Monster reports strong sales gains, but margin pressures persist
- Monster Beverage said net sales rose 12% to $1.02 billion in its second financial quarter, marking the first time the beverage maker has ever reported sales exceeding $1 billion, according to a company release. These results were in line with Wall Street expectations. Still, the California-based beverage maker said its performance was negatively impacted by higher costs for promotions and raw materials, such as aluminum cans.
- Net income jumped 21% to $270.1 million, matching the previous quarter's growth rate and topping investor expectations. Gross profit climbed to $620.3 million. The company also reported 14% year-over-year growth in its Monster energy drink category, which makes up about 91% of its revenue. Revenue in Monster's strategic brands division — which includes NOS Energy Drink, Full Throttle and nine smaller brands previously owned by Coca-Cola — fell 7%.
- Rodney Sacks, Monster's CEO, said in the release that the company will continue to improve its strategic alignment with Coca-Cola system bottlers, and noted that international product launches were helping to spur future growth.
Monster's investments in international expansion seem to be paying off, with sales to non-U.S. customers spiking nearly 20% to $293.8 million during the second quarter compared to a year earlier. In the earnings release, Sacks pointed to the company's successful launch of its Monster Energy brand with Coca-Cola bottlers in Belarus, Tanzania, Uruguay and most recently Equador, as well as relaunch in select cities in India. Sacks said the beverage maker also is "planning further international launches later this year."
This opportunity for international growth reflects the state of the U.S. market, as increasingly hectic work schedules and consumer lifestyles are driving demand for energy drinks that enhance productivity. According to Market Research Hub, the energy drinks market is expected to grow at a compound annual growth rate of 8.86% between 2017 and 2021.This sunny outlook for the segment is interesting, given growing consumer demand for clean label and all-natural beverages such as tea, sparkling seltzer and kombucha.
Still, international growth was weaker than expected, Wells Fargo Securities analyst Bonnie Herzog wrote in a note, calling Monster's overall results during the quarter "generally mixed."
Sacks said the company is making "good progress" implementing its strategic alliance with Coca-Cola bottlers both at home and abroad, and has made gains in non-traditional channels such as foodservice and e-commerce in the U.S. Last year, energy drinks sales in U.S. convenience stores hit $8.4 billion, according to Mordor Intelligence figures reported by Forbes.
In the latest quarter, Monster's switch to a new accounting system and margin pressures resulting from higher input costs for aluminum, fuel and freight weighed on its results.
"Looking forward, while we are optimistic that margins seem to be stabilizing, we nonetheless expect pressure to continue until late Q4/early 2019 (when U.S. pricing begins to take effect)," Herzog wrote.
Surging gas prices have been bruising the broader food and beverage industry for some time, especially on brands such as Monster that rely heavily on convenience store channels to reach their target customers. As fuel costs spike, consumers stopping to fill up their tanks have less money to spend on extra purchases like energy drinks.
Though these headwinds could prove challenging for the beverage maker throughout its 2018 fiscal year, Monster's products are still resonating with consumers — its namesake product is second only to Red Bull in the U.S. market. Going forward, it will be interesting to see if the company relies on more relaunches of its products to capture consumer interest, or innovates to better cater to health-conscious consumers. It also may consider looking for ways to get more value out of the Coca-Cola brands it acquired, which could provide meaningful long-term growth.
- Monster Beverage Monster Beverage Reports 2018 Second Quarter Financial Results
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