Monster Beverage: more profit and more pain to come

Monster Drink (NASDAQ: MNST) is grappling with soaring costs for raw materials like aluminum. In this “Beat & Raise” music video, recorded on November 5 Fool.com contributors Brian Withers and Demitri Kalogeropoulos discuss highlights from the company’s latest earnings report, as well as some reasons why it’s not too late to buy the stock.

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Brian Withers: Stock symbol, MNST.

Demitri Kalogeropoulos: That’s right. Here we are. See if I can lift that. Monster Beverage, yes, most people know that. It is the specialist in energy drinks, a very large global platform. The company released its results yesterday after the market closed.

The bottom line is that they have some pretty significant supply chain issues that will continue to impact the business for at least the next or two quarters or two.

Sales are up 13% which is solid. This is pretty much what most people on Wall Street expected. Profits dipped slightly and that was a bit of a surprise. As I said, the main situation which was the supply chain.

Monster Beverage faces shipping delays and cost increases, especially for aluminum. They weren’t able to get enough packaging material to meet all the demand, which I guess is a good problem. Sales would have been much stronger if the company had had enough aluminum cans in particular to be able to meet this manufacturing challenge. The American market stood out in particular. There was just a very high demand for energy drinks.

Unsurprisingly, because costs are rising so rapidly, margins have fallen, profitability has fallen, gross profit margin has fallen to 56% of sales from 59% a year ago.

The bad news is that management has said this is likely to continue for at least the next quarter and that they do not plan to raise prices as quickly to fully compensate for this.

Investors can expect cost pressures for the rest of the year and then into early 2022. But the good news is the company is facing massive demand. This is a good thing.

These cost concerns will likely decrease over the next couple of months and the supply chain will become more normal over time. The long-term outlook is still strong, but expect some volatility, particularly around earnings over the next two quarters.

Withers: It’s interesting when you look at a business like this and they wait for certain things to happen, meet their incredible demand, you don’t know when it’s going to release. You said maybe the next two months, maybe the next two quarters.

If anyone wants Monster Beverage to add more to their portfolio, would you recommend doing so now, by third party buying, what do you think?

Kalogeropoulos: I like the idea of ​​buying third-party. I did this with a few stocks or at least the initial position. So you are invested, your skin in the game, I guess I’ll be watching the next earnings report.

Other companies, Coca Cola had much better results. It tells me it’s not even an industry wide problem, but something that’s going to be pretty temporary.

I think this business is going to rebound in the next couple of months, it could be like you said, it could take months, maybe a quarter or two. But all other indications point to good growth once they resolve this supply chain problem.

Withers: He totally has a solid brand, for sure.

Brian Withers has no position in the stocks mentioned. Demitri Kalogeropoulos has no position in the mentioned stocks. The Motley Fool owns shares and recommends Monster Beverage. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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