Monster Beverage (MNST), formerly known as Hansen, posted strong first-quarter results Wednesday that exceeded even our optimistic forecasts. We are placing the company under review while we re-evaluate our forward-looking assumptions. Subscribers should expect a material upward revision in our estimated fair value of the energy-drink maker.
Net sales advanced 27.5%, to $454.6 million, while the company’s gross margin advanced a full percentage point, to 53.1%. The strong revenue expansion continues to be bolstered by continued growth in its new Monster Rehab line, which has tremendous consumer appeal. Impressively, the company leveraged its top-line expansion and better gross margin to nearly a 43% increase in quarterly operating income from the same period a year ago. Its operating margin was 27.8% versus 24.8% in the same period a year ago. Net income jumped over 38%, while net income per diluted share increased nearly 40%, coming in at $0.41 per share in the period. Consensus had been expecting $0.38 per share.
Our updated fair value will reflect a more optimistic view of the company’s Monster Rehab line and its international expansion endeavors. The company noted that its retail sales have commenced in Hong Kong and Macau during April, and while tastes vary across nationalities, we believe the firm is nowhere close to reaching the saturation point in these expansive markets. We’ll have an updated report published shortly.