Monster Beverage Corporation MNST is slated to release third-quarter 2017 financial numbers on Nov 8, after the closing bell.

In the last reported quarter, the company delivered a negative earnings surprise of 2.50%. However, the company managed to surpass the Zacks Consensus Estimate in two of the last four quarters, with an average beat of 1.42%.

The chart below depicts the surprise history.

Monster Beverage Corporation Price and EPS Surprise

 

Monster Beverage Corporation Price and EPS Surprise | Monster Beverage Corporation Quote

Factors at Play

Monster Beverage has been doing well on the back of product innovation that plays a major role in the company’s success. The company’s net sales grew 9.4% year over year in the first half of 2017, banking on wide-ranging portfolio of energy drink brands that has been experiencing solid demand in both the domestic and international markets.

The company’s sales in the Monster Energy Drinks segment, accounting for almost 90% of total net sales, increased 8.7%. Due to growing health awareness, consumers are now particularly vigilant about the use of artificial sweeteners, high sugar content and obesity-related concerns. As a result, the broader carbonated soft drinks (CSD) category has been suffering for the last few years. However, energy drinks constitute one of the few sub-categories that continue to gain momentum. Therefore, a portfolio based on energy drinks should drive the company’s top line in the near term.

Again, the Strategic Brands segment, which includes the various energy drink brands acquired from The Coca-Cola Company KO, grew more than 13% in the period. The company’s strategic deal expanded its portfolio with notable brands, with increased presence in the international energy drinks market. This addition has been boosting the company’s sales and the trend is likely to continue in the to-be-reported quarter.

Meanwhile, the company is experiencing solid growth in margins. The company’s first as well as second quarters’ gross margin benefitted from the raw material cost savings related to the American Fruits & Flavors acquisition. The trend is likely to continue in the to-be-reported quarter.

However, Monster Beverage’s sales and profits have been dented significantly by unfavorable currency translations. Although the U.S. dollar has softened against other currencies, the impact is still significant.

Distributor termination expenses too might affect the company’s bottom line. The company has been transitioning from third-party distributors to Coca-Cola’s distribution network following the strategic deal with Coca-Cola.

Overall, for the third quarter, the Zacks Consensus Estimate for earnings is pegged at 40 cents a share, reflecting an increase of 20.8% year over year. Meanwhile, the Zacks Consensus Estimate for revenues stands at $901.1 million, implying 14.4% year-over-year growth.

Here is what our quantitative model predicts:

Monster Beverage does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter

Zacks ESP: Monster Beverage has an Earnings ESP of -1.32%.

Zacks Rank: Monster Beverage carries a Zacks Rank #3, which increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Peer Releases

The Coca-Cola Company reported better-than-expected third-quarter 2017 results. Lower SG&A expense (down 20%), higher gross margin (up 170 basis points or bps), and higher operating margin (up 404 bps) helped it come up with better numbers. However, Coca-Cola’s total sales decreased 15%, marking the 10th consecutive quarterly decline in revenues.

PepsiCo, Inc. PEP reported mixed third-quarter 2017 (ending Sep 9) results, with earnings beating the Zacks Consensus Estimate and revenues missing the same. Nonetheless, this is the sixth consecutive quarter of positive earnings surprise.

Dr Pepper Snapple Group Inc.’s DPS third-quarter 2017 adjusted earnings per share of $1.10 missed the Zacks Consensus Estimate by 4.3%. Earnings decreased 6% on a year-over-year basis owing to the recent hurricanes in United States, earthquakes in Mexico and a previously disclosed write-off of prepaid resin inventory. Net sales of $1.74 billion missed the Zacks Consensus Estimate by 1.7% but rose 4% year over year.

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Coca-Cola Company (The) (KO): Free Stock Analysis Report
 
Dr Pepper Snapple Group, Inc (DPS): Free Stock Analysis Report
 
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Monster Beverage Corporation (MNST): Free Stock Analysis Report
 
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