Monster Beverage (MNST) and Keurig Dr Pepper (KDP) Pre-Earnings Review

Keurig Dr Pepper Inc. (KDP) and Monster Beverage Corporation (MNST) are scheduled to report their fourth-quarter and full-year results on February 22, 2024. Both companies are expected to report a year-over-year increase in earnings and revenues in the fourth quarter.

In this article, I have discussed why waiting for a better entry point in KDP and MNST could be prudent despite the expected increase in earnings and revenue.

For the fourth quarter, KDP’s EPS and revenue are expected to increase 8.4% and 2.7% year-over-year to $0.54 and $3.91 billion, respectively. Similarly, MNST’s EPS and revenue for the fourth quarter are expected to increase 35.6% and 16.2% year-over-year to $0.39 and $1.76 billion, respectively.

The beverage industry faces challenges stemming from changing consumer preferences and health and sustainability concerns. Sugary drinks have been losing popularity since the pandemic, as consumers prefer functional waters, which include still or sparkling and herb-infused waters. These waters also include several additives like minerals, fruits, herbs, vegetables, etc.

Consumers are also ditching alcoholic beverages for low and no-alcohol-content beverages as they focus more on their overall health and well-being. Beverage makers are also subject to frequent regulation changes in various geographies, which often negatively affects the business.

However, beverage makers are adapting to the changes as they are now banking on newer offerings, such as non-alcoholic and fruit-based beverages, low-sugar or sugar-free alternatives, and plant-based and dairy-free alternatives. They are also coming up with various ready-to-drink tea and coffee beverages. This is helping them appeal to a newer audience, thereby boosting growth.

The global beverages market is projected to grow at a CAGR of 4.3% to reach $4.39 trillion by 2028.

Let’s examine the fundamentals of the two stocks from the Beverages industry, starting with the one ranked lower from the investment point of view.

Stock #2: Keurig Dr Pepper Inc. (KDP)

KDP operates as a beverage company in the United States and internationally. It operates through four segments: Coffee Systems, Packaged Beverages, Beverage Concentrates, and Latin America Beverages. The company serves retailers, bottlers and distributors, restaurants, hotel chains, office coffee distributors, and end-use consumers.

In terms of the trailing-12-month EBIT, KDP’s 21.78% is 156.3% higher than the 8.50% industry average. Likewise, its 26.64% trailing-12-month EBITDA margin is 133.6% higher than the industry average of 11.41%. Furthermore, the stock’s 7.34% trailing-12-month levered FCF margin is 52.7% higher than the industry average of 4.81%.

On the other hand, KDP’s 7.69% trailing-12-month Return on Common Equity is 32.3% lower than the 11.36% industry average. Likewise, its 2.47% trailing-12-month Capex/Sales is 25.9% lower than the 3.33% industry average. Also, its 0.29x trailing-12-month asset turnover ratio is 65.7% lower than the 0.83x industry average.

KDP’s net sales for the third quarter ended September 30, 2023, increased 5.1% year-over-year to $3.81 billion. Its adjusted income from operations rose 3.9% over the prior-year quarter to $984 million. The company’s adjusted gross profit increased 7% year-over-year to $2.12 billion. In addition, its adjusted net income attributable to KDP rose 2.6% year-over-year to $673 million. Also, its adjusted EPS came in at $0.48, representing an increase of 4.3% year-over-year.

Analysts expect KDP’s EPS and revenue for the quarter ending March 31, 2024, to increase 5.2% and 3.5% year-over-year to $0.36 and $3.47 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past three months, the stock has declined 1.7% to close the last trading session at $31.23.

KDP’s bleak prospects are reflected in its POWR Ratings. It has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It is ranked #21 out of 34 stocks in the B-rated Beverages industry. It has a C grade for Growth, Momentum, Stability, Sentiment, and Quality. Click here to see KDP’s rating for Value.

Stock #1: Monster Beverage Corporation (MNST)

MNST engages in the development, marketing, sale, and distribution of energy drink beverages and concentrates in the United States and internationally. The company operates through three segments: Finished Product, Concentrate, and Other. It offers carbonated, non-carbonated energy drinks, ready-to-drink iced teas and juice drinks, lemonades, juice cocktails, single-serve juices and fruit beverages, ready-to-drink dairy and coffee drinks, etc.

On November 8, 2023, MNST announced that its Board of Directors had authorized a new share repurchase program for the repurchase of up to an additional $500 million of the company’s outstanding common stock.

In terms of the trailing-12-month net income margin, MNST’s 22.62% is 366.7% higher than the 4.85% industry average. Likewise, its 28.81% trailing-12-month EBITDA margin is 152.6% higher than the industry average of 11.41%. Furthermore, the stock’s 21.32% trailing-12-month Return on Common Equity is 87.6% higher than the industry average of 11.36%.

On the other hand, MNST’s 2.35% trailing-12-month Capex/Sales is 29.4% lower than the 3.33% industry average. Likewise, its 0.79x trailing-12-month asset turnover ratio is 5.1% lower than the 0.83x industry average.

For the fiscal third quarter, which ended September 30, 2023, MNST’s net sales increased 14.3% year-over-year to $1.86 billion. Its operating income rose 22.2% over the prior-year quarter to $510.53 million. The company’s net income increased 40.4% year-over-year to $452.69 million. Also, its EPS came in at $0.43, representing an increase of 43.3% year-over-year.

Street expects MNST’s EPS and revenue for the quarter ending March 31, 2024, to increase 13.8% and 12.8% year-over-year to $0.43 and $1.92 billion, respectively. MNST’s stock has declined 7.6% over the past nine months and 6.5% over the past year to close the last trading session at $55.40.

MNST’s POWR Ratings are consistent with this uncertain outlook. It has an overall rating of C, translating to Neutral in our proprietary rating system.

Within the same industry, it is ranked #15. It has a C grade for Growth and Momentum. To see the additional ratings of MNST for Value, Stability, Sentiment, and Quality, click here.

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MNST shares rose $0.26 (+0.47%) in premarket trading Wednesday. Year-to-date, MNST has declined -3.45%, versus a 4.21% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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