Monster Beverage (MNST -2.31%) has navigated a host of challenges over the years to become a dominant player in the energy drink industry, and investors who've stuck with the company through thick and thin have reaped impressive rewards. Yet in recent quarters, the company has seen things slow down a bit, and coming into Wednesday's fourth-quarter financial report, Monster Beverage investors were fairly conservative in their expectations for sales and earnings growth. Monster did a good job of knocking those expectations out of the park with its report, and the positive momentum it generated bodes well for 2017.
Let's take a closer look at Monster Beverage to see how it did and what's ahead for the energy-drink specialist going forward.
Image source: Monster Energy.
Monster Beverage caffeinates its financials
Monster Beverage's fourth-quarter results were a much-needed respite from more sluggish performance in past quarters. Net sales for the quarter jumped 17% to $753.8 million, which was far faster than the 12% growth rate that most investors were expecting to see. Net income climbed by an even more impressive 25% to $172.9 million, and that produced earnings of $0.30 per share, which was roughly in line with the consensus forecast among investors despite the fact that it includes distributor termination expenses of about $0.05 per share.
Taking a closer look at the report, one piece of good news was that currency impacts have nearly disappeared from Monster's results. The company said that adverse currency exchange rates caused only a $3.3 million reduction in net sales during the fourth quarter, amounting to less than 1%.
Monster also saw better results from its home-grown energy drink brands than it did from the portfolio of energy drinks it bought from Coca-Cola (KO 1.27%) as part of the two beverage companies' partnership. Sales of the Monster Energy segment gained 17%, while net sales for the strategic brands division were up just 7%. Still, the old Coca-Cola brands make up less than 10% of Monster's overall net sales.
From a geographical perspective, Monster continued to move forward with its efforts to gain more international acceptance. Net sales to customers outside the U.S. jumped by a third to $193.5 million, making up more than a quarter of Monster's overall revenue.
Turning to key operating metrics, gross margin climbed more than three and a half percentage points to 66.1%, but operating income growth was sluggish as substantially higher overhead expenses ate into bottom-line profit. Case volumes climbed more than 15% to 78 million cases, and average net sales per case held its own, rising by $0.05 to $9.61 per case.
How does 2017 look for Monster Beverage?
Monster Beverage CEO Rodney Sacks again gave details on how the transition with its distribution and bottling operations is going. "We transitioned distribution of Monster Energy drinks to the Coca-Cola bottlers in Wisconsin early in January 2017," Sacks said, and the CEO also pointed to similar moves in Brazil, Costa Rica, and Panama during the fourth quarter.
Moreover, Monster is optimistic about emerging markets. The company continued launches in key Chinese markets like Shanghai and Shenzhen during the quarter, and it anticipates further launches throughout the country this year. In addition, Sacks identified Nigeria and India as areas of particular promise for Monster in 2017.
Monster also announced another step forward in its stock buyback program. The company authorized another $500 million in share repurchases on Feb. 28, after having used up its previous allowance. Monster has aggressively bought back its stock recently as part of a broader program to return capital to shareholders. The fact that the company's shares have become so cheap make the moves seem smart in comparison to other companies that tend to make mistakes with their capital allocation.
Investors in Monster Beverage were pleased with the results, and the stock quickly climbed 7% in after-hours trading following the announcement. The energy drink giant has a lot further to go to recover all the losses it has suffered, but Monster got a nice vote of confidence by managing to put together a solid quarter to finish 2016.
