Monster Beverage Corp. posted strong topline numbers in its Q1 2022 earnings report on Thursday, as net sales rose 22.1% to over $1.5 billion. Yet increased pricing in aluminum and continuing supply chain obstacles pushed distribution costs up by nearly 50% and operating expenses north of $377 million for the quarter, driving a 6.7% drop in net income for the energy drink company.
Rising Costs Hamper Profits
“As in recent quarters, to meet increased demand for our products, rather than experience out-of-stocks for certain lines at retail, the company incurred operational inefficiencies in the United States and in various countries, resulting in increased costs,” Monster co-CEO Rodney Sacks said in the earnings call. “The company also experienced a significant increase in ingredient and other input costs, secondary packaging materials, co-packing fees and production inefficiencies.”
Sacks reported that the company invested in two new domestic suppliers of aluminum to help offset skyrocketing prices for the material, up 65% in Q1 2022 from the same period in 2021. However, he cautioned that the impact of this strategy won’t show many results until the latter half of 2022 as the company sells existing inventory. Increased aluminum, packaging and raw materials prices cost Monster approximately $45 million during the quarter.
Higher transportation costs, including freight rates and fuel, also impacted gross profits by approximately $6 million.
In light of these headwinds, Monster announced a net sales price increase in the range of 6% in the United States effective September 1. This comes on the heels of pricing actions that the company started taking in the second half of 2021.
“We believe in the power of our brand,” Monster co-CEO Hilton Schlosberg said. “We believe that this pricing action is justified. It’s certainly justified in terms of all the cost increases.”
New product launches and CANarchy acquisition keep Monster optimistic for future
With energy drinks proving their enduring appeal – category sales rose 12.8% over the 52-weeks ended on April 23, according to Nielsen data – Monster has sought to both drive innovation and explore M&A to press its advantage against a growing competitive field. Earlier this year, the brand introduced new flavors for its Ultra, Juice Monster, Rehab and REIGN lines, as well as launching its zero-calorie energy seltzer product, True North, for distributing via Coca-Cola’s national network.
The energy drink company continues to dabble in beverage alcohol as well. In February, it completed its acquisition of the CANarchy Craft Brewery Collective, producers of craft beer and hard seltzer products, though its rumored merger with Constellation Brands has yet to happen.
Meanwhile, Monster is awaiting a judge’s final confirmation of a $175 million arbitration award – as well as an ongoing 5% royalty on all future net sales of Bang products – after winning its trademark dispute, alongside co-plaintiff Orange Bang, Inc., against Vital Pharmaceuticals Inc. (VPX), the maker of Bang Energy Drinks. A separate lawsuit filed by Monster against VPX over false advertising, unfair competition, and misappropriation of trade secrets is set to go to trial in August.
Net sales for the Company’s Monster Energy Drinks segment, which primarily includes the Company’s Monster Energy drinks, Reign Total Body Fuel high performance energy drinks and True North Pure Energy Seltzer energy drinks, increased 20% to $1.40 billion for Q1 2022, from $1.17 billion for Q1 2021.
The company’s Strategic Brands segment, which includes affordable energy brands and the various energy drink brands acquired from The Coca-Cola Company, netted $92.6 million in Q1, a 36.6% jump from Q1 2021.
Net sales for Monster’s Alcohol Brands segment – which comprises the various craft beers and hard seltzers acquired with CANarchy – were $15.2 million for the first quarter.
Analysts for Goldman Sachs Equity Research backed Monster’s strategy to ride out “transitory” cost pressures and continue to prioritize meeting demand; the firm is raising its topline estimates for the next three quarters.
More of the numbers
Gross profit, as a percentage of net sales, for the 2022 first quarter was 51.1 percent, compared with 57.5 percent in Q1 2021.
Distribution costs for the Q1 2022 were up to $81.4 million, a 49.7% hike from the same period last year. Operating income decreased from $414.1 million in Q1 2021 to $399.5 million in the most recent quarter.
As of March 31, the Company had $1.01 billion in cash and cash equivalents, $1.72 billion in short-term investments and $65.7 million in long-term investments.