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Why Monster Beverage (MNST) is Likely to Beat on Q2 Earnings

Zacks Equity Research

Monster Beverage Corporation MNST is slated to release second-quarter 2019 results on Aug 7.

In the last reported quarter, the company recorded positive earnings surprise of 11.6%. Moreover, it delivered average positive earnings surprise of 7.5% in the trailing four quarters. The Zacks Consensus Estimate for second-quarter earnings of 56 cents suggests a 16.7% improvement from the year-ago quarter’s reported figure. However, it remained unchanged in the last 30 days.

Monster Beverage Corporation Price and EPS Surprise

 

Monster Beverage Corporation Price and EPS Surprise

Monster Beverage Corporation price-eps-surprise | Monster Beverage Corporation Quote

Let’s see how things are shaping up prior to the upcoming earnings release.

Factors Likely to Impact Q2

Monster Beverage has been witnessing solid momentum in the energy drinks business amid a challenging industry backdrop. This momentum is aided by the company’s wide range of energy drink brand offerings — including Monster Energy, Java Monster and Worx Energy. Additionally, optimism regarding its alliance with Coca-Cola’s bottlers globally, which broadened its distribution network, is aiding growth. Moreover, the company’s top line is poised to benefit from the product innovation strategy and regular product launches. Moreover, its top and bottom lines in the second quarter release should reflect gains from the increasing popularity of the Monster brand.

Simultaneously, Monster Beverage’s solid international presence and plans for further expansion are working in its favor. Notably, the company has been expanding international operations into various markets — including China, India, African and the Middle Eastern countries. These developing and emerging markets have a high growth potential due to their relatively low per capita consumption. Further, product innovation plays a significant role in the company’s success. Management expects its pipeline of innovation and product launches to show significant contribution to sales and earnings growth in the upcoming quarter’s release.

Notably, the Zacks Consensus Estimate for its revenues for the second quarter stands at $1.13 billion, suggesting an increase of 10.9% from the year-ago quarter’s reported number.

However, input cost inflation for aluminum cans and unfavorable product mix along with increased freight costs have been denting the company’s gross margin for a while now. This might be a key reason behind its margin pressures in the to-be-reported quarter. Moreover, Monster Beverage’s significant international presence exposes it to adverse foreign currency risks. Effects of these headwinds on profitability are likely to reflect on the upcoming earnings release.

Zacks Model
 
Our proven model does predict that Monster Beverage is likely to beat earnings estimates in the second quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Monster Beverage has an Earnings ESP of +1.12% and a Zacks Rank #3 (Hold) at present, which make positive surprise likely.

Other Stocks With Favorable Combination

Here are some other companies that you may want to consider as our model shows that these too have the right combination of elements to deliver an earnings beat:

The Estee Lauder Companies Inc. EL currently has an Earnings ESP of +2.46% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

General Mills, Inc. GIS presently has an Earnings ESP of +0.87% and a Zacks Rank #2.

The Kraft Heinz Company KHC currently has an Earnings ESP of +8.00% and a Zacks Rank # 3.

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