01—Abstract
Summary
Summary of the 10-K filed February 29, 2012. Cited figures are marked; the original filing is the authoritative source.
Monster Beverage Corporation (formerly Hansen Natural, ticker MNST as of January 9, 2012) reported record results for fiscal 2011, driven almost entirely by its Monster Energy® drinks.
Gross sales rose 31.0% to $1,950.5 milliona and net sales rose 30.6% to $1,703.2 million, with Monster Energy® brand energy drinks accounting for about 96.7% of the gross sales increase. Operating income grew 31.2% to $456.4 million, and net income increased 35.0% to $286.2 million, or $1.53 per diluted share on a post-split basis. Gross margin was stable at 52.5% of net sales, while operating expenses grew 31.7%, mainly on sponsorships, advertising and freight.
Operating cash flow was $333.8 millionb, and the company ended the year with $793.8 million in cash, cash equivalents and investments, plus no borrowings under its $10 million credit line. The filing also flags concentration and regulatory risk. The DSD segment, which is almost entirely energy drinks, produced 94.4% of net sales, and Coca-Cola Refreshments USA alone accounted for about 29% of net sales.
Several jurisdictions are weighing energy-drink taxes or age restrictions, Mexico and Hungary have already enacted taxes, and the company relies on third-party co-packers and limited-source ingredients. Legal exposure includes securities class actions over 2006–2007 disclosures, which remain unresolved, and a Canadian consumer class action. The company also holds about $44.8 millionc (face value) of auction rate securities, which carry impairment and liquidity risk.
A two-for-one stock split took effect February 15, 2012, and the board authorized a new $250 milliond repurchase program in October 2011, though no shares were bought under it in 2011. For investors, the central question is durability: whether Monster's international expansion and new product launches can sustain growth as the category matures and regulatory pressure builds, given the heavy dependence on one brand family and one distributor network.
02—Key points
Key Highlights
- Record fiscal 2011 net sales of $1,703.2 million, up 30.6% year over year, with gross sales up 31.0% to $1,950.5 million
- Monster Energy® brand drove about 96.7% of the gross sales increase; energy drinks made up roughly 92% of net sales
- Operating income rose 31.2% to $456.4 million (26.8% margin); net income rose 35.0% to $286.2 million
- Gross margin held near 52.5%, while operating expenses grew 31.7% on sponsorships, advertising and freight
- Operating cash flow of $333.8 million and $793.8 million in cash and investments; no borrowings on the $10 million credit line
- Heavy concentration risk: DSD segment was 94.4% of net sales and CCR accounted for about 29% of net sales
- Pending legal and regulatory exposure: unresolved securities class actions, a Canadian class action, and energy-drink taxes or age limits in several jurisdictions
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Monster Beverage kept $0.17.
- Revenue$1.70B100.0%
- Cost of revenue−$808.9M47.5%
- Gross profit$894.3M52.5%
- Operating costs−$437.9M25.7%
- Operating income$456.4M26.8%
- Interest, other & tax−$170.2M10.0%
- Net income$286.2M16.8%
Where FY2011 revenue went
$1.70B- Cost of revenue: $808.9M, 47% of revenue
- Operating costs: $437.9M, 26% of revenue
- Net income: $286.2M, 17% of revenue
- Interest, other & tax: $170.2M, 10.0% of revenue
Kept 17% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 29, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $1.70B$1.30B | +30.6% |
| Cost of Revenue | $808.92M$623.70M | +29.7% |
| Gross Profit | $894.31M$680.24M | +31.5% |
| Operating Expenses | $437.89M$332.43M | +31.7% |
| Operating Income | $456.42M$347.81M | +31.2% |
| Net Income | $286.22M$212.03M | +35.0% |
| EPS (Basic) | $0.14$0.10 | +35.0% |
| EPS (Diluted) | $0.13$0.09 | +34.2% |
| Shares Outstanding (Basic) | 2.11B2.12B | −0.5% |
| Shares Outstanding (Diluted) | 2.24B2.23B | +0.3% |
05—Questions
Frequently Asked Questions
What drove Monster's revenue growth in fiscal 2011?
Growth came almost entirely from the Monster Energy® brand, which accounted for roughly 96.7% of the increase in gross sales. Case volume rose 27.6% to 164.7 million cases, while average net sales per case increased 2.4% to $10.34, reflecting a richer mix of higher-priced energy drinks. Pricing changes had no material impact.
How concentrated is Monster's business and distribution?
Very concentrated. The DSD segment, which consists primarily of energy drinks, produced 94.4% of 2011 net sales. Coca-Cola Refreshments USA accounted for about 29% of net sales, and the company depends on a small set of distributors, including TCCC bottlers, Anheuser-Busch distributors and Coca-Cola Hellenic. Losing any of these relationships could materially affect results.
What are the main regulatory risks to the energy drink business?
Several governments are considering or have adopted measures such as excise taxes, age restrictions for buyers and limits on where energy drinks can be sold. Mexico imposed a 25% excise tax in January 2011 and Hungary introduced a tax, both of which required product reformulation. The filing warns that broader adoption could reduce demand and hurt results.
Are there any significant unresolved legal matters?
Yes. Securities class action and derivative suits tied to 2006–2007 disclosures about the Anheuser-Busch relationship and channel stuffing are still pending, and the company cannot estimate a loss range. A Canadian class action seeks CDN$25 million in combined damages, which the company considers without merit. A Blue Sky labeling class action reached a preliminary settlement in February 2012, and management does not expect it to be material.
06—Continue