Monster: Net Sales Grow, But Miss Projections

Monster Energy Corp. recorded total net sales of $1.1 billion in the second quarter of 2019, an 8.7% increase from the same period last year, according to financial results released this morning.

Net sales in the U.S. were up 5.4% from a year ago, while gross sales also rose 8% to $1.29 billion. Foreign currency exchange rates had an unfavorable impact on both net and gross sales of $25.9 million and $30.7 million, respectively.

“We are pleased to report record gross and net sales in the 2019 second quarter, driven by our Reign Total Body Fuel high performance energy drinks, which we launched in the first quarter, as well as growth in our Monster Energy brand energy drinks both domestically and internationally,” said Monster CEO Rodney Sacks in a press release.

Sacks noted the company’s recent international expansion to markets in the Middle East, Latin America and the Caribbean, and reiterated the company’s intention to “introduce a number of new Monster Energy brand energy drinks in the United States” and other markets later this year. These include Monster Mule, Reign Orange Creamsicle, Reign Strawberry Sublime, Reign Mango Magic, Monster MAXX Mango Magic and Monster MAXX Red-Red extra strength with zero sugar, as well as a new line extension for Java Monster.

Monster’s Energy Drinks segment, which includes both its core lineup as well as performance energy sub-brand Reign Total Body Fuel, enjoyed net sales growth of 9.6% from the same period last year. The Strategic Brands segment, comprised of brands acquired from The Coca-Cola Company, was mostly flat, with net sales dipping 0.8% to $79.1 million.

Within the segment, sales of Reign grew 5.6% and fell for Monster (1.4%), NOS (0.6%) and Full Throttle (12.7%) during the quarter. Meanwhile, Java Monster sales jumped 6.6% from the same period last year.

Both distribution costs (3.4% in Q2 2019, compared to 3.7% a year ago) and selling expenses as a percentage of net sales decreased from the same period last year.

Summarizing the results, Wells Fargo Securities equity research director Bonnie Herzog noted that total net sales growth and U.S. sales growth both came in well below analysts’ projections of around 14.7% and 9.2%, respectively. She called the results “a disappointment,” particularly after months of improved performance in tracked channel data and “upbeat feedback” from retailers.

“Despite the stock’s underperformance this month, we see a more negative risk-reward following this evening’s results and are perplexed that [Monster’s] results weren’t better,” she wrote.

Herzog also noted that comments from Monster management in June suggesting the company’s projection of $235 million in net sales for Reign in the June-December period are overly optimistic. She wrote that competitive pressure in the category and low repeat purchase rates (despite a buy-one-get-one promotion) could be to blame, though Wells Fargo remains “cautiously optimistic that Reign can gain share” before the end of the year.

During the Q&A portion of the call, Sacks said that Reign “has continued to perform up to our expectations,” pointing to “reasonably consistent” weekly sales, according to Nielsen data.

“We don’t believe that BOGO tailing off had a marked influence on our sales rate,” he said, adding that the company is “comfortable” with Reign’s velocity to date.