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MNST’s Q2 2013 EPS came in 2 cents lighter than consensus ($0.62 vs $0.64), while revenue increased +6.6% Y/Y and  gross profit margins expanded to 53.3% versus 51.8% in the prior-year period.   While we continue to see softness in the beverage market with CSD volumes lower in Q2 2013 vs Q2 2012 and similar softening trends in the energy drinks market, especially in Europe, energy drinks continue to outperform the beverage category.

We continue to like the growth in the energy category. MNST is seeing strong sales performance from Ultra -- a lighter flavor that appeals to diet drinkers and those looking for a less traditional energy drink taste profile -- but at the cost of some cannibalization to its base Monster.

The company said it does not forecast raw material costs going up in the back half of the year and management appears optimistic that despite the possibility of future litigation costs, it has addressed existing concerns.   On Monday and Tuesday of last week MNST sat before the  U.S. Senate Committee on Commerce, Science, and Transportation in a hearing titled “Energy Drinks: Exploring Concerns About Marketing to Youth” (Red Bull and Rock Star also testified). The company did not update any of its language in the hearing, and said it will continue to defend its products as safe for consumers.

The FDA has stated that available studies do not indicate any new or previously unknown risks associated with caffeine consumption, though the agency continues to explore if additional research on caffeine or energy drinks is needed.

MNST is in a bullish formation across our immediate term TRADE and intermediate term TREND durations, which we outline in the chart below.  

MNST – Softness, But Energy Outperformance over Beverage and Litigation Headlines Quieter - zz. mnst

Matthew Hedrick

Senior Analyst