Shares of Monster Beverage Corporation MNST rose about 12.23% in pre-market trading as the energy drink company reported impressive first-quarter 2016 results, beating estimates on both counts. The company also revealed its intention to return value to shareholders by repurchasing common stock up to $2.0 billion in value, through a tender offer to be announced in May.
First Quarter 2016 in Detail
Monster Beverage’s first-quarter adjusted earnings of 80 cents per share surpassed the Zacks Consensus Estimate of 75 cents by 6.7%. Earnings per share also increased 25% year over year owing to lower tax rate and strong revenues.
Monster Beverage incurred distributor termination costs of $206.0 million, $39.8 million of acceleration of deferred revenue as a result of distributor terminations and TCCC Transaction related expenses of $3.6 million owing to its long-term strategic partnership with The Coca-Cola Company (TCCC).
Monster Beverage’s net sales of $680.2 million beat the Zacks Consensus Estimate of $660 million by 3%. Net sales increased 8.5% year over year. Excluding the acceleration of deferred revenue, net sales increased 15.9% during the quarter.
Foreign currency had an unfavorable impact of $12.3 million on net sales. Net sales outside the U.S. increased 32% year over year to $149.1 million.
Segment Details
From second quarter 2015, Monster Beverage has been reporting its results under three operating segments – Finished Products, Concentrate and Other.
Finished Products: The segment reported net sales of $624.3 million, up 4.8% year over year. Excluding the acceleration of deferred revenue, net sales of Finished Products increased 12.3% during the quarter.
Concentrate: This segment includes brands acquired from Coca-Cola. Net sales of the segment were $55.9 million in the first quarter of 2016 compared with $60.4 million in the fourth quarter of 2015. This was the third time that the concentrate segment has reported full-quarter results, which is why there is no comparable figure from the prior year quarter.
Other: During first-quarter 2016, there were no sales from the segment compared to net sales of $31.3 million in the prior-year quarter. This was because of the closure of the Coca-Cola transaction in June last year.
Margins
First quarter 2016 gross margin rose 610 basis points (bps) to 62.2%. Gross margin gained from favorable product sales and segment mix toward the higher margin Concentrate segment.
Adjusted operating income increased 45.5% to $258.2 million. Operating margin was 38.0%, up 780 bps year over year.
Monster Beverage carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader beverage sector are Primo Water Corp. PRMW, Coca-Cola Enterprises, Inc. CCE and PepsiCo, Inc. PEP. While Primo Water sports a Zacks Rank #1 (Strong Buy), Coca-Cola Enterprises and PepsiCo carry a Zacks Rank #2 (Buy).
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