Monster Beverage Corp. beat analysts’ expectations during the first quarter of 2019, reporting strong sales growth despite facing increased competition in the energy category.
Net sales for the company in the first quarter were $946 million, up 11.2% from $850.9 million in 2018, according to financial results released yesterday. Gross profit as a percentage of net sales was 60.6%. Distribution costs as a percentage of net sales were 3.8%, down by 0.1% from the first quarter of 2018, while selling expenses as a percentage of net sales were 11%, down by 0.5% from 2018. Net income was $261.5 million in the first quarter, compared to $216.1 million in 2018, a 21% increase.
Net sales for Monster Energy Drinks, which represents the company’s core product line as well as the recently launched Reign Total Body Fuel, were up 11.5% during the first quarter to $870.4 million. The Strategic Brands division, a portfolio which includes former Coke energy drink brands among others, climbed 6.9% to $70.3 million during the period.
Net changes in foreign currency exchange rates had a negative impact on both the Drinks ($18.2 million) and Strategic Brands ($3.8 million) segments.
According to CEO Rodney Sacks, Monster is continuing “to make good progress” on its strategic alignment with Coca-Cola bottlers, as the company transitions its distribution wholly into the Coke network. Sacks said the company has made a smooth transition since moving in March from longtime New York metro area partner Big Geyser to Liberty Coca-Cola. As of April 6, Monster’s U.S. distribution “has been fully transition to all Coca-Cola network bottlers,” he said.
Reign Total Body Fuel, Monster’s answer to the rise of fitness energy brand Bang, got off to a strong start in March, with initial shipment sales of $25.5 million. The company is evaluating an international expansion for Reign in the second half of 2019, Sacks said. According to Nielsen data for the four week period ending April 20, Reign has taken a 1.7% share of the energy category in the convenience and gas channel.
Comparatively, Monster’s core line holds a 34.1% market share — a four point decline from the same period in 2018. Bang-maker VPX Pharmaceuticals, however, held an 8.3% share.
“Obviously, there is a new entrant and participant in the category,” Sacks said in the Q&A portion of its earnings call, referring to Bang. “It’s taking share from all the products. But ultimately we do believe that Reign will continue to increase itself and establish itself. That is the reason why we’re actually looking at the first promotion we got with Reign. It hasn’t been promoted until now. And so you got to get the first promotion coming through in the second quarter on Reign. And we will continue to pull out..”
Sacks also gave an update on Monster’s various ongoing litigations. In its lawsuit against The Coca-Cola Company — which Monster claims is violating the terms of its non-compete clause by launching a three-SKU line of Coca-Cola branded energy drinks — Sacks said arbitration proceedings are still ongoing but that a decision from the arbitrators is expected by the end of the second quarter.
“Although Coca-Cola has announced it is proceeding to launch new energy drinks in certain countries without waiting for the arbitration panel to rule on the issue, Coca-Cola’s entitlement to continue to sell such drinks will be governed by the outcome of the arbitration,” Sacks said. “We reiterate that whatever the outcome of the arbitration, we will continue to cooperate and work together as partners.”
Sacks also commented on the ongoing legal battles between Monster and VPX Pharmaceuticals, the makers of Bang. In September 2018, Monster filed a lawsuit against VPX alleging the company had engaged in false advertising by making “false and unsupported claims that Bang contains ingredients that it does not have and provide benefit that it does not generate.” According to Sacks, Monster filed a motion for preliminary injunction in April, which is scheduled for a hearing in June.
In March, VPX hit back at Monster with a trademark lawsuit in response to the launch of competing performance energy line Reign Total Body Fuel. Sacks called the lawsuit “meritless,” noting that after Monster announced the launch of Reign in January, VPX allegedly purchased the “Reign” trademark for a line of dietary supplements. Sacks said the company has filed a reply to VPX’s complaint and that the lawsuit “will not impede or slow the launch of Reign Total Body Fuel.”
Wells Fargo Securities analyst Bonnie Herzog reported that Monster’s first quarter results were “better-than-expected.” However, Herzog said she remains cautious on the company, citing several concerns including that the company’s pricing “is not fully sticking” amid weak volumes and that increased competition from brands including Bang, C4, Uptime, and now Coke may continue to eat into Monster’s market share.
“In short, we remain cautious given feedback from our retailer contacts & continue to see a negative risk-reward for [Monster] in 2019 given heightened uncertainty related to increased competitive pressures from Bang/Red Bull & ongoing arbitration with [Coke],” Herzog said.
The positive earnings results, however, appeared to give Monster a boost at the opening of the stock market today. The company began the day with a nearly 5 point jump and as of press time its stock price was up 9.93% at $63.75 per share.