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Why Monster Beverage Corporation Stock Dropped Today

By Steve Symington - May 8, 2015 at 12:15PM

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Monster Beverage gave investors a fright with "transitional" first-quarter results. Here's what investors need to know.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What's happening: Shares of Monster Beverage Corporation (MNST 0.53%) fell as much as 11% early Friday, then partially recovered to trade down around 9% as of 1:10 p.m. after the company reported weaker-than-expected first-quarter results.

Quarterly net sales rose 16.9% year over year to $626.8 million, which translated to a 13.9% increase in adjusted net income to $108.5 million, and a 13.8% jump on a per-share basis to $0.62. Analysts, on average, were expecting lower net sales of $601.2 million, but higher earnings of $0.68 per share.

Why it's happening: To blame for its bottom-line miss, Monster says, is primarily $206 million in obligations as a result of distributor terminations stemming from its recent strategic partnership with Coca-Cola. Results were also notably affected by unfavorable currency exchange rates, legal expenses concerning the marketing of its energy drinks, and other transactional costs related to the Coke deal.

"As previously mentioned," Monster Beverage CEO Rodney Sacks elaborated, "The Coca-Cola Company transaction presents a unique opportunity for us.  We anticipate that this relationship will provide us with complementary product offerings in many countries as well as access to new geographies, and access to new channels, including vending and specialty accounts."

Sacks also noted Monster has already transitioned around 84% of its targeted distribution rights in the U.S. to Coca-Cola, and expects to transition an additional 5% of targeted volume by the end of this month. All told, the transaction is expected to close by the end of the current quarter.

That's fair enough. Though the market certainly doesn't look kindly upon this near-term weakness, you can bet Monster Beverage is looking forward to enjoying the fruits of its significant new partnership. So for long-term investors willing to wait until that happens, I think today's pullback offers a great opportunity.

Steve Symington owns shares of Apple. The Motley Fool recommends Apple, Coca-Cola, and Monster Beverage. The Motley Fool owns shares of Apple and Monster Beverage and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Monster Beverage Corporation Stock Quote
Monster Beverage Corporation
MNST
$92.28 (0.53%) $0.49
Apple Inc. Stock Quote
Apple Inc.
AAPL
$173.03 (-0.09%) $0.16
The Coca-Cola Company Stock Quote
The Coca-Cola Company
KO
$65.03 (0.82%) $0.53

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