Monster Beverage Beats on Q1 Earnings, Lags Sales - Analyst Blog

Monster Beverage Corporation's MNST first-quarter 2014 adjusted earnings of 55 cents per share surpassed the Zacks Consensus Estimate of 49 cents by 12.2%. Earnings increased 49% year over year on the back of lower selling and marketing expenses and tax rates.

Revenues

Monster Beverage's first-quarter 2014 net sales of $536.1 million lagged the Zacks Consensus Estimate of $545 million by 1.6%.

However, net sales rose 10.7% year over year on the back of a solid increase in sales of new products line Ultra and Muscle Monster and Monster Original Green energy drink. Some of the brands that did well in the quarter include Monster, Red Bull, Rockstar, NOS and Full Throttle.  

However the revenue was hurt due to cannibalization of sales of existing brands like Absolutely Zero and Lo-Carb by new products such as Ultra and Muscle Monster products. Revenues were also impacted by lower growth rates for the energy category in the Europe, the Middle East and Africa region, particularly Eastern Europe.

Net sales of the Direct Store Delivery (DSD) segment increased 11.8% to $514.4 million due to higher sales volumes of Monster Energy drinks.

Net sales of the Warehouse segment decreased 9.5% to $21.8 million due to lower sales of Hubert's Lemonades.

Gross sales outside the U.S. increased 10.5% year over year to $144.3 million in the quarter, particularly driven by a 5.2% increase in sales in Europe, the Middle East and Africa. The sales growth rate of this region in the quarter was however lower than 9.3% in the prior year quarter due to weakness in the energy category in the region.

Margins

First-quarter 2014 gross margin rose 140 basis points (bps) to 53.5% due to a decrease in cost of goods sold and a decline in allowances. Operating margin was 25.7%, down 420 bps year over year due to higher professional service cost. Professional service cost during the quarter was $5.0 million, up from $4.7 million in the prior quarter. On the other hand, the company reported foreign currency transaction losses of $0.2 million in the quarter, narrower than $4.7 million in the prior year quarter.

As a percentage of revenue, distribution costs increased 10 bps to 4.7% while selling expenses declined 280 bps to 10.7%. The company benefited from a decline in sales cost, premiums and other marketing expenses. Effective tax rate in the quarter was 36.1%, lower than 39.8% in the prior-year quarter.

Financial Update

The company ended the quarter with cash and cash equivalents of $312.0 million as of Mar 31, 2014 compared with $211.4 million as of Dec 31, 2013.

Monster Beverage Corporation carries Zacks Rank #4 (Sell).

Other companies worth considering in the beverage sector include Coca-Cola Amatil Limited (CCLAY) with a Zacks Rank #1 (Strong Buy) and Coca-Cola Enterprises Inc. CCE and Dr Pepper Snapple Group Inc. DPS  with a Zacks Rank #2  (Buy).