10-KPeriod: FY2003

Monster Beverage Corp Annual Report, Year Ended Dec 31, 2003

Filed March 30, 2004For Securities:MNST

Summary

Hansen Natural Corporation (now Monster Beverage Corp.) reported a strong financial performance for the fiscal year ending December 31, 2003. The company achieved record gross and net sales, driven significantly by the success of its Monster Energy™ drink, launched in April 2002, and increased sales of its Natural Sodas, particularly diet versions. This growth was also supported by contributions from Junior Juice and sparkling beverages. While overall sales increased, the company saw decreased sales in some categories like 8.3-ounce energy drinks, smoothies, and E2O Energy Water. The company's profitability improved notably, with operating income more than doubling compared to the previous year, primarily due to higher gross profits. This robust performance was achieved despite increased operating expenses, reflecting the company's strategic focus on developing and marketing its "alternative" beverage category, with a particular emphasis on energy drinks. Hansen Natural Corporation also secured a significant exclusive contract with the State of California's WIC program to supply apple juice and apple grape juice, which is expected to boost distribution and brand exposure, although at potentially lower margins.

Key Highlights

  • 1Record gross and net sales were achieved in 2003, with net sales reaching $110.4 million, a 19.9% increase over 2002.
  • 2Monster Energy™ drink, launched in April 2002, was a primary driver of sales growth, alongside increased sales of Natural Sodas and Junior Juice.
  • 3Gross profit increased by 31.7% to $43.8 million, with gross profit margin improving to 39.7% from 36.1% in the prior year.
  • 4Operating income more than doubled to $9.8 million, reflecting strong sales growth and improved profitability.
  • 5Net income saw a substantial increase of 95.8% to $5.9 million, resulting in diluted EPS of $0.55.
  • 6The company expanded its distribution outside of California, with these sales representing 47% of aggregate sales in 2003, up from 42% in 2002.
  • 7Hansen Natural Corporation secured an exclusive contract to supply apple juice and apple grape juice to the California WIC program, potentially increasing net sales by over $20 million annually.

Frequently Asked Questions

The primary growth driver identified for Hansen Natural Corporation's sales in 2003 was the Monster Energy™ drink, which was introduced in April 2002. This product, along with increased sales of Natural Sodas (especially diet versions), Junior Juice, and sparkling beverages, significantly contributed to the company's record sales.

The company's profitability saw a significant improvement in 2003. Gross profit increased by 31.7% to $43.8 million, and the gross profit margin rose to 39.7%. Operating income more than doubled to $9.8 million, and net income increased by 95.8% to $5.9 million, leading to a diluted earnings per share of $0.55.

Key risks and challenges highlighted include intense competition in the beverage industry, the need for continuous product innovation and differentiation, potential fluctuations in raw material costs (such as aluminum cans, glass bottles, and sweeteners), dependence on third-party bottlers and co-packers, and the potential impact of changing consumer preferences and health trends. The company also faces regulatory risks and the challenge of managing its supply chain and distribution effectively.

Hansen Natural Corporation was awarded an exclusive contract to supply 100% Apple juice and 100% Apple Grape juice to the State of California's WIC program. This contract is expected to significantly expand distribution of Hansen's juices, increase brand exposure, and potentially add over $20 million in annual net sales. However, the company notes that juices sold under this contract will likely have lower profit margins compared to its traditional juice business.