Monster Beverage (MNST) Stock Looks Well-Poised Amid Cost Woes – June 3, 2022


Monster Beverage Corporation (MNST Free Report) has long been gaining from the continued strong demand for energy drinks, and various product launches across domestic and international markets.

Driven by the above-mentioned factors, it reported a better-than-expected top line in first-quarter 2022, marking the 11th straight quarter of a sales beat. Net sales of $1,518.6 million improved 22.1% year over year.

The Zacks Rank #3 (Hold) stock has gained 11.1% in the past three months compared with the industry’s and the Consumer Staples sector’s growth of 0.9% and 5.8%, respectively. Additionally, an uptrend in the Zacks Consensus Estimate echoes a positive sentiment on the stock. The Zacks Consensus Estimate for Monster Beverage’s 2022 sales and EPS suggests growth of 15.1% and 4.3%, respectively, from the year-ago period’s reported numbers.

 


Image Source: Zacks Investment Research

 

Let’s Delve Deeper

MNST has been witnessing persistent strength in the energy drinks category, which has been driving its performance. In first-quarter 2022, the Monster Energy Drinks segment’s net sales advanced 20% year over year to $1.4 billion. Sales for the company’s energy brands, including Reign, rose 8.6% in the same period.

Management is optimistic about strength in the energy drinks category, with the Monster Energy brand growing significantly. Product launches across the Monster family are likely to continue driving the company’s overall top and bottom lines.

The company remains committed to product launches and innovation to boost growth. Its first 16-ounce Ultra Variety 12 packs launched in January are performing well. In February, it introduced the latest flavors such as Ultra Peachy Keen, Juice Monster Aussie Style Lemonade, Rehab Watermelon and Reign Reignbow Sherbet. It remains on track with the expansion of its multi-pack portfolio. Also, in the same month of February, the company, in collaboration with Coca-Cola, launched its brand True North Pure Energy Seltzer nationwide.

At the end of first-quarter 2022, MNST launched two ready-to-drink nitro-infused coffee products, Java Monster Cold Brew Latte and Java Monster Cold Brew Sweet Black. In Canada, it introduced Monster Ultra Gold in January and Reign White Gummy Bear in February.

In Argentina, the company launched VR46 The Doctor and several other products across Latin America. In Chile, Monster Beverage launched Melon Mania, Lemonades and Orange Dreamsicle as part of the Reign Lemon expansion. In Mexico, the company introduced its second Predator SKU with Predator Mean Green, along with Monster Ultra Gold in Puerto Rico and Monster Mango Loco in Colombia. In EMEA, it launched Monster Mule, Monster Nitro and Monster Assault. Also, Monster Ultra Gold and Mother Kiwi Sublime were launched in Australia and New Zealand.

In the first quarter, the company introduced Ultra Fiesta, Watermelon and Gold and Juiced Monarch, Khaotic and Pacific Punch in a number of countries. It launched the Predator brand in India, and Predator and Reign in additional countries. The company launched Monster Mango Loco in Japan in April 2022. MNST revealed plans to launch the Predator brand in several additional countries in APAC in 2022.

Headwinds to Overcome

Despite the upsides, Monster Beverage continues to grapple with higher freight rates and fuel costs, including costs for the import of aluminum cans, and elevated aluminum can costs due to higher aluminum commodity pricing. This, along with higher cost of secondary packaging materials, increased co-packing fees, production inefficiencies and geographical sales mix, dented margins.

Monster Beverage’s first-quarter 2022 gross margin contracted 640 basis points (bps) and the operating margin contracted 700 bps. Owing to this, Monster Beverage’s earnings declined 6.8% year over year. The bottom line was also impacted by inflationary operational costs for aluminum cans, shipping, freight and other inputs.

It is also witnessing freight inefficiencies, port congestion, and insufficient co-packing capacity and delays. Elevated distribution expenses remain concerning.

Conclusion

Monster Beverage appears to be in good shape despite the industry challenges, driven by the introduction of innovative products across the Monster family to meet consumers’ needs, as well as strength in its energy drinks category. Topping it, a long-term earnings growth rate of 15.7% raises optimism on the stock.

Stocks to Consider

We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Archer Daniels (ADM Free Report) , Medifast (MED Free Report) and Sysco Corporation (SYY Free Report) .

Archer Daniels, one of the leading producers of food and beverage ingredients as well as goods made from various agricultural products, currently sports a Zacks Rank #1 (Strong Buy). It has an expected long-term earnings growth rate of 6.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Archer Daniels’ current financial-year sales and earnings per share suggests growth of 10.1% and 15.4%, respectively, from the year-ago reported numbers. The consensus mark for ADM’s earnings per share has been unchanged in the past 30 days.

Medifast is one of the leading manufacturers and distributors of clinically-proven healthy living products and programs. It currently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for Medifast’s current financial-year sales and EPS suggests growth of 19% and 11.5%, respectively, from the year-ago period’s reported figures. MED has a trailing four-quarter earnings surprise of 13%, on average.

Sysco, the marketer and distributor of food and related products, currently has a Zacks Rank #2. SYY has a trailing two-quarter earnings surprise of 93.75%, on average. It has an expected long-term earnings growth rate of 11%.

The Zacks Consensus Estimate for Sysco’s current financial-year sales and earnings per share suggests growth of 35.9% and 145.5%, respectively, from the year-ago reported numbers. The company has a trailing four-quarter earnings surprise of 3.7%, on average.





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