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Why Is Monster Beverage (MNST) Up 7.4% Since Last Earnings Report?

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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 catalysts.

Monster Beverage's Q4 Earnings & Sales Beat Estimates

Monster Beverage reported better-than-expected fourth-quarter 2020 results, wherein both top and bottom lines improved year over year. Despite continued uncertainties related to the COVID-19 pandemic, the company marked record sales in the reported quarter with solid performance in Europe, the Middle East and Africa regions.

Going forward, management doesn’t expect any material impact of the COVID-19 pandemic on the functioning of its co-packers and bottlers/distributors that manufacture and distribute products, respectively. Moreover, Monster Beverage’s supply chain remains unaffected, with no major impact on raw material and finished product shortages. The company is also continually managing its aluminum can requirements to meet growth in volumes, despite the current industry-wide supply constraints for aluminum cans.

However, the company expects the pandemic-related impacts to be a heightened threat in a number of countries, including the EMEA, as these are reinstituting lockdowns and other restrictions due to a second COVID-19 wave.

Q4 Highlights

Monster Beverage’s earnings of 62 cents per share rose 31.9% year over year and outpaced the Zacks Consensus Estimate of 59 cents.

Net sales of $1,196 million improved 17.6% year over year and surpassed the Zacks Consensus Estimate of $1,134 million. Also, unfavorable currency fluctuations and adverse impacts of product returns weighed on net sales by $7.1 million and $15.2 million, respectively.

The top-line growth was aided by increased at-home consumption trends owing to a shift in consumer preferences for shopping channels and packaging options. Notably, the company witnessed robust sales trends across e-commerce, club stores, mass merchandisers, and grocery and related businesses. Further, foot traffic at its largest convenience and gas channel has been witnessing improved trends since the latter half of second-quarter 2020, which continued throughout the fourth quarter. However, the foodservice on-premise channel, which forms a small part of the company’s business, remained affected during the quarter.

During the quarter, management launched many Monster Energy brand energy drinks, Reign Total Body Fuel high-performance energy drinks and Predator energy drinks in several domestic as well as international markets. Also, its Monster Energy Ultra Watermelon, Juice Monster, Khaotic and Juice Monster, and Papillon energy drinks, which were launched in October 2020, have been performing well.

Segmental Performance

Monster Energy Drinks: The segment primarily includes brands like Monster Energy drinks and Reign Total Body Fuel high-performance energy drinks. The segment’s net sales increased 17.7% year over year to $1.12 billion. The segment’s sales included a negative impact of $5.8 million and $15.2 million from unfavorable currency rates and product returns, respectively.

Strategic Brands: In addition to affordable energy drink brands, the segment includes a range of energy drink brands acquired from The Coca-Cola Company. The segment’s net sales improved 14.8% year over year to $67.9 million in the fourth quarter. Currency headwinds marred the segment’s results by $1.3 million.

Other: Net sales in the segment, which includes some products of American Fruits & Flavors sold to independent third parties (AFF Third-Party Products), grew 36.7% year over year to $6.7 million.

Costs & Margins

The company’s fourth-quarter 2020 gross margin contracted 230 basis points (bps) to 57.7%. Operating expenses inched up 1.8% year over year to $288.4 million. As a percentage of sales, operating expenses declined 480 bps to 24.1%, driven by reduced costs related to legal issues, sponsorship and endorsements, as well as lower travel and entertainment costs as a result of the ongoing pandemic. Selling expenses, as a percentage of net sales, decreased 250 bps to 9.8%. Meanwhile, distribution costs, as a percentage of net sales, expanded 40 bps to 3.9%. General and administrative expenses, as a percentage of net sales, contracted 270 bps to 10.4%.

Operating income of $402.3 million grew nearly 26.9% year over year. Moreover, operating margin expanded 240 bps to 33.6% for the reported quarter.

Other Financials

Monster Beverage ended 2020 with cash and cash equivalents of $1,180.4 million and total stockholders' equity of $5,160.9 million.

In the reported quarter, the company did not buyback any shares. As of Feb 25, 2021, it had $441.5 million remaining under the previously authorized share repurchase plan.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

Currently, Monster Beverage has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 C. 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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