What happened

Shares of Monster Beverage (NASDAQ:MNST) stock are down 7.3% as of 10:15 a.m. EDT after the energy drink maker announced second-quarter 2019 earnings results last night.  

Monster reported quarterly sales of $1.1 billion and net profit of $0.53 per share, versus the $1.13 billion in sales and $0.56 per share that Wall Street was expecting.  

cans of Monster energy drinks on ice

Image source: Monster Beverage.

So what

None of which is quite as bad as it sounds. Sure, Monster missed estimates on both sales and earnings -- but those results are still up year over year. Compared to Q2 2018, Monster's sales number came in 9% higher, and its profits grew an even more impressive 12% per diluted share.

How did Monster do that? The answer may surprise you. While earnings growth ahead of sales growth often indicates an improvement in profit margins, in Monster's case, the opposite was true. Gross profit margin actually declined by 120 basis points year over year, to 59.9%, and operating profit margin was down 90 basis points, to 34.3%. Consequently, total net profit didn't actually grow as fast as sales.

Monster made up the difference and caused profits per share to grow by buying back shares, reducing its share count and thus concentrating the profits it did make among fewer shares outstanding. Over the past year, Monster has shrunk its share count by approximately 3.3%.

Now what

Curiously, all of those buybacks took place in previous quarters -- Monster says it made no share repurchases in Q2.

But with a share-buyback authorization of more than $520 million and a share price that's now 7% cheaper than it was just 24 hours ago, I wouldn't be surprised if in Q3 we see quite a bit more buyback activity at Monster -- and maybe, some better profits per diluted share in Q3 as a result.

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