A month has gone by since the last earnings report for Monster Beverage (MNST). Shares have added about 7.4% 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 drivers.
Monster Beverage Q1 Earnings & Sales Beat
Monster Beverage reported solid first-quarter 2019 results, wherein top and bottom lines outpaced the Zacks Consensus Estimate and improved year over year. Notably, this marked the fourth straight positive earnings surprise, with the third consecutive sales beat.
Monster Beverage’s earnings of 48 cents per share rose 26.7% year over year and surpassed the Zacks Consensus Estimate of 43 cents.
Net sales of $946 million improved 11.2% year over year and surpassed the Zacks Consensus Estimate of $916.3 million. Moreover, gross sales (net of discounts and returns) rose 10.1% to $1,090.4 million. Robust gross and net sales growth are attributed to strong sales for the Monster Energy brand energy drinks, introduction of Monster Energy brand energy drink and the launch of Reign Total Body Fuel high-performance energy drinks.
Additionally, net sales to customers outside the United States totaled $274.3 million, up 17.4% year over year. This represented about 30% of total sales in first-quarter 2019 compared with 25.8% in the year-ago quarter. However, top-line growth was partly negated by unfavorable currency that hurt gross and net sales by $25.9 million and $22 million, respectively.
Monster Energy Drinks: Net sales at this segment increased 11.5% year over year to $870.4 million. Robust gains from the sale of Monster Energy brand energy drinks and Reign Total Body Fuel high-performance drinks were partly offset by a negative impact of nearly $18.2 million from adverse currency rates.
Strategic Brands: This segment includes a range of energy drink brands acquired from Coca-Cola in addition to its affordable energy brands. Net sales at this segment rose 6.9% to $70.3 million in the first quarter. However, currency headwinds hurt the segment’s results by $3.8 million.
Other: Net sales at this segment, which includes some products of American Fruits & Flavors sold to independent third parties (AFF Third-Party Products), grew 12.8% year over year to $5.3 million.
Costs & Margins
First-quarter 2019 gross margin remained flat at 60.6%. Gross margin benefited from increased prices for products sold in the United States and Canada along with product sales mix. This was somewhat mitigated by negative geographic sales mix and higher input costs.
Operating expenses increased 11.4% year over year to $262.1 million. SG&A expenses, as a percentage of sales, grew 60 bps to 12.9%. However, selling expenses, as a percentage of net sales, dipped 50 bps to 11%. Meanwhile, distribution costs, as a percentage of sales, declined 10 bps to 3.8%.
Despite higher costs, operating income of $311.5 million increased 11.3% year over year. Meanwhile, the operating margin remained flat at 32.9%.
Monster Beverage ended the first quarter with cash and cash equivalents of $618.3 million, and total stockholders' equity of $3,698.8 million.
Moreover, the company bought back 2.6 million shares for about $139 million (excluding broker commissions) in the reported quarter. As of May 2, 2019, it had nearly $20.6 million and $500 million remaining to be bought back under share repurchase plans authorized in August 2018 and February 2019, respectively.
Strategies on Track
Monster Beverage completed the alignment with Coca-Cola system bottlers in the United States, with the allotment of the Kalil Bottling Group’s distribution territories in March 2019 and the transition of the Big Geyser Inc. territory in April 2019. Further, the company is on track with the transitioning of the Monster Energy brand to Coca-Cola system bottlers in more countries.
Furthermore, management remains committed toward product launches to boost growth. In the first quarter, it successfully launched Monster Energy Ultra Paradise, Monster Dragon Tea line, Reign Total Body Fuel line of high-performance energy drinks and Java Monster Swiss Chocolate in the United States. Additionally, it rolled out many Monster Energy and Strategic Brands energy drinks in existing international geographies.
Moreover, the company is set to launch the strategically preferred affordable energy brand — Predator — in additional international markets in 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, Monster Beverage has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision indicates a downward shift. 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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