Monster Beverage (MNST) Down 3.2% Since Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Monster Beverage Corporation MNST. Shares have lost about 3.2% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is MNST due for a breakout? 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.

First-Quarter 2018 Results

Monster Beverage’s adjusted earnings came in at 39 cents per share, in line with the Zacks Consensus Estimate. However, the company reported earnings of 38 cents, which include distributor termination expenses that lowered the reported earnings by approximately 1 cent, after tax. Then again, reported earnings increased 22.6% year over year.

Net sales of $850.9 million missed the consensus mark of $859.8 million. The figure improved 14.7% from the prior-year quarter’s tally. Foreign currency translation positively impacted net sales by $17.7 million, partially offset by $9.9-million impact due to the adoption of Accounting Standards Codification (“ASC”) 606.

Net sales to customers outside the United States increased 26.8% year over year to $242.1 million.

Quarterly Segment Details

Monster Energy Drinks: Net sales in the segment, which includes Monster Energy, Monster Hydro energy and Mutant Super Soda drinks, were up 16.7% from the year-ago quarter’s tally to $780.5 million.

Strategic Brands: This segment includes various energy-drink brands acquired from Coca-Cola. Net sales in the segment declined 3.3% to $65.8 million in the quarter. The downside was mainly due to the adoption of ASC 606.

Other: Net sales in the segment, which includes some products of American Fruits & Flavors sold to independent third parties, were down 15.9% year over year at $4.7 million.

Inside the Headline Numbers

First-quarter 2018 gross margin fell 420 bps to 60.6% due to higher promotional allowances, the adoption of ASC 606, geographical and domestic product sales mix.

Operating expenses, including $7 million in distributor termination expenses, increased 8.6% from the prior-year quarter’s level to $235.3 million. Operating income in the quarter was $279.9 million, up 5.9% year over year.

Selling expenses, as a percentage of net sales, were 11.5%, down 20 bps from first-quarter 2017.

Effective tax rate in the quarter was 23.3% compared with 32.8% in the prior-year quarter.

Financials

Monster Beverage ended the quarter with cash and cash equivalents of $511.4 million compared with $528.6 million as of Dec 31, 2017.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been seven revisions lower for the current quarter.

Monster Beverage Corporation Price and Consensus

Monster Beverage Corporation Price and Consensus | Monster Beverage Corporation Quote

VGM Scores

At this time, MNST has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for growth based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. It's no surprise MNST has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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