- Net sales for Monster Beverage increased during the second quarter, but the company is facing challenges ahead, according to its most recent financial report. Compared to the same period a year ago, gross sales increased 9.8% to $1.04 billion.
- The company saw sales increase proportionally for almost all of its drinks. The Monster Energy Drinks segment had a 9.7% increase, to $815.3 million, over a year ago. The company's Strategic Brands segment — which includes NOS, Full Throttle, Burn, Mother, BU, Gladiator, Samurai, Nalu, BPM, Play and Power Play drinks acquired from Coca-Cola — saw a jump in sales of 10.6% to $85.6 million. The only segment to post a decrease was the Other segment, which includes products acquired from American Fruits and Flavors and sold to third parties. It saw a decrease of 6% to $6.2 million.
- Gross profits as a percentage of net sales increased when compared to a year ago. It went up to 64.3% from 62.6%.
At first glance, this looks like a wildly successful earnings report. With record gross sales and increases across the board, it appears the demand problems hitting soda aren't a problem for the energy drinks space, and more growth is on the way.
However, in his call to investors after the report was published, CEO Rodney Sacks painted a different picture. According to a transcript of the call, he called beverage industry sales "challenging" and said they "remained weak." Why? The primary reason is likely a slowdown of the once-fast-growing energy drink market.
According to Nielsen statistics Sacks cited, in the 13 weeks prior to July 22, total sales of energy drinks in convenience, grocery and drug stores and mass merchandisers increased 0.8% over the same period a year ago. And while Monster and its brands saw their market share grow — Monster sales were up 2.2%, sales of NOS increased 11.8%, and sales for Full Throttle increased 1.1% — gains are limited. If the market as a whole continues to slow down, Monster will not be able to keep these gains and profits continuing into the future.
The company also saw supply challenges. According to the call transcript, the company has been unable to produce enough Java Monster and Muscle Monster beverages for its U.S. customer base. Sacks estimated losses from product shortages at approximately $13 million in the second quarter and year-to-date at about $25 million. The company is manufacturing some flavors of Java Monster in Europe, and Sacks said it will have increased production capacity in the next quarter.
Meanwhile, the company's innovation pipeline is strong, Sacks said in the call. A zero-sugar offering, White Lightning, is slowly coming online. Monster Hydro, which is lightly sweetened, is now available. Mango and other flavors are also planned for the rest of the year.
Despite the new products, the production challenges have not convinced analysts that better days are ahead for the energy drink company.
"[Monster]'s growth has always relied on innovation to sustain strong double-digit top-line growth," wrote Bonnie Herzog, an analyst at Wells Fargo. "While we are encouraged by Monster's innovation pipeline (including strong performance from Ultra Violet and not yet disclosed innovation that [management] has alluded to), we continue to have concerns in the near-term."
Whether Monster can meet its production challenges is the looming question. As the energy drink market continues to shrink, differentiated products will make all the difference. These supply problems with the company's beverages — and the missed opportunities they represent — have featured prominently in earnings since the last calendar year. Consumer forums are full of messages from people who assume their favorite drink has been discontinued, and if production can't ramp up in time, that demand may not be there in the future.