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Bear of the Day

Monster Beverage (MNST - Free Report) reported Q3 earnings on November 3 and missed the top and bottom-line consensus estimates. Shares are off over 12% since then, with over 18 million changing hands on November 4 as some institutions decided it was clearly time to exit the stock.

And now, many other investors are wondering if this is a buying opportunity just another 10% from 52-week lows, or if there is something more to be concerned about.

Earnings and revenues did improve 4.1% and 17.9% year over year, respectively, driven largely by impressive gross margins – courtesy of cost of goods savings, the AFF transaction and product mix.

But the results failed to impress in every other aspect. Operating expenses rose over 22%, leading to roughly flat operating income growth. The U.S. market was softer than international figures with only 1.9% net sales growth.

And results were also hurt by weaker foreign currencies and purchases by retailers ahead of a price hike. However, although net sales growth of 4.1% was weaker than 14% recorded in the first half of the year, Monster Beverage’s sales bounced back in October, rising 12%, including 10% growth in the key U.S. market.

Given this mixed picture, analysts leaned on the side of bringing estimates down, and that's what brought the stock down to a Zacks #5 Rank (Strong Sell).

Full-year 2016 EPS estimates were taken down from $1.30 to $1.24 while 2017 profit projections were clipped from $1.60 to $1.53.

Third Quarter Details

Monster Beverage’s third-quarter diluted earnings of 33 cents per share missed the Zacks Consensus Estimate of $0.37 by 10.8%. Meanwhile, earnings increased 17.9% year over year on lower share count as a result of the completion of the modified Dutch auction in June 2016.

Net sales of $787.95 million missed the Zacks Consensus Estimate of $817.20 million by 3.6%. However, the figure improved 4.1% year over year.

Foreign currency had an unfavorable impact of $2.6 million on net sales. Net sales outside the U.S. rose 11.8% to $190.8 million on a year-over-year basis.

The effective tax rate in the third quarter was 33.8 %, compared with 39.4% a year ago. The decrease in the effective tax rate was due to a one-time tax benefit related to a prior period domestic production deduction.

As a result of the AFF transaction, the company achieved raw material cost savings of $23.3 million in the third quarter.

Segment Details

Monster Energy Drinks Segment: The segment reported net sales of $710.1 million, up 3.4% year over year.

Strategic Brands segment: This segment includes brands acquired from Coca-Cola. Net sales at the segment increased 3.2% to $72.1 million in the third quarter of 2016 compared with $69.9 million in the comparable quarter of 2015.

Other: Net sales for the company's Other segment, which includes certain products of American Fruits & Flavors sold to independent third parties, were $5.7 million in the quarter under review. Notably, the segment had reported no net sales in the prior-year quarter.

Bottom line for Monster: Stocks follow earnings estimates and right now the new trend is down for MNST. Until this changes, it's best to stay on the sidelines. The Zacks Rank will let you know.

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