Monster Beverage Corp (MNST)

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Monster Beverage (MNST) Q2 Earnings Miss Estimates, Sales Beat
By: Zacks Equity Research | August 5, 2022

Monster Beverage Corporation (MNST) reported better-than-expected sales in second-quarter 2022, while its bottom line lagged the Zacks Consensus Estimate. Moreover, sales improved year over year, driven by continued strong demand for the energy drinks category. However, the ongoing supply-chain disruptions and elevated aluminum can costs hurt earnings.

Monster Beverage’s earnings of 51 cents per share missed the Zacks Consensus Estimate of 68 cents and declined 32.2% year over year. The bottom line was impacted by inflationary operational costs for aluminum cans, shipping, freight and other inputs.

Net sales of $1,655.3 million improved 13.2% year over year and surpassed the Zacks Consensus Estimate of $1,614 million. Unfavorable currency translations hurt net sales by $53.4 million in the reported quarter. On a currency-adjusted basis, net sales rose 16.9%.

Net sales to customers outside the United States rose 18.8% to $649 million, representing about 39% of the total net sales. On a currency-adjusted basis, sales to customers outside the United States improved 28.6%.

Shares of Monster Beverage fell nearly 5% following the second-quarter 2022 results. Shares of the Zacks Rank #3 (Hold) company have rallied 11.2% in the past three months compared with the industry’s 1.5% growth.


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Segmental Performance

Monster Energy Drinks: The segment includes Monster Energy drinks, Reign Total Body Fuel high-performance energy drinks and True North Pure Energy Seltzers. The segment’s net sales increased 12.5% year over year to $1.54 billion. The segment’s sales included a negative impact of $49.4 million from adverse currency rates. On a currency-adjusted basis, net sales for the segment rose 16.1%.

Strategic Brands: In addition to the affordable energy drink brands, the segment includes a range of energy drink brands acquired from Coca-Cola. The segment’s net sales increased 9% year over year to $79.1 million in the second quarter. However, currency headwinds hurt the segment’s sales by $4 million. On a currency-adjusted basis, net sales for the segment declined 4.3%.

Alcohol Brands: Net sales for the segment, which includes various craft beers and hard seltzers purchased as part of the CANarchy transaction on Feb 17, 2022, were $32.4 million for the second quarter.

Other: Net sales for the segment, which includes some products of American Fruits & Flavors sold to independent third-parties (AFF Third-Party Products), declined 24.1% year over year to $6 million.

Monster Beverage Corporation Price, Consensus and EPS Surprise



Costs & Margins

In second-quarter 2022, the company witnessed a significant increase in the cost of sales, which majorly impacted the gross profit and the gross margin rate. The cost of sales of $875.4 million escalated 40% year over year. The increase in the cost of sales was mainly attributed to the higher freight and fuel costs, including import-related expenses for aluminum cans, production inefficiencies, geographical and product sales mix, and higher aluminum commodity pricing. Elevated ingredients and other input costs, comprising secondary packaging materials and increased co-packing fees, also hurt the cost of sales.
The company’s second-quarter 2022 gross margin contracted 1,010 basis points (bps) to 47.1%, driven by higher cost of sales resulting from the aforementioned factors, offset partly by pricing actions.

Operating expenses grew 30.9% year over year to $406.9 million. The increase can be attributed to higher outbound freight and fuel costs; freight inefficiencies and warehouse costs; elevated expenditure for travel and entertainment; higher payroll costs; and increased marketing, sponsorships and endorsements costs.

As a percentage of sales, operating expenses increased 330 bps to 24.6%. Higher operating expense rates mainly resulted from increased distribution costs, and general and administrative expense rates. Selling expenses, as a percentage of net sales, rose 10 bps to 9.1%. Distribution costs, as a percentage of net sales, increased 90 bps to 5.3%. General and administrative expenses, as a percentage of net sales, rose 230 bps year over year to 10.2%.

Operating income of $373 million declined 29.1% year over year, driven by a decrease in the gross margin, as well as higher operating expenses. The operating margin contracted 1,350 bps to 22.5% for the reported quarter.

Other Financials

Monster Beverage ended second-quarter 2022 with cash and cash equivalents of $1,132 million, and total stockholders' equity of $6,809.2 million. Short-term investments as of Jun 30, 2022, were $1,337.8 million, whereas long-term investments were $64.1 million.
In the reported quarter, the company bought back 3.3 million shares for an average price of $86.53 per share, resulting in a total value of $284.1 million. As of Aug 4, 2022, it had $657.4 million remaining under the previously authorized share repurchase plan.

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