Has Monster Beverage Corp. (MNST) lost its roar? I think not. Yes, the Q2 report (pdf) was a slight miss on inflated analyst estimates of a company that doesn't provide guidance anyway. The Q2 EPS of $0.59 missed by $0.02. The company pulled in revenue of $593M (+28.7% year/year), which was a slight miss by $3M. At one point immediately after hours, shares were down over 20%! Profit margins were 51.8% down very slightly in the year-ago quarter. That's it, that's what sent the stock plummeting. As I write, the stock is now rebounding premarket at $62, or only down 6%. Shares are continuing to climb, similar to what we have seen in past quarters. In my opinion, it is a repeat of what has happened in the past. Quick to dump and ask questions later traders abandoned ship. Then, CEO Rodney Sacks took to the line on the conference call, where we learned exactly why there was a miss at all (international expansion, minor shipment issues), and exactly why the explosive growth is just getting started.
Here are the highlights that suggest this stock is still a monster buy on this sell-off:
Overall, the company had a good second quarter with record gross sales up 28.7% to $678.9 million. Net sales up 28.2% to $592.6 million and operating income up 28.1% to $169.8 million. Diluted earnings per share increased 31% from $0.45 per share in the second quarter of 2011 to $0.59 per share."
"We also recently commenced reporting sales information for the United States market based on an expanded sample of outlets, which now includes Walmart; dollar stores, such as Family Dollar, Dollar General and Fred's; DeCA military stores and club stores namely Sam's and BJ's
According to the Nielsen reports for the 13 weeks through July 21, 2012, for all outlets combined…..sales in dollars in the energy drink category, including shots, increased 16.5% versus the same period a year ago. Sales of Monster grew 24.9% in the 13-week period, while sales of Red Bull increased by 19.3%. Sales of Rockstar increased by 7.2%, and sales of 5-Hour increased by 4.2%. Sales of Amp put down 2.4%, NOS increased 13.8% off a low base and sales of Full Throttle increased 6.5%.
According to the Nielsen reports for the 4 weeks ended July 21, 2012, sales of energy drink in the convenience and gas channel in dollars increased by 12.5% over the comparable 4-week period in 2011. Sales of Monster increased by 20.2% over the comparable period last year, while sales of Red Bull increased by 16.2% over the comparable period last year. Rockstar was up 5.9%, while 5-Hour was up 0.7%.
According to Nielsen, in the convenience and gas channel in Canada, for the 12 weeks ended June 30, 2012, the energy drink category grew 11%, Monster sales increased 11% and our market share was at 24.9%"
"Sales of Monster through our distributor in México in the second quarter of 2012 were 45.6% higher than in the comparable period last year. And for the 6 months to June 30, 2012, were 32% higher.
Gross sales to customers outside the United States in the second quarter of 2012 amounted to $153.4 million compared to $102.6 million in the same quarter in 2011. Included in such sales are sales to the company's military customers, which are delivered in the United States and transshipped to the military and their customers overseas.
Net sales in Europe, the Middle East and Africa in the second quarter of 2012, in dollars, were 51.6% higher than in the same period last year. Excluding the effect of the strengthening dollar, such net sales would've been 65.4% higher. Monster is continuing to gain momentum and market share in Europe. Our European, Middle East and Africa operations, overall, are now operating profitably
The most important take away from the call that I took was the international expansion expenses and potential for future growth:
We are continuing with our expansion strategy into new international markets. We launched Monster Energy in Ecuador, Hong Kong, Japan, Macau and Slovenia in the second quarter of 2012. We are continuing with our plans to launch Monster in Chile, Peru, Philippines, Singapore and Taiwan as well additional countries overseas later in 2012 and in Argentina early in 2013. We're also planning to launch Monster in additional countries in Central and Eastern Europe later this year. Our planned launch of Monster in Korea continues to be delayed due to product approval and label issues, which have been ongoing and which we are continuing to address. Although the resolution of such issues is taking longer than we had initially anticipated, we believe that they will be resolved, and we are continuing with preparations for the launch of Monster in Korea in due course.
Sales in Japan in the second quarter exceeded our expectations. Sales of Peace Tea, ready-to-drink iced teas continue to meet and indeed exceed our expectations. In the second quarter of 2012, gross sales of Peace Tea increased 62.3% over the same period in 2011. We are continuing with our plan to introduce additional packages and container sizes for the Peace Tea brand during the second half of 2012. We are continuing to sell in market Worx Energy.
And the balance sheet is pristine:
Turning to the balance sheet. Cash and cash equivalents amounted to $419.2 million compared to $359.3 million at December 31, 2011. Short-term investments were $451.1 million compared to $411.3 million at December 31, 2011. Long-term investments comprised entirely of auction rate securities decreased from $23 million -- $23.2 million at December 31, 2011, to $20.9 million.
Bottom line, yes the company missed nearly unrealistic expectations. However, the quarter was really strong, and having read or listened to the conference call, you are now seeing the stock up over 13% from its after hour lows, and continuing to grow. I myself am adding to my position, for the reasons cited in this call, and for the fact that the company is growing like wildfire and is becoming more than just an energy drink company, but an iconic brand. I recommend the stock here, given this strong quarter, and the potential for future growth.
Disclosure: I am long MNST.