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Monster Beverage (NASDAQ: MNST) has been one of the most successful stocks of the past 20 years. Yet that comes as little consolation for those who've bought shares of the energy-drink giant over the past three years, as the company has struggled to get itself back on its former growth trajectory. Now that health-conscious consumers have mixed feelings about energy drinks in general, Monster has had to pivot to stay in touch with its customers' preferences, and after a good year in 2017, shareholders have seen recent gains slip away.
Coming into Tuesday's first-quarter financial report, Monster Beverage investors were at least hoping to see a pick-up in growth rates from what had been a discouraging fourth quarter of 2017. Monster's results did show some signs of recovery, but they still fell short of what its most ardent supporters wanted to see. Without even better performance during the rest of 2018, investors could start to doubt whether Monster Beverage has the ability to mount a full recovery from its malaise.
Mutant is one of Monster Beverage's brands. Image source: Monster Beverage.
How Monster Beverage fared
Monster Beverage's first-quarter results didn't have a lot of surprises in either direction. Net sales rose nearly 15% to $850.9 million, and that growth rate roughly doubled from what it posted in the fourth quarter. Net income climbed 21% to $216.1 million, and that resulted in earnings of $0.38 per share. That was $0.01 less than the consensus forecast among those following the stock.
There were big disparities across Monster's different lines of business. The core Monster Energy drinks division was the strongest in the company, with sales climbing nearly 17% from year-ago levels. By contrast, the strategic brands division -- consisting of beverages Monster took control of as part of its strategic alignment with Coca-Cola (NYSE: KO) -- saw a 3% sales decrease. Some of that downward shift stemmed from changes in accounting rules, but even if you adjust for that impact, sales growth was much weaker there than for Monster's legacy brands. The catch-all other segment, which includes the American Fruits & Flavors business, saw revenue slide 16%.
Other fundamental metrics were mixed. International growth came to 27%, accounting for about half of Monster's overall revenue increase for the period. Gross margin took a four percentage point hit on the heels of higher promotional allowances to Monster's partners, as well as sales mix and accounting issues. Yet the beverage giant managed to keep many costs in check, especially general overhead expenses. Case volumes rose 15% to 92.3 million cases, and per-case sales fell only a fraction of a percent to $9.17 per case.