Monster Beverage Corporation (MNST - Analyst Report) is set to report first-quarter fiscal 2014 results on May 8, after the market closes. Last quarter, it reported a negative surprise of 2.22%. Let’s see how things are shaping up for this announcement.
Factors to Consider This Quarter
Monster Beverage has been consistently missing earnings estimates for the past seven quarters due to headwinds from higher professional costs, currency headwinds, and increased tax rates.
Due to growing health and wellness consciousness the carbonated soft drinks (CSD) category has now declined for the ninth straight year. The challenges in the CSD category have been felt by all major soft drink makers with lower volumes and weakening sales.
Recently the diet versions have begun to struggle with consumers being increasingly aware of diet sweeteners. However, the energy drink market has been gaining momentum, increasing at a high single digit in the fourth quarter 2013.
Some of its new products such as Monster Ultra Blur energy drinks, the new Muscle Monster line, tea plus pink lemonade and the energy Monster Rehab line are performing better than expected. In fact, the company introduced several new products throughout 2013 and has a lineup of products for 2014. However, these new products have been cannibalizing sales of its older brands such as Absolutely Zero and Lo-Carb, for the past few quarters, a trend which is expected to continue in the upcoming quarters.
The company has been facing several controversies of late. There has been much speculation on whether its energy drinks are suitable for consumption especially by children and adolescents. The Food and Drug Administration is currently investigating the impact of caffeine in food and dietary supplements, which includes Monster Beverage products. The report is pending.
In addition, the company is incurring higher professional service costs due to these regulatory and litigation issues. Any undesirable changes in regulations will impact the company’s operations and demand for its products. Moreover, the pace of overall economic recovery is relatively slow. The consumer environment in the U.S. continues to be challenging despite moderate recovery.
Our proven model does not conclusively show that Monster Beverage is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Negative Zacks ESP: The Earnings ESP is -4.08%.
Zacks Rank #4 (Sell). We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies in the consumer staples sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:
The J. M. Smucker Co. (SJM - Analyst Report), with Earnings ESP of +1.72% and a Zacks Rank #3 (Hold).
Diamond Foods, Inc. (DMND - Analyst Report), with Earnings ESP of +6.67% and a Zacks Rank #3
Treehouse Foods, Inc. (THS - Snapshot Report), Earnings ESP of +1.25% and a Zacks Rank #2.