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Will Monster Beverage Beat Q3 Expectations?

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Monster Beverage (MNST) will declare its third-quarter results after the financial markets close on Thursday. The company didn’t impress investors with its second-quarter results. Rising competition in the energy drinks space raised concerns about the company’s growth rate.

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Concerns about rising competition

On October 18, Cowen & Company downgraded the stock to “market perform” from “outperform.” The firm cut the target price to $65 from $69. Cowen & Company was concerned about the growing rivalry in the energy drinks market from upcoming players like Bang (made by Vital Pharmaceuticals). Also, Coca-Cola (KO) is ready to roll out its first energy drink under the Coke brand (Coca-Cola Energy) in the US in January 2020. The company launched its Coca-Cola Energy drink in Spain and Hungary in 2019. Currently, the company offers its new energy drink in 25 countries.

On October 2, Guggenheim cut its rating for Monster Beverage to “neutral” from “buy.” The firm also lowered its target price to $60 from $74.Guggenheim thinks that Coca-Cola Energy’s US launch might impact the company. Notably, Coca-Cola is a preferred distribution partner for Monster Beverage. The company also owns a stake in Monster Beverage.

So far, Monster Beverage stock has risen 14.7% in 2019. Meanwhile, Coca-Cola and PepsiCo (PEP) stocks have risen 10.7% and 21.3% YTD (year-to-date) as of Tuesday. The companies lagged the 22.6% YTD rise in the S&P 500.

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Monster Beverage’s Q2 results

The company’s net sales grew 8.7% to $1.10 billion in the second quarter. The company missed analysts’ forecast of $1.13 billion. Excluding the impact of currency headwinds, the company’s sales growth was 11.2%. Also, Monster Beverage’s EPS of $0.53 lagged analysts’ estimate of $0.56.

A 9.6% rise in the Monster Energy Drinks segment drove the overall sales growth. Notably, the Monster Energy line and Reign Total Body Fuel high-performance energy drinks generated strong growth. However, the Strategic Brands segment’s net sales fell 0.8%. The segment includes the energy drink brands that Monster Beverage acquired from Coca-Cola.

The company’s international sales rose 16.8%. The company’s international sales benefited from the launch of new products. Monster Beverage launched its affordable energy drink brand Predator in certain European markets in the second quarter. The company rolled out Monster Ultra in China. Monster Beverage also introduced Monster Mango in the region.

Expectations from Q3

Analysts expect Monster Beverage’s third-quarter sales to rise 9.4% to $1.11 billion. Analysts expect the adjusted EPS to increase 8% to $0.54. Innovation and continued demand for the Monster Energy brand will likely drive its sales growth. Monster Beverage’s new product pipeline includes Monster Mule, Reign Orange Creamsicle, Reign Mango Magic, Reign Strawberry Sublime, Monster MAXX Mango Magic, Monster MAXX Red-Red extra strength with no sugar, and a Java Monster Line extension.

Coca-Cola’s third-quarter revenues increased 8.3% to $9.51 billion. The organic revenues grew 5% due to higher pricing and a favorable mix. However, Coca-Cola’s adjusted EPS fell about 2.0% to $0.56  due to negative currency fluctuations.

Meanwhile, PepsiCo’s third-quarter revenues rose 4.3% on a reported basis to $17.2 billion. The company’s organic revenue growth was 4.3%. PepsiCo’s adjusted EPS fell 1.9% to $1.56 due to increased commodity costs and higher advertising and marketing expenses.

Investors will watch for any updates from Monster Beverage about how Coca-Cola Energy impacts international markets.

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