Energy drink maker Monster Beverage (NASDAQ: MNST) shares have been rallying despite the market sell-off on merger speculation. The rising costs of aluminum, shipping costs and supply chain disruptions hurt margins resulting in a miss on in its Q3 2021 earnings report. While the Company doesn’t anticipate more negative effects from COVID-19, it has been suffering from truck and can shortages in addition to rising raw material costs. There has been recent speculation that Monster is exploring a “possible” deal with Constellation Brands (NYSE: STZ). Shares are starting to peak as the benchmark indexes are selling off in 2022. Prudent investors looking for exposure in the energy drink segment can look for opportunistic pullback levels in shares of Monster Energy.
Q3 2021 Earnings Release
On Nov. 4, 2021, Monster released its third-quarter fiscal 2021 results for the quarter ending September 2021. The Company reported earnings of $0.63 per share versus consensus analyst estimates of $0.67 per share, a (-$0.04) per share miss. Revenues rose 13.2% year-over-year (YoY) to $1.41 billion, beating analyst estimates for $1.39 billion. Q3 case volume rose 14.3% to $159.98 million. Gross profit per net sales dropped to 55.9% from 59.1% from the year-ago period due to higher aluminum pricing. The Company ended the quarter with $1.71 billion in cash. The Company expects no further material impacts from COVID-19.
Monster Energy Co-CEO Rodney Sacks commented, “We are pleased to report record sales for the third quarter, despite the ongoing impact of the COVID-19 pandemic. The energy drink category, and in particular our Monster Energy® brand, continues to demonstrate resilience and growth in most of our markets. In the third quarter of 2021, we expanded the distribution of our brands in certain international markets. In the United States, we launched our line of True North™ Pure Energy Seltzer in August 2021 and are currently in the process of launching our Monster® stylized Reserve line to the retail trade.”
Monster Co-CEO Hilton Schlosberg added, “We continued to face headwinds in keeping up with demand in the United States and in EMEA in the third quarter, largely as a result of a shortage in aluminum cans, the availability of co-packing capacity and procurement challenges in other inputs. Aluminum cans in excess of our contracted volumes are entering our supply chain from the United States, South America, and Asia, in order to meet the increased consumer demand. The shortage of shipping containers, and global port congestion continue to impact our operations. We have entered into supply agreements with two new aluminum can suppliers in the United States, with deliveries commencing from October and December, respectively. We are experiencing increased costs in our operations, including aluminum, shipping, freight, and other inputs, some of which are likely to be transitory. We will continue to implement measures to mitigate such increased costs through reductions in promotions and other pricing actions in the United States and in EMEA.
Conference Call Takeaways
CEO Sacks set the tone, “Operating expenses for the 2021 third quarter were $344.7 million compared to $277.9 million in the 2020 third quarter. As a percentage of net sales, operating expenses for the 2021 third quarter were 24.4% compared to 22.3% in the 2020 third quarter and 24.5% in the 2019 third quarter pre-COVID. In particular, operating costs were adversely affected by increased logistical inefficiencies, including higher freight-out and warehousing costs, a one-time distributor termination fee of $5.3 million, and increased selling and marketing expenses, including the resumption of certain sponsorship and deviant activities as compared to the same quarter last year. A number of sponsorship activities were canceled in the comparable quarter last year due to the COVID-19 pandemic.” He continued, “Truck shortages also exacerbated our ability to supply and the ability of our bottlers to deliver products to their customers. According to Nielsen in the 13-week period until the end of August 2021, Predator’s retail market share in value as compared to the same period the previous year grew from 9.8% to 18.6% in Kenya and from 0% to 12.2% in Nigeria. We launched our new Predator malt flavor energy drink in Nigeria during the third quarter. The Nielsen numbers in EMEA should only be used as a guide because the channels read by Nielsen in EMEA vary from country to country.” He concluded, “We are experiencing increased costs in our operations, some of which are likely to be transitory and we have and are already in the process of implementing reductions in promotions and other pricing actions in the United States and EMEA to mitigate such increased costs. Our AFA flavor facility in Ireland is operational and is providing flavors to our EMEA region, which would improve service levels in the EMEA. We are pleased with the new additions to the monster energy portfolio. We are planning to continue additional launches of our Reign Total Body Fuel high-performance energy drinks in additional international countries. We are pleased with the rollout of Predator and Fury, our affordable energy drink portfolio internationally. We're proceeding with plans to launch our affordable energy brands in a number of international countries.”
MNST Price Trajectories
Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for MNST stock. The weekly rifle chart peaked at the $99.76 Fibonacci (fib) level before tanking to the $81.40 fib before starting a rally on the breakout through the weekly market structure low (MSL) buy trigger at $90.01. The weekly rifle chart is uptrending with a rising 5-period moving average (MA) at $93.31 reaching towards the weekly upper Bollinger Bands (BBs) at $102.29. The weekly stochastic triggered a mini pup through the 40-band towards the 80-band. The daily rifle chart uptrend is starting to slow down as the 5-period MA goes flat at $96.38 followed by the rising 15-period MA at $94.50. The daily stochastic is forming a mini inverse pup falling towards the 80-band. Prudent investors can watch for opportunistic pullback levels at the $92.64 fib, $90.58 fib, $89.28 fib, $87.05 fib, $82.62 fib, $81.40 fib, and the $79.15 fib level. Upside trajectories range from $101.63 fib to the $113.33 fib level.
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