With rumors circulating that it may be closing in on a merger deal, Monster Beverage Corporation reported record growth for the fourth quarter and full year 2021 in an earnings report this week, with 2021 net sales up 20.5% to over $5.5 billion.
Despite continued supply chain challenges and inflationary pressures, Monster saw full year sales rise significantly from $4.6 billion in 2020, with gross profit as a percentage of net sales at 56.1%, compared to 59.2% in the year before. The decrease in gross profit was a result of rising costs of aluminum cans and other raw materials, as well as higher freight-in costs and geographical sales mix.
“Currently, the company’s flavor manufacturing facilities, its co-packers, warehouses and shipment facilities and bottlers and distributors are all operating,” said chairman and co-CEO Rodney Sacks in an earnings call. “The company continues to address the challenges in its supply chain as it navigates through the uncertainty of the current global supply chain environment. We are continuing to experience increased costs in our operations, some of which may be transitory, and we have and are in the process of implementing reductions in promotions and other pricing actions in the United States and [Europe, the Middle East and Africa] to mitigate against such increased costs.”
The report comes amid reports that Monster is in negotiations over a potential merger with beer giant Constellation Brands, whose portfolio includes Mexican import brands such as Corona, Modelo and Pacifico. According to Bloomberg, the combined company would have a market value of about $90 billion and a deal could be reached “in the coming weeks.”
On February 17, Monster completed its acquisition of CANarchy Craft Brewery Collective LLC for $330 million, bringing a roster of craft beer brands into its portfolio including Oskar Blues, Cigar City, Deep Ellum, Perrin Brewing, Squatters and Wasatch. Sacks said on the call that CANarchy will continue to operate independently and retain its organizational structure and team.
Though the Constellation Brands rumor was not mentioned during the earnings call, Sacks said the CANarchy acquisition gives Monster “a good base” in beverage alcohol on which to build but is “not the complete answer” to its ambitions in alcohol. Sacks complimented the staff and distribution infrastructure currently in place, while adding that Monster will aim to refine its organization in order to scale and expand.
“We are going to look at taking the distribution system [and] refining a little bit,” Sacks said. “We’re looking at addressing their products and taking steps to invigorate their sales and looking at our own products that we’ve been developing, that we have discussed previously … and deciding where to help to launch those through the CANarchy system. And we will separately address the possible M&A of additional brands, whether in … the malt side, the beer side or the spirit side. Those are things that are opportunities.”
How Did the Company Perform?
According to the company, the earnings results were affected by the inclusion of a $165.1 million non-recurring tax benefit in 2020, as well as reduced marketing, sponsorship and other operating expenses that year due to the pandemic. Operating expenses for 2021 were $1.31 billion, compared to $1.09 billion the previous year and $1.12 billion in 2019.
Operating income for the full year rose to $1.8 billion, up from $1.63 billion in 2020. The effective tax rate also nearly doubled to 23.5%, compared to 13.3% in 2020, primarily due to the non-recurring benefit. Net income fell 2.3% to $1.38 billion, versus $1.41 billion the year before. Net income per diluted share was down 2.4% to $2.57, compared to $2.64 previously. Net income for 2021 excluding the non-recurring tax benefit, the impact of 2020 product returns, inventory provisions and other related costs was up 8.8% to $1.38 billion, compared to $1.27 billion the prior year.
Net sales for Q4 were up 19.1% to $1.43 billion, versus $1.2 billion in 2020. However, net changes in foreign currency exchange rates led to headwinds of $2.4 million in the quarter.
The company’s core energy drink portfolio – including the Monster Energy, Reign Total Body Fuel and True North Pure Energy Seltzers lines – was up 20.7% to $1.35 billion in Q4, up from $1.12 billion the year before (True North, notably, launched in Q3 2021 via ecommerce and in select natural channel retailers).
The Strategic Brands segment, which includes brands such as NOS and Full Throttle, fell 3.5% to $65.6 million in the quarter, mainly due to shortages of flavor concentrates for certain NOS products. Net sales of its “Other” segment of products, including its American Fruits and Flavors, LLC subsidiary, fell to $6 million, down from $6.7 million in Q4 2020.
Overall in the quarter, U.S. sales rose 32% to $508.1 million and gross profit as a percentage of net sales was 53.9%, down from 57.7% in 2020. Operating expenses in Q4 were $354.7 million. Distribution costs for the quarter were up 48.4% to $69.8 million (about 4.9% of net sales).
“We are pleased with the results for the Company in what was a challenging fourth quarter,” said vice chairman and co-CEO Hilton Schlosberg in a statement. “We continued to experience challenges meeting demand in the United States and EMEA in the fourth quarter, largely as a result of a shortage in aluminum cans, the availability of co-packing capacity and procurement difficulties in other inputs. The shortage of shipping containers and global port congestion continues to impact our operations. Due to the actions we have taken to procure additional aluminum cans from domestic sources as well as from imports, and with production from two new aluminum can suppliers in the United States, we currently have sufficient supplies of aluminum cans to meet demand.”
Schlosberg added that the company continues to experience shortages in co-packing capacity for certain product lines, but said the increased costs are “likely to be transitory” as Monster decreases its reliance on imported cans.
What Lies Ahead for Innovation?
In addition to True North in Q3, Monster also launched its “Reserve” line of its core Monster Energy line in two flavors, Watermelon and White Pineapple, in October in the U.S. So far in 2022, the company has debuted two new 12 oz. flavors and new package configurations. This month, Monster debuted four flavor extensions for its 16 oz. line: Ultra Peachy Keen, Juice Monster Auddie Star Lemonade, Rehab Watermelon and Reign Rainbow Sherbet.
In January, the company introduced additional multipack offerings on a number of product lines. In the coming months, Ultra Peachy Keen will be introduced in 12 oz. cans and a Java Monster Nitro Cold Brew line extension is scheduled for Q2 with two lower-calorie offerings – Sweet Black and Latte.