Monster Beverage (MNST) Q2 Earnings: What's In The Cards?

Monster Beverage Corporation (NASDAQ:MNST) is set to report second-quarter 2016 results on Aug 4, before market opens.

Last quarter, the company delivered a positive earnings surprise of 6.67%. However, the energy drink producer has delivered negative earnings surprises in two of the last four quarters and has an average negative surprise of 5.04%.

MONSTER BEVERAG Price and EPS Surprise

MONSTER BEVERAG Price and EPS Surprise | MONSTER BEVERAG Quote

Let’s see how things are shaping up for this announcement

Factors to Consider

Monster Beverage’s revenues in the second quarter of 2016 are expected to gain traction from new products launched in the U.S in the past few quarters, solid international sales and growing momentum of the energy drink category.

The company reported strong gross margin expansion through 2015 and first quarter 2016 on the back of price increase, strong sales of new products and a favorable segment mix trend. The brands acquired from The Coca-Cola Company (NYSE:KO) , which are produced as concentrates or beverage bases, are high-margin products that make significant positive contribution to sales and gross margins. This gross margin trend is likely to continue in the soon-to-be reported quarter.

However, Monster Beverage generates more than 20% of its consolidated gross sales outside the U.S. Because of its growing international presence, its sales and profits are being hurt due to negative currency translations. Though the U.S dollar is getting weaker, the negative impact of currency translation is still significant.

Earnings Whisper?

Our proven model does not conclusively show that Monster Beverage is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Monster Beverage’ Earnings ESP is -1.92% as the Most Accurate Estimate stands at $1.02 while the Zacks Consensus Estimate is pegged higher at $1.04.

Zacks Rank: Monster Beverage carries a Zacks Rank #3. Though the company’s Zacks Rank #3 increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are some companies in the broader food sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Dean Foods Company (NYSE:DF) has an Earnings ESP of +2.63% and a Zacks Rank #2

Post Holdings, Inc. (NYSE:POST) has an Earnings ESP of +14.89% and a Zacks Rank #2

The Procter & Gamble Company (NYSE:PG) has an Earnings ESP of +2.7% and a Zacks Rank #3

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>