It has been about a month since the last earnings report for Monster Beverage (MNST - Free Report) . Shares have added about 0.6% 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 the most recent earnings report in order to get a better handle on the important catalysts. <p style="text-align: justify;"><strong>Monster Beverage Q2 Earnings Top, Sales Lag Estimates</strong><br /><br />Monster Beverage 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.<br /><br /><strong>Q2 Highlights</strong><br /><br />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.<br /><br />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.<br /><br />Outside the United States, net sales to customers totaled $293.8 million, up 18.5% year over year.<br /><br /><strong>Quarterly Segment Details</strong><br /><br /><strong>Monster Energy Drinks: </strong>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.<br /><br /><strong>Strategic Brands: </strong>This segment includes a range of energy drink brands acquired from The Coca-Cola Company (KO - Research 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.<br /><br /><strong>Other: </strong>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.<br /><br /><strong>Costs & Margins</strong><br /><br />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.<br /><br />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.<br /><br />Operating income was $357.6 million, up 2.2% year over year. However, operating margin contracted 340 bps to 35.2%.<br /><br /><strong>Other Financials</strong><br /><br />Monster Beverage ended the quarter with cash and cash equivalents of $659.7 million and total stockholders' equity of $3,605.2 million.<br /><br />Effective tax rate in the second quarter was 24.6% compared with 35.9% in the prior-year quarter.<br /><br />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.<br /><br /><strong>Looking Ahead</strong><br /><br />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 across India. It plans for more international launches later in 2018.<br /><br />Also, Monster Beverage is optimistic about product launches and robust performance in its international markets.</p>
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, Monster Beverage has a great Growth Score of A, though it is lagging a lot 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.
Estimates have been 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.