It has been about a month since the last earnings report for Monster Beverage (MNST). Shares have added about 7.6% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Monster Beverage Q3 Earnings & Sales Beat Estimates
Monster Beverage's earnings of 50 cents per share in third-quarter 2018 improved 25.6% year over year and surpassed the Zacks Consensus Estimate of 46 cents.
Net sales of $1,016.2 million increased 11.7% year over year and exceeded the consensus mark of $991 million. Further, gross sales grew 13.7% to $1,184.4 million in the quarter. Advance purchases by customers owing to a pre-announced price hike from Nov 1, on certain Monster Energy drinks, benefited net and gross sales by $16 million and $18 million, respectively. However, net sales were adversely impacted by $5.3 million from foreign currency translations and by $11.6 million from the adoption of Accounting Standards Codification ("ASC") 606. Excluding the adoption of ASC 606, the top line grew 13% in the quarter.
Outside the United States, net sales to customers totaled $283 million, up 8.8% year over year.
Monster Energy Drinks: Net sales at the segment, which includes Monster Energy and Mutant Super Soda drinks, increased 13% from the year-ago quarter to $935.1 million. The metric was somewhat hurt by $5.3 million due to the adoption of ASC 606.
Strategic Brands: This segment includes a range of energy drink brands acquired from The Coca-Cola Company. Net sales at the segment declined 2.8% to $74.4 million in the quarter. The downside can be primarily attributed to adverse impact from the adoption of ASC 606 and foreign currency.
Other: Net sales at the segment, which includes some products of American Fruits & Flavors, sold to independent third parties, plunged 26.9% year over year to $6.6 million.
Costs & Margins
Third-quarter 2018 gross margin contracted 280 basis points (bps) to 59.8%. The decline can be attributed to higher promotional allowances, lower sales due to the adoption of ASC 606, higher input and freight costs as well as geographical and domestic product sales mix.
Operating expenses, including $14.1 million of distributor termination expenses, increased 6.3% from the prior-year quarter to $268.1 million. However, selling expenses, as a percentage of net sales, were 11.2%, down 150 bps from third-quarter 2017. Operating income amounted to $339.6 million, up about 7% year over year. Nonetheless, operating margin fell 150 bps to 33.4%.
Monster Beverage ended the quarter with cash and cash equivalents of $713.7 million, and total stockholders' equity of $3,893.3 million. Effective tax rate in the third quarter was 21.8% compared with 31.9% in the prior-year quarter. Moreover, the company had an outstanding authorization to buy back shares worth nearly $696.7 million as of Sep 30.
Monster Beverage's impressive net sales figure of above $1 billion in the third quarter reflects benefits from strategic initiatives and brand strength. Moreover, the company is smoothly progressing on its strategic alignment with Coca-Cola system bottlers. Notably, it has completely transitioned Monster Energy from the Anheuser-Busch InBev SA/NV distributors to Coca-Cola bottlers in the United States. The company also transitioned the brand in the remainder of Arkansas in the reported quarter.
Further, the company has extended the distribution of Monster Energy to 40 major cities in India. Going ahead, it plans more international launches later in 2018 and remains confident about its brands' robust performance.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Monster Beverage has a nice Growth Score of B, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions 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.