Monster: Company Beats Expectations for Strong Q4

Bolstered by international growth, Monster Beverages Corp. beat analyst expectations in its fourth quarter and full year earnings, reporting a 14.1 percent year-over-year increase in revenue, according to financial results released yesterday by the company.

Net sales of Monster’s energy drinks portfolio were up 15.9 percent from $736 million in 2017 to $853 million for the full year. Net sales for the company’s Strategic Brands portfolio fell 5.4 percent to $65.8 million in the quarter.

Following the report, delivered after markets closed on Wednesday, Monster opened the day up more than 4 points. At close, the company’s stock price was up 8.67 percent at $63.83 per share.

Wells Fargo Securities analyst Bonnie Herzog highlighted the company’s “impressive” 30 percent international growth for the quarter, driven by “robust growth” of 68 percent in Asia and 44 percent in Latin America. Despite the strong overseas growth, Herzog said she remains cautious for the company’s overall business, including increased competition from established brands like Red Bull and emerging energy brands like Bang.

During a conference call with investors and analysts, Monster CEO Rodney Sacks announced several new products in the process of launching, including line extensions for Java Monster (Java Swiss Chocolate), Ultra (Ultra Paradox), Hydro (Hydro Manic Melon and Hydro Mean Green), and NOS (NOS Sonic Sour).

In March, the company will launch two new flavors of its Dragon Tea line and six flavors of its fitness energy drink Reign Total Body Fuel, which is widely viewed as a competitive response to Bang. The Reign line will not feature Monster branding.

“The positioning of Reign is different to the positioning of Monster and we’ve made the strategic decision to not in fact make Reign a line extension of Monster,” Sacks said. “We think it should … have its own positioning, its own marketing, create its own personality and that we believe will give its best chance of success….They have their own personality and identity. So we just felt that this was the appropriate thing for us to do.”

Despite concerns from retailers regarding a 4 percent price increase on the trademark Monster portfolio implemented in November and a lack of promotions, as reported in a recent Wells Fargo survey of convenience stores, Sacks said the company is “pleased with the initial results” of the increase. The company has since implemented a 1.5 percent price increase for the NOS and Full Throttle brands effective January 1 and a 3 percent price increase in Canada on the Monster, NOS, and Full Throttle lines.

“The price increase that was planned was really carefully planned in relation to Red Bulls pricing where there were significant gaps between our price on shelf and where Red Bull was at that time,” said vice chairman and president Hilton Schlosberg. “And what we were able to do with our price increase was move us closer to the Red Bull pricing.”

Herzog said Monster management’s positive comments on the price increase were “encouraging,” but said her firm remains “cautious on the pricing environment given commentary from our retailer contacts around stepped-up promos [and] competition.” She added that the price increase “is having the intended effect of mitigating some of [Monster’s] long-standing margin pressures.”

Sacks also took time to comment on the company’s ongoing arbitration with The Coca-Cola Company after allegations by Monster that the soda giant broke the company’s non-compete clause by announcing an energy product under the trademark Coca-Cola brand. The two companies first entered a strategic partnership in 2015, with Coke taking a 16.7 percent stake in Monster while transferring ownership of its energy drink portfolio including brands like NOS and Full Throttle. As part of the agreement, Coke is barred from competing in the energy drink category.

Arbitration began in October and Coke has since delayed the release of its energy line until April. According to Sacks, Monster “cannot predict with certainty” when arbitration will conclude “but reasonably expect the resolution” sometime during the second quarter of 2019.

Sacks noted that the two companies will continue to work together regardless of the outcome.