited launch last year.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted -8.23% due to these changes.

VGM Scores

Currently, Monster Beverage has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Monster Beverage has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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