01—Abstract
Summary
Summary of the 10-K filed March 1, 2018. Cited figures are marked; the original filing is the authoritative source.
Monster Beverage (MNST) closed fiscal 2017 with record results: net sales rose 10.5% to $3,369.0 milliona, gross profit rose 10.1% to $2,137.7 million (63.5% of sales, down slightly from 63.7%), and operating income grew 10.5% to $1,198.8 million, a 35.6% operating margin that was flat year over year.
Net income increased 15.2% to $820.7 millionb, and diluted EPS rose 19.7% to $1.42. The growth was driven by the core Monster Energy brand, whose net sales reached $3,035.2 million (about 90% of total sales). Case volume grew 12.2% to 360.0 million cases, while average net sales per case fell 1.6% to $9.30, mainly due to geographic mix.
Operating cash flow was $987.7 millionc, up from $701.4 million, and year-end cash, short-term investments and long-term investments totaled roughly $1.2 billion. The company remains heavily dependent on its relationship with The Coca-Cola Company (TCCC), which accounted for approximately 18% of 2017 net sales (down from 41% in 2016 as TCCC's North America refranchising shifted territories to independent bottlers) and owns roughly 18% of shares outstanding. Investors should also note the concentration of revenue in energy drinks, ongoing product-liability lawsuits, a New York Attorney General inquiry, and growing global regulation of energy drinks, including sugar and caffeine taxes and age restrictions.
The 2017 results include a provisional $39.8 milliond charge from remeasuring deferred tax assets under the Tax Cuts and Jobs Act, and distributor termination costs of $35.4 million. Management also authorized a new $250 million share repurchase program in February 2018, bringing total repurchase capacity to $500 million.
For 2018, the company is pursuing international growth through its TCCC distribution partnership, cost management, and new product introductions. Management provides no formal financial guidance, and results remain sensitive to consumer health perceptions and regulatory developments.
02—Key points
Key Highlights
- Record net sales of $3,369.0M (+10.5% YoY), with Monster Energy brand sales of $3,035.2M representing ~90% of total revenue
- Net income up 15.2% to $820.7M; diluted EPS of $1.42 (+19.7%), helped by a lower effective tax rate of 31.7% versus 34.0% in 2016
- Gross margin held near 63.5%, and operating margin was stable at 35.6%, showing consistent profitability despite higher spending on sponsorships and promotions
- Case volume rose 12.2% to 360.0M cases, though average net sales per case fell 1.6% to $9.30 due to geographic mix
- International gross sales reached $1,094.8M (28% of gross sales), up from 25% in 2016, reflecting expansion into new markets such as China and Africa
- TCCC concentration risk: TCCC accounted for ~18% of 2017 net sales (down from 41%) and owns ~18% of shares; CCBCC Operations accounted for 13%
- Strong liquidity with $1.2B in cash and investments and $987.7M of operating cash flow; $250M new buyback authorized in February 2018 ($500M total capacity)
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Monster Beverage kept $0.24.
- Revenue$3.37B100.0%
- Cost of revenue−$1.23B36.5%
- Gross profit$2.14B63.5%
- Operating costs−$938.9M27.9%
- Operating income$1.20B35.6%
- Interest, other & tax−$378.1M11.2%
- Net income$820.7M24.4%
Where FY2017 revenue went
$3.37B- Cost of revenue: $1.23B, 37% of revenue
- Operating costs: $938.9M, 28% of revenue
- Net income: $820.7M, 24% of revenue
- Interest, other & tax: $378.1M, 11% of revenue
Kept 24% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed March 1, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $3.37B$3.05B | +10.5% |
| Cost of Revenue | $1.23B$1.11B | +11.2% |
| Gross Profit | $2.14B$1.94B | +10.1% |
| Operating Expenses | $938.90M$856.66M | +9.6% |
| Operating Income | $1.20B$1.09B | +10.5% |
| Net Income | $820.68M$712.68M | +15.2% |
| EPS (Basic) | $0.36$0.30 | +19.8% |
| EPS (Diluted) | $0.35$0.30 | +19.3% |
| Shares Outstanding (Basic) | 2.27B2.35B | −3.6% |
| Shares Outstanding (Diluted) | 2.31B2.40B | −3.8% |
05—Questions
Frequently Asked Questions
Why did net sales growth come with a lower average price per case?
Average net sales per case fell 1.6% to $9.30 in 2017 mainly because of geographic sales mix. International markets generally carry lower per-case net pricing and gross margins than the U.S., and the Strategic Brands segment, which sells concentrates to bottlers, also has a lower per-case net revenue than Monster Energy drinks. Volume growth more than offset the price decline.
How much does the company depend on The Coca-Cola Company?
Substantially. TCCC is the company's preferred global distribution partner, and TCCC's distribution network has taken over most U.S. distribution rights. TCCC accounted for about 18% of 2017 net sales, down from 41% in 2016 because of TCCC's North America refranchising, which moved territories to independent bottlers. TCCC also owns about 18% of outstanding shares and has nominated two directors. Its non-compete obligations in Europe run through June 2018 and in other territories through June 2020, and it has rights that could influence a change of control.
What were the one-time items affecting 2017 results?
The main items were a provisional $39.8 million tax charge from remeasuring U.S. net deferred tax assets to the new 21% corporate rate, a $2.1 million charge for the one-time deemed repatriation tax, and $35.4 million of distributor termination costs, which were down from $79.8 million in 2016. Excluding these items, underlying profitability would have been somewhat higher.
What legal and regulatory risks do investors need to watch?
The company faces several personal injury lawsuits alleging that Monster Energy drinks caused death or serious injury, which management believes lack merit. A New York Attorney General investigation into marketing and ingredients is ongoing, and the outcome is unknown. Regulation is also expanding globally, including excise taxes on sweetened beverages (such as in France, Mexico, Hungary and the Gulf states), caffeine limits, age restrictions, and proposed container-size limits. Any of these could affect demand or costs.
How strong is the balance sheet and how is capital being returned?
The balance sheet is strong. At year-end 2017 the company held $528.6M in cash, $672.9M in short-term investments and $2.4M in long-term investments, with no funded debt beyond small capital leases and a credit line that was undrawn. The company has never paid cash dividends. Capital is returned through share repurchases: $361.2M was spent on buybacks in 2017, and a new $250M authorization was approved in February 2018, for $500M of total capacity.
06—Continue