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Monster Beverage (MNST) Beats Q3 Earnings & Sales Estimates

Zacks Equity Research

Monster Beverage Corporation MNST reported impressive earnings and sales numbers in third-quarter 2019. Its top and bottom lines not only outpaced the Zacks Consensus Estimate but also improved on a year-over-year basis.

The top-line performance was mainly fueled by robust growth for the Monster Energy brand’s energy drinks internationally coupled with strength in its high-performance energy drink, Reign Total Body Fuel, launched in the first quarter.

Following the earnings release, shares of the energy drink company gained 2.8% during after-hours trading.

Q3 Highlights

Monster Beverage’s earnings of 55 cents per share rose 14% year over year and outpaced the Zacks Consensus Estimate by a penny.

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

Net sales of $1,133.6 million improved 11.6% year over year and surpassed the Zacks Consensus Estimate of $1,106 million. Moreover, gross sales (net of discounts and returns) rose 11.3% to $1,318.3 million.

In the United States, advance purchases due to expectations of price increase, effective Nov 1, 2018, benefited net and gross sales by nearly $16 million and $18 million, respectively. However, top-line growth was partly negated by unfavorable currency, which hurt net and gross sales by $12.2 million and $15.1 million, respectively.

Additionally, net sales to customers outside the United States totaled $379.8 million, up 34.2% year over year. This represented about 34% of total sales in third-quarter 2019, up from 28% in the year-ago quarter.

Segmental Performance

Monster Energy Drinks: The segment’s net sales rose 13.5% year over year to $1.06 billion. Robust gains from the sale of Monster Energy and Reign Total Body Fuel brands were partly offset by a negative impact of $10.8 million from adverse 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 10.9% to $66.3 million in the third quarter. Currency headwinds hurt the segment’s results by $1.4 million.

Other: Net sales at the segment, which includes some products of American Fruits & Flavors sold to independent third parties (AFF Third-Party Products), fell 10.6% year over year to $5.9 million.

Costs & Margins

The company’s third-quarter 2019 gross margin contracted 40 basis points (bps) to 59.4%. Gross margin was mainly impacted by negative geographic and product sales mix, partly offset by gains from increased prices and lower input costs.

Operating expenses rose 3.5% year over year to $277.6 million. However, selling expenses, as a percentage of net sales, dipped 10 bps to 11.1%. Meanwhile, distribution costs, as a percentage of net sales, declined 80 bps to 3.3%.

Operating income of $395.4 million grew 16.4% year over year. Moreover, the operating margin expanded 150 bps to 34.9% in the reported quarter.

Other Financials

Monster Beverage ended the third quarter with cash and cash equivalents of $717.6 million, and total stockholders' equity of $4,108 million.

In the reported quarter, the Zacks Rank #4 (Sell) company bought back 4.3 million shares for $254.3 million, excluding broker commissions. As of Nov 6, 2019, it had $36.6 million remaining to be bought back under the share repurchase plan authorized in February 2019.

Further, management authorized a new buyback program for purchasing shares up to additional $500 million.

Strategies on Track

Monster Beverage remains committed to product launches and innovation to boost growth. Further, the company is making progress with the transitioning of the Monster Energy brand to Coke bottlers. In third-quarter 2019, it launched or transitioned its Monster Energy brand to Coca-Cola bottlers in the Dominican Republic, El Salvador and Honduras. Monster Beverage is planning for additional launches and transitions for the fourth quarter.

Moreover, management launched various energy drinks of the Monster Energy brand along with three Reign Total Body Fuel drinks in the United States in the third quarter and October. It added several Monster Energy branded energy drinks to its portfolio in some countries and introduced Reign Total Body Fuel drinks in Sweden in the reported quarter. It also launched the Predator brand in other international markets. Going forward, it plans for further launches in the international markets.

Some Better-Ranked Stocks to Count On

The Boston Beer Company, Inc SAM has an impressive long-term earnings growth rate of 10%. Further, it currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

McCormick & Company, Incorporated MKC, with a Zacks Rank #2 (Buy), has an expected long-term earnings growth rate of 8%.

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