Monster Beverage Corporation’s (MNST) fourth-quarter 2014 adjusted earnings of 72 cents per share beat the Zacks Consensus Estimate of 59 cents by 22%. In addition, earnings increased 63.2% year over year on the back of solid revenue, strong margins, better cost leverage and a lower tax rate.
Revenues
Monster Beverage’s fourth-quarter 2014 net sales of $605.6 million surpassed the Zacks Consensus Estimate of $585 million by 3.5%. Net sales also rose 12.0% year over year.
Revenues were driven by strong sale of Original Monster Green energy drink, Java Monster and Zero Ultra. Also, the new product, Ultra Sunrise, which was launched in the third quarter of 2014, performed well in the quarter. Some of the brands that did well in the quarter include Juice Monster and Punch Monster energy drinks.
Net sales of the Direct Store Delivery (DSD) segment increased 12.6% to $584.8 million.
Gross sales outside the U.S. increased 16.1% year over year to $160.1 million in the quarter.
Margins
Fourth-quarter 2014 gross margin rose 360 basis points (bps) to 54.8%, attributable to favorable changes in product sales mix, increase in production efficiencies and decrease in cost of some raw materials, particularly certain sweeteners. Gross margin was also driven by higher prices of 24-ounce Monster Energy brand energy drinks and Peace Tea line.
Operating income increased 43.1% to $192.9 million owing to higher operating income from international operations such as Europe and Japan. Operating margin was 31.9%, up 700 bps year over year on the back of solid revenues and lower expenses.
Monster Beverage’s legal expenses during the quarter were $2.9 million, down from $4.9 million in the prior quarter.
As a percentage of revenues, distribution costs decreased 40 bps to 4.1% while selling expenses declined 150 bps to 9.3%.
Effective tax rate in the quarter was 34.7%, lower than 42.2% in the prior-year quarter, owing to profits in foreign subsidiaries.
Financial Update
The company ended the quarter with cash and cash equivalents of $370.3 million as of Dec 31, 2014, compared with $408.3 million as of Sep 30, 2014.
Update of Coca-Cola Deal
In Aug 2014, Monster Beverage entered into a deal with The Coca-Cola Company (KO), which includes 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 ownership of its worldwide energy business to Monster, whereas Monster will transfer its non-energy business to Coca-Cola. The transaction, expected to close in second-quarter 2015, is awaiting regulatory and customary approvals.
Fiscal 2014
Monster Beverage Corporation’s fiscal 2014 adjusted earnings of $2.77 per share beat the Zacks Consensus Estimate of $2.65 by 4.5%. In addition, earnings increased 42.1% year over year on the back of solid revenue, strong margins and better cost leverage.
Monster Beverage’s fiscal 2014 net sales of $2.47 billion surpassed the Zacks Consensus Estimate of $2.45 billion by 0.8%. Net sales also rose 9.7% year over year.
Monster Beverage has a Zacks Rank #3 (Hold).
Better-ranked stocks in the beverage industry include Coca-Cola Amatil Limited (CCLAY), and Youngevity International, Inc. (YGYI). All the three stocks carry a Zacks Rank #2 (Buy).
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