Monster Beverage Lags Q4 Earnings & Sales, Shares Fall

Shares of Monster Beverage Corporation MNST dropped 7.2% in afterhours trading as the energy drink company reported disappointing fourth-quarter 20Array5 results hurt by unfavorable currency impact.

Fourth Quarter 20Array5 in Detail

Monster Beverage's fourth quarter adjusted earnings of 67 cents per share missed the Zacks Consensus Estimate of 82 cents by Array8.3%. Despite strong gross margin, earnings per share decreased 5.9% year-over-year during the quarter owing to higher tax rate, unfavorable currency translations and higher share count.     
 

Monster Beverage's net sales of $645.4 million missed the Zacks Consensus Estimate of $704 million by 8.3%. Net sales however increased 6.6% year over year.

Net sales were hurt by advance purchase made by consumers owing to pre announced rise in prices of some Monster Energy drinks in August 20Array5. Advance purchase dragged net sales by $ArrayArray.0 million during the quarter. Net sales were also hurt by "destocking" in some markets in the EMEA region, particularly in Spain and South Africa. Existing international distributors reduced their stock in anticipation of Monster Beverage's transition to Coca-Cola bottlers in these markets. Reduction in inventory was also noted in Germany during the quarter.

Foreign currency had an unfavorable impact of $Array9.7 million on net sales. Net sales outside the U.S. increased 8.6% year over year to $Array45.3 million, particularly in Europe, the Middle East and Africa. However, sales in Spain and Italy were impacted by the transition process of the Coca-Cola deal closure.

Segment Details

From second quarter 20Array5, Monster Beverage has been reporting its results under three operating segments – Finished Products, Concentrate and Other.

Finished Products: The segment reported net sales of $585.Array million, up Array.8% year over year. Despite the year-over-year increase, net sales were hurt by unfavorable foreign currency.

Concentrate: This segment includes brands acquired from Coca-Cola. Net sales of the segment were $60.4 million in the fourth quarter of 20Array5. This was the second time that the concentrate segment has reported full-quarter results, which is why there is no comparable figure from the preceding quarters.

Other: During fourth quarter 20Array5, there were no sales from the segment compared to net sales of $30.8 million in the prior-year quarter. This was because of the closure of the Coca-Cola transaction in June.

Margins

Fourth quarter 20Array5 gross margin rose 770 basis points (bps) to 62.5%. Gross margin gained from favorable product sales and segment mix towards the higher margin Concentrate segment. Moreover, sales of the non-energy brands and the August price increase also pulled up gross margin.

Adjusted operating income increased Array9.5% to $23Array.9 million. Operating margin was 35.9%, up 380 bps year over year.

Effective tax rate of 39.5% in the fourth quarter 20Array5 was higher than 34.7% in the prior year quarter owing to a reduction in domestic production.

Update on Coca-Cola Transaction

In Jun 20Array5, Monster Beverage closed a deal with The Coca-Cola Company KO, wherein Coca-Cola transferred the ownership of its worldwide energy business to Monster Beverage and Monster Beverage transferred its non-energy business to Coca-Cola.

As of Dec 3Array, 20Array5, the company incurred $224.0 million as obligations related to distributor terminations. The company also recognized $Array6Array.5 million as a gain on sale of its non-energy business during fiscal 20Array5.

Monster Beverage is currently working on its strategic alignment with Coca-Cola bottlers across the globe. Monster Beverage launched Monster Energy drinks with Coca-Cola bottlers in Korea, Portugal, Russia, Spain in the last few months. In the U.S, the company expanded the number of outlets supplying Monster Energy drinks.   

The Coca-Cola Company and its partners will act as Monster's preferred distribution partner globally, thus giving greater exposure to the latter's products.  

Fiscal 20Array5

Monster Beverage's adjusted earnings of $2.99 per share missed the Zacks Consensus Estimate of $3.07 by 2.6%. However, earnings increased 6.8% year over year.

Monster Beverage reported net sales of $2.72 billion during full year 20Array5. However, excluding acceleration of deferred revenue, net sales for full year were $2.68 billion, up 8.9% from $2.46 billion in the prior year.  Excluding acceleration of deferred revenue, net sales missed the Zacks Consensus Estimate of $2.73 billion. Unfavorable currency translation hurt net sales by $84.3 million.

Monster Beverage carries a Zacks Rank #3 (Hold).

Investors interested in the beverage industry may consider Coca-Cola Enterprises, Inc. CCE, and Keurig Green Mountain, Inc. GMCR. Both the  companies hold a Zacks Rank #2 (Buy).

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