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Monster Beverage (MNST) Up 5.2% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Monster Beverage (MNST). Shares have added about 5.2% 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 Q4 Earnings & Sales Miss Estimates

Monster Beverage posted weak fourth-quarter 2022 results. Despite the successful global expansion of the energy drinks
category, results were hurt by the strong US dollar, cost inflation related to increased energy costs, particularly in EMEA, ingredient and other input costs, and co-packing fees.

Monster Beverage’s earnings of 57 cents per share lagged the Zacks Consensus Estimate of 61 cents and declined 4.9% year over year.

Net sales of $1,513 million improved 6.2% year over year but missed the Zacks Consensus Estimate of $1,589 million.

Unfavorable currency translations hurt net sales by $81.9 million in the reported quarter. On a currency-adjusted basis, net sales rose 11.9%.

Net sales to customers outside the United States rose 6.8% to $542.5 million, representing about 36% of the total net sales. On a currency-adjusted basis, sales to customers outside the United States improved 22.9%.

Segmental Performance

Monster Energy Drinks: The segment includes Monster Energy drinks, Reign Total Body Fuel high-performance energy drinks and True North Pure Energy Seltzers. The segment’s net sales increased 2.6% year over year to $1.4 billion. The segment’s sales included a negative impact of $76.9 million from adverse currency rates. On a currency-adjusted basis, net sales for the segment rose 8.3%.

Strategic Brands: In addition to the affordable energy drink brands, the segment includes a range of energy drink brands acquired from Coca-Cola. The segment’s net sales increased 41.8% year over year to $93 million in the fourth quarter.

However, currency headwinds hurt the segment’s sales by $5 million. On a currency-adjusted basis, net sales for the segment increased 49.4%.

Alcohol Brands: Net sales for the segment, which includes various craft beers and hard seltzers purchased as part of the CANarchy transaction on Feb 17, 2022, were $26.9 million for the fourth quarter.

Other: Net sales for the segment, which includes some products of American Fruits & Flavors sold to independent third parties (AFF Third-Party Products), declined 23.1% year over year to $4.6 million.

Costs & Margins

The company witnessed a significant increase in the cost of sales, which caused a decline in the gross profit and the gross margin rate. The cost of sales of $728.6 million, up 11% year over year. The increase in the cost of sales was mainly attributed to the higher logistics costs, and unfavorable geographical and product sales. Elevated ingredients and other input costs, comprising secondary packaging materials and increased co-packing fees, also hurt the cost of sales.

The company’s fourth-quarter 2022 gross margin contracted 210 basis points (bps) to 51.8%, driven by higher ingredient and other input costs, geographical and product sales mix, and elevated logistical costs, offset partly by pricing actions. The metric increased on a sequential basis, driven by pricing actions, as well as recovery in the supply chain.

Operating expenses grew 10% year over year to $390 million. The increase can be attributed to higher warehousing and other logistical expenses, elevated payroll expenses, and increased general and administrative expenses.

As a percentage of sales, operating expenses rose 90 bps to 25.8%, while the metric contracted 310 bps on a three-year basis. Higher operating expense rates mainly resulted from increased distribution costs, stemming from higher warehousing expenses and other logistical expenses. Selling expenses, as a percentage of net sales, contracted 30 bps year over year and 270 bps on a three-year basis to 9.6%.

Distribution costs, as a percentage of net sales, increased 10 bps to 5% and 150 bps on a three-year basis. General and administrative expenses, as a percentage of net sales, rose 100 bps year over year, while the metric contracted 200 bps on a three-year basis to 11.1%.

Operating income of $394.4 million declined 4.5% year over year, driven by a decrease in the gross margin, as well as higher operating expenses. The operating margin contracted 290 bps to 26.1% in the reported quarter.

Other Financials

Monster Beverage ended fourth-quarter 2022 with cash and cash equivalents of $1,307.1 million, and total stockholders' equity of $7,025 million. Short-term investments, as of Dec 31, 2022, were $1,362.3 million, whereas long-term investments were $61.4 million.

In the reported quarter, the company bought back 2.3 million shares for an average price of $89.10 per share and a total value of $201.6 million. As of Nov 3, 2022, it had $682.8 million remaining under the previously authorized share repurchase plan. Concurrently, the company authorized a share repurchase program to buy back shares worth up to an additional $500 million.

The company has announced a 2-for-1 split of its common stock that will be reflected in the form of a 100% stock dividend.

Each stockholder of record as of Mar 13, 2023, will receive a dividend of one additional share of common stock for each then-held share, to be distributed after the close of trading on Mar 27, 2023.

Business Developments

The company has been implementing price hikes in the first half of 2023. Also, it continued to expand its brand distribution across the domestic and international markets in the fourth quarter of 2022. MNST implemented a price increase of 6% market-wide in the United States effective Sep 1, 2022, and will implement a price increase on its 24-ounce line effective Apr 1, 2023.

The company also implemented price increases in the second half of 2022 in certain international markets and will implement additional price increases on a phased approach in the first half of 2023 in a number of international markets.

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In the United States, MNST launched Monster Energy Zero Sugar at retail in January 2023, along with the introduction of Monster Energy Ultra Strawberry Dreams, Monster (stylized) Reserve Kiwi Strawberry, Monster Energy Nitro Cosmic Peach and Java Monster Caffe Latte in early February.

During the quarter, the company launched Monster Rehab Lemon tea in Japan, Monster Ultra Watermelon in Turkey, Monster Ultra Paradise in Vietnam, Predator in Malaysia, and continued the national rollout of Predator India. It intends to introduce the Predator brand in additional countries in APAC during 2023.

Recently, the company launched its first flavored malt beverage alcohol product, The Beast Unleashed, in six states, available in four flavors. This product is likely to expand into additional markets in the second quarter, with the goal of nationwide launch by the end of 2023. It is also on track with the launch of Monster Tour Water, a pure unflavored water line, in still and sparkling variants. MNST revealed its intention to launch a total wellness energy drink Reign Storm in March 2023 in four flavors.

As part of an ongoing pan-EMEA launch in the first quarter of 2023, the company launched the distribution of Monster Energy Lewis Hamilton 44 Zero Sugar and an affordable energy brand Fury in Egypt. Also, Monster Beverage is focused on transitioning to the Coca-Cola distribution system in the Philippines in the second quarter of 2023.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, Monster Beverage has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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.

Performance of an Industry Player

Monster Beverage belongs to the Zacks Beverages - Soft drinks industry. Another stock from the same industry, Keurig Dr Pepper, Inc (KDP), has gained 3.2% over the past month. More than a month has passed since the company reported results for the quarter ended December 2022.

Keurig Dr Pepper, Inc reported revenues of $3.8 billion in the last reported quarter, representing a year-over-year change of +12.2%. EPS of $0.50 for the same period compares with $0.45 a year ago.

For the current quarter, Keurig Dr Pepper, Inc is expected to post earnings of $0.33 per share, indicating no change from the year-ago quarter. The Zacks Consensus Estimate has changed -0.1% over the last 30 days.

Keurig Dr Pepper, Inc has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.

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