Monster Beverage (MNST) Stock Up on Q2 Earnings & Sales Beat

Shares of Monster Beverage Corporation MNST rose nearly 4% in the aftermarket trading session on Aug 4, following impressive second-quarter 2020 results. Despite adverse impacts of the ongoing COVID-19 pandemic, sales improved on a sequential basis in the second half of the quarter with stores reopening in a phased manner. Further, the company has been witnessing a shift in consumer preference since mid-March with a spike in demand for at-home consumption.

Solid performance in its online, club store, mass merchandiser and grocery and related businesses provided some cushion to the top line, which was hurt by weak traffic in the convenience and gas channel along with softness in EMEA. However, the food service on-premise unit remains drab. That said, management doesn’t foresee any material impact of COVID-19 and also noted that it is not facing any supply-chain disruption, currently.

Shares of this Zacks Rank #2 (Buy) company have gained 28.6% in the past three months compared with the industry’s growth of 4.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Q2 Highlights

Monster Beverage’s earnings of 59 cents per share rose 9.9% year over year and outpaced the Zacks Consensus Estimate of 48 cents.

Net sales of $1,094 million edged down 0.9% year over year but surpassed the Zacks Consensus Estimate of $1,007 million. Moreover, gross sales (net of discounts and returns) fell 0.9% to $1,274.3 million. Adverse impacts ofthe COVID-19 pandemic hurt sales to a large extent, mostly in the EMEA region and the Strategic Brands segment. Also, unfavorable currency fluctuations weighed on net and gross sales by $18.2 million and $21.6 million, respectively.

Segmental Performance

Monster Energy Drinks: The segment’s net sales rose 0.8% year over year to $1.03billion due to adverse impacts of COVID-19 and a negative impact of $16.8 million from unfavorable currency rates.

Strategic Brands: Apart from its affordable energy drink brands, the segment includes a range of energy drink brands acquired from The Coca-Cola Company KO. The segment’s net sales declined 24.7% to $59.6 million in the secondquarter. Currency headwinds marred the segment’s results by $1.4 million. Moreover, the segment was most affected by COVID-19 impacts, particularly in the EMEA region where the lockdown was for an extended period of time.

Other: Net sales inthe segment, which includes some products of American Fruits & Flavors sold to independent third parties (AFF Third-Party Products), grew13.8% year over year to $5.1 million.

Costs & Margins

The company’s second-quarter 2020 gross margin expanded 40 basis points (bps) to 60.3%. Operating expenses decreased10.7% year over year to $252.2 million, driven by reduced costs related to sponsorship and endorsements of $19.8 as well as lower travel and entertainment costs to the tune of $10.1 million as a result of the ongoing pandemic.  Notably, as a percentage of sales, it declined 250 bps to 23.1%. Selling expenses, as a percentage of net sales, decreased 240 bps to 8.8%. Meanwhile, distribution costs, as a percentage of net sales, expanded 20 bps to 3.6%. General and administrative expenses, as a percentage of net sales, contracted 20 bps to 10.7%.

Operating income of $407.3 million grew 7.5% year over year. Moreover, the operating margin expanded 2,900 bps to 37.2% in the reported quarter.

Other Financials

Monster Beverage ended the second quarter with cash and cash equivalents of $921.3 million, and total stockholders' equity of $4,2221.5 million.

In the reported quarter, the company bought back 0.3 million shares for $15.6 million (excluding broker commissions), with an average price of $52.88 per share. As of Aug 4, 2020, it had $441.5 million remaining under the previously authorized share repurchase plan.

Monster Beverage Corporation Price, Consensus and EPS Surprise

Monster Beverage Corporation Price, Consensus and EPS Surprise

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

Strategies on Track

Monster Beverage, which shares space with PepsiCo PEP and National Beverage Corporation FIZZ, remains committed to product launches and innovation to boost growth. The company is now working toward new product launches in 2020. The company introduced Monster Energy brand energy drinks and Reign Total Body Fuel high-performance energy drinks in a few countries during the second quarter. Apart from these, other notable launches include Fury Gold Strike in Honduras and Salvador, Predator Gold Strike in Nigeria, Ultra Paradise in Argentina and Puerto Rico, Monster Mango Loco in Guatemala, El Salvador and Honduras,  Monster Energy Mule and Mother Tropical Blast in New Zealand, Juice Monster Pacific Punch in Spain, Juice Monster Pipeline Punch in Romania,  Juice Monster Mango Loco in Switzerland, and Monster Ultra Paradise in Austria, the Baltics, Hungary, Denmark, Spain and Poland.

Currently, Juice Monster Pacific Punch and Juice Monster Pipeline Punch are available in 10 and 21 markets across EMEA and expected to be expanded in additional two and eight markets, respectively, in 2020. Also, Juice Monster Mango Loco and Monster Ultra Paradise are now available in 35 and 14 markets in EMEA and will be soon available in 10 and seven more markets, respectively, in 2020. In addition to these, Espresso Monster in Milk and Vanilla flavors are available in 20 markets in EMEA and will be launched in 2 more markets. Monster Hydra Sport, which was introduced in Spain, will be available in another market by 2020. Encouraged by the performance of Reign, the companyplans to expand it to six more markets in 2020. Monster Mule, which was launched in Poland, is anticipated to be launched in additional nine markets in 2020.

For the third quarter, the company intends to launch Predator in Ethiopia and additional six EMEA markets — Bosnia, Croatia, Ghana, Romania, Russia and Slovenia — in 2020.

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