A month has gone by since the last earnings report for Monster Beverage (MNST Quick QuoteMNST - Free Report) . Shares have added about 4.5% in that time frame, underperforming 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 posted better-than-expected third-quarter 2020 results. Despite adverse impacts of the ongoing COVID-19 pandemic, earnings and sales improved on a year-over-year basis.

Going forward, management doesn’t foresee any material impact of the COVID-19 pandemic on the functioning of its co-packers and bottlers/distributors that manufacture and distribute products, respectively. Moreover, Monster Beverage’s supply chain remains unaffected, with no major impact on raw material and finished product shortages. The company is also continually managing its aluminum can requirements to meet the growth in volume, despite the current industry-wide supply constraints for aluminum cans.

Q3 Highlights

Monster Beverage’s earnings of 65 cents per share rose 19.6% year over year and outpaced the Zacks Consensus Estimate of 63 cents.
Net sales of $1,246.4 million improved 9.9% year over year and surpassed the Zacks Consensus Estimate of $1,239.4 million.

Moreover, gross sales (net of discounts and returns) advanced 11.1% from the prior-year quarter to $1,464.4 million. Also, unfavorable currency fluctuations weighed on net and gross sales by $12.5 million and $11.9 million, respectively. Despite persistent adverse impacts of the COVID-19 pandemic, the company’s third-quarter 2020 sales marked the highest quarterly sales ever recorded and record sales for the third quarter.

The top-line growth was aided by increased at-home consumption trends owing to a shift in consumer preferences for shopping channel and packaging options. Notably, the company witnessed robust sales trends across e-commerce, club store, mass merchandiser and grocery and related businesses. Further, foot traffic at its largest convenience and gas channel has been witnessing improved trends since the latter half of second-quarter 2020, which continued throughout the third quarter. However, the food service on-premise channel, which forms small part of the company’s business, remained affected during the quarter.

Although the EMEA region reflected significant impacts of the pandemic, it reported sequential net sales growth for both Monster Energy and Strategic Brands segments. Moreover, the company’s supply chain remains unaffected, leading to uninterrupted services to customers.

During the quarter and through early October, it launched many Monster Energy brand energy drinks, Reign Total Body Fuel high-performance energy drinks, and affordable energy brands in several domestic as well as international markets.

Segmental Performance

Monster Energy Drinks: The segment primarily includes brands like Monster Energy drinks and Reign Total Body Fuel high performance energy drinks. The segment’s net sales increased 9.6% year over year to $1.16 billion. The segment’s sales included a negative impact of $11.6 million from unfavorable currency rates.

Strategic Brands: In addition to affordable energy drink brands, the segment includes a range of energy drink brands acquired from Coca-Cola. The segment’s net sales improved 12% year over year to $74.3 million for the third quarter. Currency headwinds marred the segment’s results by $0.9 million.

Other: Net sales in the segment, which includes some products of American Fruits & Flavors sold to independent third parties (AFF Third-Party Products), grew 45.8% year over year to $8.6 million.

Costs & Margins

The company’s third-quarter 2020 gross margin contracted 30 basis points (bps) to 59.1%. Operating expense inched up 0.1% year over year to $277.9 million. As a percentage of sales, operating expense declined 220 bps to 22.3%, driven by reduced costs related to sponsorship and endorsements, as well as lower travel and entertainment costs as a result of the ongoing pandemic.

Selling expenses, as a percentage of net sales, decreased 230 bps to 8.8%. Meanwhile, distribution costs, as a percentage of net sales, expanded 20 bps to 3.5%. General and administrative expenses, as a percentage of net sales, remained flat at 10.1%.

Operating income of $458.6 million grew nearly 16% year over year. Moreover, operating margin expanded 190 bps to 36.8% for the reported quarter.

Other Financials

Monster Beverage ended the third quarter with cash and cash equivalents of $1,074.7 million, and total stockholders' equity of $4,629.3 million.

In the reported quarter, the company did not buyback any shares. As of Nov 5, 2020, it had $441.5 million remaining under the previously authorized share repurchase plan.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

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

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Monster Beverage has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.