While many of you may be familiar with the Monster brand, some of you may not know that MNST entered into a deal with KO back in August of 2014 for the right of ownership of certain energy drink brands in exchange for an equity stake in MNST. Brands MNST gained ownership include NOS, Full Throttle, Burn, Mother, Play and Power Play.
Getting back to the results, MNST reported worse than expected Q1 earnings per share (EPS) of $0.31 on mostly in-line revenues which rose 9.1% compared to a year ago to $742.1 million. The company’s top line was aided by strength across brands and segments. Management noted that Q1 results were adversely impacted by distributor terminations, the strength of the United States dollar and production shortages of our Java Monster and Muscle Monster products.
Net sales for the company’s Monster Energy Drinks segment, which is comprised of the company’s Monster Energy drinks, as well as Mutant Super Soda drinks, increased 7.5% to $668.6 million for the 2017 first quarter, from $621.7 million for the same period last year.
Net sales for MNST’s Strategic Brands segment, which includes the various energy drink brands acquired from KO, increased 16.4% to $68.0 million for Q1, from $58.5 million in the comparable 2016 quarter.
Lastly, net sales for MNST’s Other segment, which includes certain products of American Fruits & Flavors sold to independent third parties, were $5.5 million for Q1.
Results were also strong outside the United States. Net sales to customers outside the US rose to $190.9 million in Q1, from $149.1 million in the corresponding quarter in 2016. To that end, management commenced distribution of Monster Energy drinks with the Coca-Cola bottler in Nigeria as well as in certain other countries during the Q1. In China during Q1, MNST continued with launches in Tianjin, Hebei, Shandong, Henan, Anhui, Zhejiang and Jiangsu. They also extended distribution in the Guangdong province. Further launches are planned in China and in other countries, including a relaunch in India in 2017. The company also expanded distribution of Monster Energy Ultra Violet and launched Full Throttle Orange in the first quarter of 2017.
Management also commented on the conference call that April sales were tracking well. Specifically, MNST noted April 2017 gross sales are expected to be about 9.5% higher than in April 2016 on one fewer selling day than a year ago.
Action in MNST stock today is fairly simple to explain; while the bottom line result was modestly lower than expected, MNST has been staring in the face of some pretty hefty growth during the past few years. As the company has made a name for itself domestically, investors and those at the company have opined to expand overseas. It’s safe to say that given today’s reaction, investors were pleased with what they heard from management about international expansion progress. The path for growth in the future for MNST starts with keeping up with demand. As it was suggested given production shortages of Java Monster and Muscle Monster products in Q1, MNST will have to keep an eye on supply vs demand going forward if they are to keep customers coming back for more Monster beverages in the face of increased competition in the energy drink market.