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Monster Beverage (MNST) Q2 Earnings Top, Sales Lag Estimates

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Monster Beverage Corporation (MNST - Free Report) posted mixed second-quarter 2018 results, wherein the bottom line beat estimates while the top line missed. Both earnings and sales improved on a year-over-year basis.

In the past three months, shares of this Zacks Rank #3 (Hold) company have gained 18.7%, outperforming the industry’s 13.2% rally.

Q2 Highlights

Monster Beverage’s earnings came in at 48 cents per share, up 23.8% year over year and ahead of the Zacks Consensus Estimate of 47 cents.

Net sales of $1,015.9 million increased 12% year over year but missed the consensus mark of $1,034 million. Foreign currency translation positively impacted net sales by $16.8 million, partly offset by $12.2 million adverse impact from the adoption of Accounting Standards Codification (“ASC”) 606. Excluding the adoption of ASC 606, the top line grew 13.3% in the quarter.

Outside the United States, net sales to customers totaled $293.8 million, up 18.5% year over year.

Monster Beverage Corporation Price, Consensus and EPS Surprise

Monster Beverage Corporation Price, Consensus and EPS Surprise | Monster Beverage Corporation Quote

Quarterly Segment Details

Monster Energy Drinks: Net sales at the segment, which includes Monster Energy and Mutant Super Soda drinks, were up 14% from the year-ago quarter to $929.4 million. The metric was somewhat hurt by $5.1 million owing to the adoption of ASC 606.

Strategic Brands: This segment includes a range of energy drink brands acquired from The Coca-Cola Company (KO - Free Report) . Net sales at the segment declined 6.8% to $79.8 million in the quarter. The downside was mainly due to the adoption of ASC 606.

Other: Net sales at the segment, which includes some products of American Fruits & Flavors, sold to independent third parties, dipped 6.5% year over year to $6.6 million.

Costs & Margins

Second-quarter 2018 gross margin contracted 320 basis points (bps) to 61.1%. The decline can be attributed to higher promotional allowances, the adoption of ASC 606, higher input costs as well as geographical and domestic product sales mix.

Operating expenses, including $5.5 million of distributor termination expenses, increased 12.5% from the prior-year quarter to $262.6 million. Selling expenses, as a percentage of net sales, totaled 11.4%, down 120 bps from second-quarter 2017.

Operating income was $357.6 million, up 2.2% year over year. However, operating margin fell 340 bps to 35.2%.

Other Financials

Monster Beverage ended the quarter with cash and cash equivalents of $659.7 million and total stockholders' equity of $3,605.2 million.

Effective tax rate in the second quarter was 24.6% compared with 35.9% in the prior-year quarter.

Moreover, the company bought back roughly 10.6 million shares worth $553.2 million, excluding broker commissions. It had an outstanding authorization to buy back shares worth nearly $196.7 million under its May 2018 repurchase plan as of Aug 7, 2018. Additionally, management announced a new $500-million share repurchase program on Aug 7, 2018.

Looking Ahead

Management remains encouraged with the company’s quarterly results and is smoothly progressing with the strategic alignment with Coca-Cola system bottlers. Notably, it has launched Monster Energy brand with the Coca-Cola bottlers in Belarus, Tanzania and Uruguay besides re-launching the brand with a Coca-Cola bottler in certain cities in India. Going ahead, it plans for further international launches later in 2018.

Also, Monster Beverage is optimistic about product launches and robust performance in its international markets.

Two Better-Ranked Consumer Staples Stocks

Archer Daniels Midland Company (ADM - Free Report) pulled off an average positive earnings surprise of 18.6% in the trailing four quarters. Also, it sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Boston Beer Company, Inc. (SAM - Free Report) has a long-term earnings growth rate of 9.5% and a Zacks Rank #2 (Buy). It delivered an average positive earnings surprise of 14.2% in the trailing four quarters.

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