Monster Beverage is set to report its third-quarter earnings on Thursday, and while demand for its energy drinks remains strong, investors are bracing for a familiar headache: rising costs. In a note released Tuesday, RBC Capital Markets said it expects the company's September-quarter results to look "solid," but flagged that higher freight and aluminum expenses could keep profit growth in check.
The note comes as Monster navigates a leadership transition. Rob Gehring, a longtime executive, is leaving to become president of The Coca-Cola Company's North America unit. RBC views the departure as a short-term commercial loss for Monster, but potentially a longer-term positive if it strengthens the companies' distribution relationship.
What RBC is seeing
RBC estimates that the energy drink category grew 14.5% in the quarter, driven by roughly 10% volume growth and a 3.4% increase in pricing. For Monster specifically, the bank projects channel sales—a measure of products sold to retailers—rose 8.1% in the period. That's a slower pace than the category, reflecting tougher comparisons from a year ago, but still a sign of healthy demand.
However, the cost side of the ledger is less encouraging. RBC notes that distribution expenses may stay elevated as freight costs rise, and aluminum—the key material for Monster's cans—is a sequential headwind with no clear timeline for relief. These are the same pressures that have squeezed packaged-food and beverage companies across the industry over the past year, as supply chains remain unpredictable and commodity prices stay volatile.
For context, freight costs have been a recurring theme for consumer goods makers. When shipping rates climb, companies either absorb the hit to margins or pass it on to consumers through higher prices—which can dampen demand. Aluminum prices, meanwhile, have been influenced by global supply disruptions and energy costs, making it harder for can-dependent companies like Monster to plan ahead.
The leadership shake-up
Gehring's move to Coca-Cola North America is notable because Coca-Cola is Monster's largest distribution partner. The two companies have a long-standing relationship, with Coca-Cola distributing Monster's drinks in many markets. RBC sees Gehring's departure as a short-term commercial loss—he knows Monster's business intimately—but suggests it could pay off down the line if it deepens the partnership.
"If this tightens the distribution relationship, it could be a longer-term positive," the note said, according to the brief. For investors, the key is whether the transition disrupts Monster's ability to get its products to shelves, especially during a period of strong demand.
What it means for investors
RBC reiterated its "outperform" rating on Monster with a $50 price target. The stock was trading at $47.49 at the time of the note, implying modest upside. But the real swing factor, according to RBC, is costs—not sales.
"Sales are fine, costs are the question," is the essence of the bank's message. If freight and aluminum costs stay stubborn, packaging and shipping expenses could offset the benefits of strong volumes and pricing, limiting how much operating margins improve from quarter to quarter. That uncertainty often caps the valuation multiple investors are willing to pay, because it's harder to forecast earnings when the cost curve has no clear end point.
So after the earnings print, the stock's reaction is likely to hinge less on the 8.1% channel-sales growth call and more on any evidence of margin stabilization—or at least clearer visibility on when costs will normalize. Investors will be listening closely to management's commentary on freight contracts, aluminum hedging, and pricing power.
For everyday investors, the takeaway is straightforward: Monster's brand remains strong, and the energy drink category is growing. But the company's profitability is at the mercy of input costs, which are outside its control. That's a common theme across the consumer staples sector right now, as companies grapple with inflation and supply chain disruptions.
If you're watching Monster, keep an eye on the margin line—not just the top line. A beat on sales with a miss on margins could still disappoint the market, as we've seen with other companies this earnings season. For example, Shopify's solid quarter still disappointed Wall Street when guidance fell short, showing how expectations can outweigh results.
Freight costs, in particular, have been a wildcard for many industries. The Baltic Dry Index, a key measure of shipping rates, has been volatile, and any sustained moves can ripple through to companies like Monster. While recent data shows some cooling in freight rates, the trend is far from stable.
Ultimately, Monster's earnings will be a test of whether the company can navigate these headwinds while maintaining its growth trajectory. The market will be watching closely, and the stock's move after the report will likely reflect investors' confidence in management's ability to control what it can—and adapt to what it can't.
