Monster Beverage Beats Q1 Estimates, Q2 Sales Feel Pressure

Monster Beverage (NASDAQ:MNST) beat analysts’ sales and earnings expectations for the first quarter despite COVID-19. The company generated net sales of $1.06 billion in the first quarter, which beat Wall Street’s forecast of $999.1 million. The first-quarter net sales grew 12.3% YoY. Excluding the impact of currency headwinds, the net sales growth was 13.4%. Monster Beverage stock has risen by 6.9% as of 11:07 AM ET today.

COVID-19 didn’t have a material impact on the company’s first-quarter sales. However, CEO Rodney Sacks stated that the pandemic had a negative material impact on the company’s April sales.

Meanwhile, the company’s first-quarter EPS grew 8.3% YoY to $0.52. Analysts expected an EPS of $0.48. Lower net interest and other non-operating income, as well as higher taxes, partially offset the impact of strong sales on Monster Beverage’s earnings.

Monster Beverage’s robust sales

The first-quarter net sales of the company’s Monster Energy Drinks segment grew 14% YoY to $992.5 million. The segment includes Monster Energy drinks and Reign Total Body Fuel high-performance energy drinks. Meanwhile, the net sales of the Strategic Brands segment declined 8.2% YoY to $64.5 million. The segment contains the energy drink brands acquired from Coca-Cola (NYSE:KO).

The net sales from the Other segment fell by about 3.8% YoY to $5.1 billion. The segment includes sales from certain products of the company’s subsidiary American Fruits and Flavors, LLC.

Monster Beverage’s international net sales rose by 25.6% YoY to $356.8 million. Notably, international sales accounted for about 33.6% of the overall net sales in the first quarter of 2020 compared to 30.0% in the first quarter of 2019.

Why Q2 sales are under pressure

During Monster Beverage’s conference call, the company disclosed that its second-quarter sales to date have been impacted negatively by lower foot traffic in the convenience and gas channel and the foodservice on-premise channel. Foodservice channels, which include restaurants, have been closed to curb the spread of COVID-19. The convenience and gas channel is Monster Beverage’s largest sales channel. Since mid-March, the company has seen more at-home consumption and a decline in immediate consumption.

The company also stated that its sales through e-commerce channels, club store, mass merchandise, and grocery stores and related business remain stable. Meanwhile, Monster Beverage isn’t facing raw material or finished product shortages. Also, the company doesn’t expect the pandemic to have a material impact on its liquidity.

Recently, Coca-Cola also cautioned about the impact of COVID-19 on its second-quarter sales. The company withdrew its fiscal guidance due to the uncertainty associated with COVID-19. PepsiCo (NASDAQ:PEP) reported strong first-quarter results but pulled back its fiscal guidance.

Increased competition

PepsiCo completed the acquisition of Rockstar Energy. Monster Beverage is already seeing increased competition from Vital Pharmaceuticals’ Bang energy drink. The company’s major competitor in the international markets is Red Bull. Coca-Cola is also expanding the presence of Coca-Cola Energy, which it launched in some countries last year.

Monster Beverage is innovating many products to boost its sales. In the first quarter, the company launched several new products in the domestic market. The new products included a line of Reign Inferno Thermogenic Fuel, two new drinks in the Monster Ultraline, a line of Java Monster 300, NOS Turbo, and a line of Monster Hydro Super Sport. However, the company couldn’t achieve the planned distribution levels due to the impact of COVID-19. The company will coordinate with bottlers and distributors to re-prioritize these innovations.

Monster Beverage also launched several products in international markets. The company intends to introduce several products for the rest of 2020. Monster Beverage is still optimistic about its growth potential in China. The company is also positive about its growth in India after the country lifts lockdown. Monster Beverage has reopened its office in China. The company has been seeing an increase in its shipments in China since early April. The company experienced lower volumes in the first quarter.

Overall, Monster Beverage thinks that its sales will improve after the pandemic subsides.