On Oct 9, 2014, we issued an updated research report on Monster Beverage Corporation (MNST).
On Aug 7, this energy drink company reported mixed results for second-quarter 2014.
Monster Beverage’s second-quarter adjusted earnings of 81 cents per share surpassed the Zacks Consensus Estimate by 6.6% and the year-ago figure by 31.5%. This came on the back of solid margins, better cost leverage and a lower tax rate.
Though the energy drink company delivered strong earnings during the quarter, Monster Beverage has been facing several headwinds.
Despite year over year increase, net sales of the company missed the Zacks Consensus Estimate by 1.5%. Revenue was hurt by soft growth in the Energy category in both the U.S. and international markets. Further, cannibalization of existing brands sales by new products continued to hurt revenues.
On the other hand, Monster Beverage experienced a steady rise in the professional service expenses associated with litigations and regulatory issues. The company has lately been involved in several controversies. The Food and Drug Administration is currently investigating the impact of caffeine in food and dietary supplements, which includes Monster Beverage’s products. All these regulatory and litigation issues are heightening the company’s professional service costs. Monster Beverage’s legal expenses during the quarter amounted to $7.9 million, up from $5.0 million in the prior quarter.
Despite all headwinds, Monster Beverage’s recent deal with The Coca-Cola Company (KO) is very encouraging.
On Aug 14, Monster Beverage inked a deal with The Coca-Cola Company, which involved the sale of an equity stake and swapping of some brands with the cola giant.
Under the long-term strategic deal, Coca-Cola will acquire approximately 16.7% equity stake in the energy drink maker for $2.15 billion in cash. Coca Cola will transfer the ownership of its global energy drinks business, which includes brands like Relentless and Burn, to Monster Beverage making the latter Coca-Cola’s exclusive energy play. In return, Monster Beverage will transfer its non-energy portfolio, such as Hansen's Natural Sodas and Peace Tea, to Coca-Cola. Finally, Coca-Cola will become the former’s preferred global distribution partner providing Monster Beverage full access to the cola company’s world-class global distribution network.
The deal is also expected to significantly expand Monster’s limited presence in the international energy drinks market. Most importantly, Monster Beverage’s cash position will likely receive a major boost from the deal.
Monster Beverage carries a Zacks Rank #2 (Buy).
Some other stocks in the industry include Barfresh Food Group Inc (BRFH) and True Drinks Holdings, Inc. (TRUU). Both companies carry the same Zacks Rank as Monster Beverage.
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