Monster Beverage Corp. said first-quarter net sales rose 14.7% to $850.9 million from $742.1 million in the same period a year ago. Sales to customers outside the U.S. were up 26.8% to $242.1 million, compared to $190.9 million in the year-ago period.
Monster said net income during the period increased 21.4% to $216.1 million versus $178.0 million for the same quarter of 2017.
The company reported net sales for its Monster Energy drinks, Monster Hydro and Mutant Super Soda drinks rose 16.7% to $780.5 million, up from $668.6 million for the same period last year. Net sales of Strategic Brands — including NOS Energy Drink, Full Throttle and nine smaller brands previously owned by Coca-Cola — dropped 3.3% to $65.8 million.
Monster is expanding its international presence, which explains why net sales in that category showed the largest growth rate during the quarter. It's also enhancing its profile in the U.S. with relaunches and rebrands. Rodney Sacks, Monster's chairman and CEO, said the company is building out its strategic alignment with Coca-Cola system bottlers and just completed the transition in Minnesota during the first quarter.
Monster's growth strategy is bolstering its bottom line even while many consumers turn to clean-label and all-natural beverages such as sparkling waters, teas and kombucha. According to Market Research Hub, the increasing pace of work and lifestyles are driving a demand for energy drinks containing ingredients such as ginseng and caffeine that can enhance productivity.
The market for energy drinks is expected to increase at a CAGR of 8.86% between 2017 and 2021, the research company said. Energy drink sales in U.S. convenience stores hit $8.4 billlion last year, according to Mordor Intelligence figures reported by Forbes.
But despite the increase in sales and net income during the most recent period, the company cautioned about margin pressure going forward as a result of higher input costs for aluminum, fuel and freight. "There are, of course, many factors that go into gross margin, some of which are one-off costs and some of which may well be ongoing as we experienced in Q1," Hilton Hiller Schlosberg, Monster's COO, said in the company's earnings call.
Bonnie Herzog, an analyst with Wells Fargo Securities, called the quarter "disappointing" and expressed concern about Monster's ability to pass on higher expenses to its customers.
"We remain concerned about continued gross margin pressure and MNST’s ability to take pricing in light of mounting headwinds facing c-stores (contrary to what MNST reports) from rising gas prices and a strained low income consumer," Herzog said in a note following the earnings report. "We are left rather uninspired and on the sidelines for the time being."
The recent climb in gas prices can have a meaningful impact on companies like Monster. As fuel costs increase, c-store customers, especially those with limited incomes, spend more of their dollar on gasoline, leaving them with less to spend for other purchases such as an energy drink.
Monster is the No. 2 energy drink company in the U.S., second only to Red Bull. It seems to have solved supply problems reported last year and is rapidly expanding both here and overseas in markets where its bottling and distribution arrangement with Coca-Cola are major assets. While the company faces headwinds going forward, they do not seem to reflect any problems with the Monster products themselves.