Thanks to its deal with Coca-Cola, Monster Beverage no longer owns its original Hansen's brand. Image: Monster Beverage.
In the beverage industry, there's been a huge shift away from the carbonated drinks that ruled the roost for decades. In their place, energy drinks have become ascendant, and Monster Beverage has capitalized with one of the most impressive share-price performances of the past decade. Coming into its second-quarter financial report on Thursday, Monster Beverage stock is already at all-time highs, having more than doubled in just the past year, and investors have extremely high expectations that the energy-drink giant will be able to continue the impressive run of fast-paced growth that has put the company where it is today. Let's take an early look at where Monster Beverage is and what you can expect from its results later this week.
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Stats on Monster Beverage
Source: Yahoo! Finance.
Can Monster earnings climb fast enough?In recent months, investors have had a rare crisis of confidence about Monster Beverage earnings, cutting their second-quarter estimates by a nickel per share and reducing full-year 2015 projections by about 2%. The stock, though, survived an early hiccup well and is up another 14% since late April.
That early hiccup came in May, when Monster Beverage announced its first-quarter results. For the first time in a long while, Monster failed to top earnings expectations, missing the consensus forecast by a nickel per share. Sales gains also fell below the 10% level, making investors nervous about Monster's long-term prospects for accelerating growth. The stock plunged more than 10% the day after the announcement, and some investors worried that the ongoing partnership with Coca-Cola was distracting Monster from focusing on its organic growth opportunities.
Fortunately, Monster closed on its latest deal with Coca-Cola in June, and so the energy-drink giant can finally work on consolidating its stranglehold over the industry. As part of the deal, Monster got all of Coca-Cola's energy-drink lines, while Monster gave Coca-Cola its tea, juice, lemonade, and natural-soda lines. Monster also received a valuable cash payment of $2.15 billion in connection with the deal, and Coca-Cola now has a one-sixth stake in Monster going forward.
The health of the energy-drink market seems stronger than ever. Even though some health concerns have plagued the industry, sales of energy drinks could climb by more than half by 2019, according to research from Mintel. Although young adults currently make up the primary customer base for the market, parents have also increasingly turned to energy drinks, and Monster has a strong opportunity to capture its share of a growing market going forward. In particular, Coca-Cola's worldwide distribution capabilities will give Monster a leg up on other small rivals and allow it to compete more effectively against the other beverage giants in the global industry.
Still, Monster is facing some challenges. In India, health regulators banned Monster's products, saying that combining ginseng with caffeine wasn't permissible. Monster asserted that its products use minimal amounts of ginseng but is preparing to try to sell ginseng-free products in India, but even though the Indian market is quite small for Monster, the ban is an unfortunate sign of how the company's global expansion will inevitably run into some roadblocks along the way.
In the Monster Beverage report, listen for what the company's executives have to say about its future strategic direction. With the Coca-Cola deal finally closed, Monster should be able to turn its attention toward maximizing the growth potential from its core brands. Moreover, investors should expect greater efficiencies from using Coca-Cola's distribution network, with positive potential impacts on the expense side of the income statement as a result. Monster has huge growth opportunities ahead of it, but now it needs to prove that it can execute well on a well-thought-out strategic plan and make itself an even more powerful force in the growing energy-drink market.
The article Will Monster Beverage Earnings Send the Stock to New Records? originally appeared on Fool.com.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and Monster Beverage. The Motley Fool owns shares of 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.