Adding to the long list (MNST)
Energy drinks have the best secular growth prospects within the broad beverage category. Driven by lifestyle trends, health & wellness, taste preferences, and demographics energy drinks have at least a decade of growth ahead. Behind the category's growth is caffeine and its spreading presence in beverages. Although it is less addictive and habit-forming, caffeine becomes part of the consumers' lives. As a daily consumption choice, consumers actively identify with their brands. Monster Energy is one of the leading brands in the energy drink market.
Monster Energy has missed consensus expectations for the past four quarters. EPS has also declined for four consecutive quarters. We do not expect either to change this quarter. However, we do see a coming inflection in margins and reasons to buy the shares before another re-rating in the multiple.
Monster Energy has entered the beverage alcohol sector for the first time with the acquisition of CANarchy. A merger with Constellation Brands is off the table, but questions remain. The next move up for the share price does not need a successful entry into alcohol, it will be in spite of it.
We will host our Black Book presentation on Thursday at 12:30 PM ET. Our investment themes for the presentation:
Our updated position monitor:
Q2 margins hold up (KR)
Kroger reported Q2 EPS of $.90, up 13% YOY and above consensus expectations of $.82. ID sales grew 5.8%, above consensus expectations of 4.6%, but well below food inflation. Average transaction size has decreased with more frequent trips. Digital sales grew 8%. Store-label ID sales grew 10.2%.
Gross margins expanded 2bps. The company recorded a $148M LIFO charge, $101M greater than in the prior year. LIFO charges are expected to be a $.10 headwind to EPS in the 2H. The fuel margin was $.62 per gallon compared to $.39 in the prior year. Management expects inflation to moderate against last year’s comparisons, but to remain at elevated levels.OG&A deleveraged 36bps, partly due to a catch-up in incentive compensation. Management expects to leverage OG&A in the 2H.
Management raised guidance for the year to EPS of $3.95 to $4.05, up $.10, with ID sales growth of 4 to 4.5%, up 1 to 1.5%. The guidance implies a slight slowdown in the expected rate of inflation. Kroger and the other traditional supermarkets has over earned during the pandemic’s elevated at-home meal consumption, supply chain challenges, and inflationary price increases.
A new brewer to rule them all – with apologies to J.R.R. Tolkein (KDP, WEST)
Keurig’s K-Café Smart brewer, which seeks to bring the coffeehouse experience to consumers’ homes, launched online last week. It will be available at retailers in the fall. The new brewer combines features of existing brewers and introduces new ones enabling a wider range of temperatures and strengths to customize brewing, a built-in frother for a range of milk options, as well as improving brewing over ice. Utilizing the Keurig app consumers can create cappuccinos, lattes, and other specialty coffees. The brewer detects the K-Cup pod and automatically customizes the brew settings to the manufacturer’s specifications. The MSRP is $249.99. Roughly 36 million households use Keurig brewers.
Keurig sells seven of the top ten single-serve coffee makers on Amazon and the new brewer will likely join the list. In Q2 brewer sales grew 6% while pod sales grew 10%. Westrock Coffee’s new plant will increase the company’s production capacity of pods.
