Despite supply chain challenges presenting significant headwinds, Monster Energy Company beat analyst expectations by reporting 13.2% net sales growth to $1.41 billion in its Q3 2021 earnings report, released yesterday.
“We are pleased to report record sales for the third quarter, despite the ongoing impact of the COVID-19 pandemic,” Monster co-CEO Rodney Sacks said in pre-prepared statements. “The energy drink category, and in particular our Monster Energy brand, continues to demonstrate resilience and growth in most of our markets.”
How did these challenges impact earnings?
The rising costs of raw materials, shipping and event marketing left a significant impact on Monster’s sales growth in the quarter, but the company also made moves to secure its supply, procuring a stock of aluminum cans from suppliers in the U.S., South America and Asia. However, its supply remains tight in certain markets, including the U.S., as the company has struggled to keep up with demand.
A report from Goldman Sachs Equity Research called the results “better than expected” but noted that without the can shortage the company’s sales growth could have been as high as 22%. However, consumer demand for Monster remains “very strong” and analysts said they will stay bullish on the company’s long term growth, stating that the company “is executing well against a challenging operating environment, and we expect [Monster] to emerge in a stronger operating position over the [long-term], especially given many of these pressures are likely transitory.”
On an earnings call yesterday, Monster co-CEO Hilton Schlosberg said the company is planning to both raise prices and reduce promotions in 2022 to offset the rising costs, while declining to rule out a further potential “full price increase” later next year. He noted that the company is already executing on this plan where it can, but must also complete annual contracts with a number of retailers that have locked-in pricing and promotion plans.
“We’re not waiting [to raise prices], it’s already being implemented,” Schlosberg said. “Some of it in the third quarter as I mentioned, more will follow in the fourth quarter, and more will follow in Q1 of 2022. I think we’ve got a very interesting position in the market and we’ve got to be careful that whatever we do, we don’t disturb the velocity of what our brand is doing at retail.”
Monster is also moving ahead with its innovation strategy, Sacks said. The company launched True North Pure Energy Seltzer in Q3 exclusively via ecommerce and select retailers, and now plans to expand the product into mainstream channels via Coca-Cola bottlers in Q1 2022.
What were the numbers?
Net sales for the company’s energy drink segment — which includes the Monster Energy, REIGN Total Body Fuel and newly launched True North Pure Energy Seltzers brands — was up 14.3% in Q3 to $1.16 billion. The Strategic Brands segment, which includes energy brands acquired from The Coca-Cola Company and smaller value product lines, was up just 0.2% to $74.4 million, negatively impacted by shortages in concentrate for the NOS brand.
International net sales were up 18.7% to $527.4 million, representing about 37% of total net sales in the quarter, up from 36% last year.
Net sales for Monster’s “Other” segment, including American Fruits and Flavors, LLC products, fell from $8.6 million last year to $6.3 million in Q3 2021.
Gross profit as a percentage of net sales in Q3 was 55.9%, compared to 59.1% in 2020, with the decrease stemming from a rise in aluminum can costs. Operating expenses rose from $277.9 million last year to $344.7 million, with the increase attributed to higher out-bound freight and warehouse costs and high expenditures for sponsorships and endorsements. Operating expenses as a percentage of net sales for Q3 were 24.4%, up from 22.3% in 2020.
Operating income for Q3 was $444.5 million, down from $458.6 million last year. Net income decreased 3% to $337.2 million. As of September 30, the company had $1.71 billion in cash and cash equivalents, $1.22 billion in short-term investments and $28.3 million in long-term investments.
Overall, energy drink category sales in retail rose 12.8% in the 13-weeks ending October 23, according to a NielsenIQ report cited by Sacks during the earnings call. In that period, sales of all Monster branded products rose 10.7% and Full Throttle was up 8.9%, while Reign fell 7.6% and NOS dropped 18.3%.
In the convenience and gas channels, Monster drinks were up 7.4% and Full Throttle increased 7.8%, in the same period. Reign dropped 6.7% and NOS declined 17.5%. Meanwhile, the company’s leading competitors saw differing results; Red Bull climbed 13.1% in the channel, Bang improved 3.4% and 5-Hour Energy was up 1.9%. Sales of PepsiCo-owned Rockstar Energy fell 14.7%.