MNST Q4: Where do we go from here?

This note was originally published February 27, 2013 at 21:26 in Consumer Staples

Coming into yesterday's earnings release, we had concerns that the company would disappoint versus consensus – those concerns were validated.  We like the category and we like the company, and we want to like the stock, but we still need to see 1H ’13 consensus come down a shade(2%).  Ultimately, we continue to believe that MNST’s superior growth profile isn’t being appropriately valued, in part because of ongoing regulatory overhang and in part because of weakness in the energy drink category in the U.S.



MNST reported Q4 results this evening, falling short of consensus on both the top and bottom line.  Revenue growth was 15.0% (versus 17.6% contemplated by consensus) while reported EPS of $0.39 was $0.02 light of consensus.

 

What we liked in the quarter (the good)

  • Sequential improvement in revenue growth versus a more difficult (420 bps) one year comp
  • Sequential improvement in EPS growth versus a more difficult (930 bps) one year comp
  • Sequential mitigation in gross margin declines against a marginally easier comp
  • Continued share gains by MNST in the energy drink category
  • Sustained strength in international sales (+29.6%)
  • Aggressive share repurchase by the company in the quarter

What we didn’t like in the quarter (the bad)

  • Continued year over year declines in the price per case (fourth consecutive quarter)
  • Weakness in the broader energy drink category

What else (the ugly)

  • Very difficult one and two year comps in 1H 2013
  • Pending adjustments coming out of this release, we remain below consensus for 1H ‘13

We continue to like the longer-term prospects for the energy drink category in general and MNST specifically, but this quarter’s results are precisely the reason we haven’t been as vocal as we have been in other situations – we prefer to see a clear path to EPS upside before we get excited about a name.