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Why RBC Sees 'Short-Term Disruption, Long-Term Opportunity' At Monster Beverage

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In a report published Thursday, RBC Capital Markets analyst Nik Modi commented on Monster Beverage Corp (NASDAQ: MNST)'s first quarter results which signaled the company's long-term opportunity remains intact despite short-term disruptions.

Modi noted that Monster missed both the consensus and his estimates on the top and bottom line in its first quarter. The analyst added that while the results appear disappointing, the quarter was driven by uncertainty among Monster's international partners relating to the timing of the distribution changes with The Coca-Cola Co (NYSE: KO).

Modi said it is common for short-term disruptions to occur following a distribution change. As such, the company's second quarter results could once again be impacted. However, over the long-term Monster has an opportunity to perform well with better execution, channel distribution and the ability to expand into new countries.

Modi further added four key takeaways from the quarter that investors should be aware of:

  • Monster confirmed it will initiated a mid-single digit price increase across its portfolio in fall.
  • U.S. net sales rose 13 percent – higher than the analyst's 8 percent estimate as the transition of the U.S. business progressed "smoothly."
  • Monster noted the timing of certain sponsorship expenses and one time expenses related to the Coca-Cola deal and a payroll tax negative impacted operating income. Without these expenses , the company would have reported a 24 percent increase in operating income, instead of the 17 percent reported.
  • The Muscle Monster line was impacted by quality issues in the quarter, resulting in a significant decline in shipments. The company said it addressed the issues and also re-packaged the product.

Shares remain Outperform rated with a price target lowered to $152 from a previous $154 to reflect a continued disruption in the international market and a later than expected closing of the Coca-Cola deal.

Latest Ratings for MNST

Sep 2016Credit SuisseInitiates Coverage onOutperform
Aug 2016JefferiesMaintainsHold
Aug 2016CitigroupMaintainsBuy

View More Analyst Ratings for MNST
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Posted-In: Energy Drink Monster Monster Beverage Muscle Monster Nik ModiAnalyst Color Price Target Analyst Ratings


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