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Energy drink maker Monster Beverage (NASDAQ: MNST) shares have sold off for five straight weeks after peaking near $100 per share. The Company is having logistics and supply chain issues due to the shortages of aluminum cans and delays in procuring certain ingredients. This resulted in the inability to meet the demand in Q2 2021 despite setting the highest quarterly revenues in the Company’s history. This underscores the relentless demand for products. Supply chain and logistics remain the key concern heading into Q3 2021 earnings as demand is riding the post-pandemic reopening trend especially as the Company plans to introduce new products at year’s end. Patient investors waiting for opportunistic pullbacks should keep an eye on the reversal of the recent sell-off.
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Q2 2021 Earnings Release
On Aug. 5, 2021, Monster released its second-quarter fiscal 2021 results for the quarter ending June 2021. The Company reported earnings of $0.75 per share versus consensus analyst estimates of $0.67 per share, an $0.08 per share beat. Revenues rose 33.6% year-over-year (YoY) to a record high of $1.46 billion, beating analyst estimates for $1.39 billion. The Company closed the quarter with $1.58 billion in cash and cash equivalents. Monster CEO Rodney Sacks commented, “The energy drink category, and in particular, our Monster Energy® brand continues to demonstrate sustained growth in most of our markets. In the second quarter of 2021, we continued to secure distribution in both our domestic and international markets for our products, including our new products introduced earlier this year. We are planning for additional launches during the second half of 2021.
Monster Co-CEO Hilton Schlosberg added, “The Company experienced challenges keeping up with demand in the second quarter in the United States and in EMEA, largely as a result of a shortage in aluminum cans. In order to satisfy increased demand, we have secured aluminum cans in excess of our contracted volumes from the United States, South America, and Asia, with expected deliveries increasing sequentially during the latter half of the year. However, the shortage of shipping containers, as well as global port congestion may delay the arrival of imported cans. In addition, the Company has entered into supply agreements with two new aluminum can suppliers in the United States, which are expected to be operational in the 2021 fourth quarter. To meet such increased demand, we experienced freight inefficiencies in the United States and in EMEA, which resulted in increased costs of sales as well as increased operating expenses in the 2021 second quarter. We are continuing to experience increased input costs including from aluminum,”
Conference Call Takeaways
CEO Sacks set the tone, “The company’s supply chain remains largely intact. However, the company continues to experience shortages in its aluminum can requirements in the United States and EMEA, given the company’s volume growth and the current supply constraints in the aluminum can industry. The company is also experiencing delays in procuring certain ingredients, both domestically and internationally. As a result, the company was unable to fully satisfy demand in the 2021 second quarter in the United States and EMEA. We expect such challenges to continue for the next few months. The company has taken steps to source additional quantities of aluminum cans from the United States, South America, and Asia. The company has entered into new supply agreements with two new aluminum can suppliers in the United States, and which are expected to be operational in the 2021 fourth quarter. We expect deliveries of additional quantities of cans to increase sequentially during the latter part of the year. Logistical issues, including shortages of shipping containers and port of entry congestion, could delay the ongoing international supply of aluminum cans. Separately, we are continuing to experiencing – experience freight inefficiencies as well as significant increases in domestic and international freight costs and like other beverage companies are incurring increased aluminum can and other costs in the current environment, all of which in addition to other factors, will continue to adversely impact gross margin percentages.”
He concluded, “We reiterate that sales over a short period such as a single month should not necessarily be imputed to or regarded as indicative of results for a full quarter or any future period. If the COVID-19 pandemic and related unfavorable economic conditions continue in certain regions, our new product innovation launches in those regions could be delayed. In conclusion, I would like to summarize some recent positive points. Currently, the company’s flavor manufacturing facilities, its co-packers, warehouses, and shipment facilities, and bottlers and distributors are all operating. We are continually addressing our aluminum can requirements, given our volume growth and the current supply constraints in the aluminum can industry. We are pleased with the new additions to the Monster Energy portfolio and are planning additional launches later in the year. We are planning to continue additional launches of our Reign Total Body Fuel high-performance energy drinks in additional international countries. We are pleased with the rollout of Predator and Fury and our affordable energy drink portfolio internationally. We are proceeding with plans to launch our affordable energy drinks in a number of international countries during the year.”
MNST Price Trajectories
Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for MNST stock. The weekly rifle chart has collapsed selling off for five straight weeks with a falling 5-period moving average (MA) resistance at the $92.46 Fibonacci (fib) level. The weekly stochastic has plunged on the 80-band rejection to fall to the 30-band. The weekly lower Bollinger Bands (BBs) indicate the nominal sell-off near the $87.05 which it’s nearing. The daily rifle chart is attempting to form a bottom as the daily 5-period MA has gone flat at $89.50 as the daily stochastic coiled towards the 20-band and stalled. This is a daily make or breaks setup that will determine the eventual reversal breakout upwards or an inverse pup breakdown towards the daily lower BBs at $85.51. The daily market structure low (MSL) buy triggers a breakout above $90.04. The daily 5-period MA would need to slope higher and eventually crossover through the 15-period MA higher as the stochastic forms a mini pup pattern up through the 20-band. The bearish case is a stochastic cross back down on a rejection of the 20-band as shares collapse under the daily 5-period MA towards the daily lower BBs. Prudent investors can watch for opportunistic pullback levels at the $88.09 fib, $87.23 fib, $86.34 fib, $85.00 fib, $84.24 fib, $83.18 fib, and the $81.52 fib level. Upside trajectories range from the $97.34 fib upwards to the $106.71 fib level.