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Monster Beverage: More Profit Pain Ahead

By Demitri Kalogeropoulos and Brian Withers – Nov 20, 2021 at 3:20PM

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Earnings pressures aren't going away, but sales trends are still strong.

Monster Beverage (MNST -1.08%) is struggling with surging costs for input materials like aluminum. In this video clip from "Beat & Raise," recorded on Nov. 5 , Fool.com contributors Brian Withers and Demitri Kalogeropoulos, discuss highlights from the company's latest earnings report, along with some reasons why it's not too late to buy the stock.

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Brian Withers: Ticker symbol, MNST.

Demitri Kalogeropoulos: That's right. Here we go. See if I could to bring that up. Monster Beverage, yes, most people know it. It's the energy drink specialist, very big global platform. The company reported earnings yesterday after the market closed.

The big takeaway was that they have some pretty significant supply chain challenges that are going to continue to impact the business from at least the next quarter or two.

Sales were up 13%, which is a solid. That's about what most on Wall Street were expecting. Earnings were down slightly and that was a little bit of a surprise. Like I said, the main situation that was supply chain.

Monster Beverage is dealing with delays in shipping and spiking cost, particularly for aluminum. They were not able to secure enough packaging materials to meet all the demand, which is I guess a good problem to have. Sales would have been a lot stronger if the company would've had enough aluminum cans in particular to be able to fulfill that manufacturing challenge. The US market was a particularly good standout. There was just really high demand for energy drinks.

Unsurprisingly because of those costs are going up so quickly, margins dropped, profitability was down, gross profit margin fell to 56% of sales from 59% a year ago.

The bad news is management said that this is probably going to continue at least for the next quarter or so and they're not planning on raising the prices anywhere near as quickly to fully offset that.

Investors can expect some cost pressures going on into the rest of this year and then into early 2022. But the good news is the company is dealing with massive demand. That's a good thing.

These cost challenges will probably lessen over the next couple of months and the supply chain will become more normal overtime. The long term outlook is still strong, but look for some volatility, particularly around earnings over the next couple of quarters.

Withers: It's interesting when you're looking at a company like this and they are waiting for certain things to happen, for them to meet their incredible demand, you don't know when that's going to break free. You said maybe the next couple of months, maybe the next couple of quarters.

If somebody is interested in Monster Beverage adding more to their portfolio, would you recommend doing that now, buying in thirds, how would you think about that?

Kalogeropoulos: I like the buying in thirds idea. I've done that with a few stocks or at least the initial position. So you're invested, your skin in the game, I guess to follow along the next couple of earnings report.

Other companies, Coca-Cola had much better results. That tells me that it's not an even an industrywide issue, but something that's going to be pretty temporary.

I think this business is going to bounce back over the next couple of, could be like you said, it can be months, could be a quarter or two. But all the other indications are pointing to good growth as soon as they fix this supply chain issue.

Withers: It totally has a solid brand, for sure.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Monster Beverage. The Motley Fool has a disclosure policy.

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