What happened
Shares of energy drink veteran Monster Beverage (MNST -1.46%) gained as much as 10.3% on Friday, reaching that peak at 11:25 a.m. ET. The stock lost some of that fizz as the day moved on, sitting as a single-day increase of 6.5% two hours later. Monster's solid third-quarter earnings report inspired the market pop.
So what
Third-quarter net sales rose 15% year over year to $1.62 billion. This result included a foreign currency headwind that reduced top-line revenues by $71 million. On the bottom line, earnings fell 4% to $0.60 per diluted share.
These headline figures were largely in line with the consensus estimates among analysts. Earnings came in a bit higher than expected, while revenues stopped just short of Wall Street's targets, but both of these surprises were essentially rounding errors.
The positive market reaction largely launched from the delivery of robust results in the midst of a turbulent economy. A new $500 million share repurchase policy provided extra fuel to push stock prices a little bit higher. Investors were also encouraged by Monster's consistent strength across an increasingly diversified product portfolio.
Now what
Monster's business used to be all about Monster and Reign, the flagship energy drink brands. In this report, the company saw stronger growth in its strategic brands portfolio, with energy drinks such as Full Throttle, NOS, Fury, and Predator. Here, sales rose by 19% year over year, or 26% on a currency-adjusted basis. And there's also the very small division of alcohol brands, which consists of craft beer and hard seltzer products since the first-quarter buyout of microbrewer CANarchy.
Management noted that consumer demand for Monster's energy drinks is high and rising. The company faces challenges such as revenue-sapping currency conversion effects and high costs of aluminum cans. The metal pricing has flattened out in recent months, but other costs are still running high.
It's inspiring to see Monster largely meeting its stated financial targets in spite of macroeconomic headwinds, and I can't wait to see how this company (and stock) performs when the headwinds finally abate.
I'm in no rush to buy Monster shares today, since the stock trades at the lofty valuation of 43 times trailing earnings and 7.6 times sales. However, I'm keeping a close eye on Monster so I can take action in case the stock price pulls back for no good reason.
