01—Abstract
Summary
Summary of the 10-K filed February 28, 2020. Cited figures are marked; the original filing is the authoritative source.
Monster Beverage Corporation (MNST) closed fiscal 2019 with record results.
Net sales rose 10.3% to $4.20 billiona, driven by the Monster Energy Drinks segment (92.9% of sales, up 11.6%), the launch of Reign Total Body Fuel in Q1 2019, and roughly $101.9 million from U.S. and Canadian price increases. Case sales grew 9.2% to 448.8 million cases, and average net sales per case rose 1.1% to $9.31. Gross margin slipped to 60.0% from 60.3%, mainly due to geographic and product mix, while operating expenses grew 10.3%, with payroll, professional fees, and sponsorships the main drivers.
Operating income increased 9.3% to $1.40 billionb, and net income increased 11.6% to $1.11 billion, or $2.03 per diluted share. Operating cash flow was $1.11 billion, and the company ended the year with $798.0 million in cash and $546.0 million in short- and long-term investments, against no funded debt. The filing also flags concentration and structural risks.
The Coca-Cola Company (TCCC) owns about 19%c of the stock and is the company's preferred distribution partner in the U.S. and internationally. TCCC accounted for about 2% of 2019 net sales directly, but Coca-Cola Consolidated (13%), Reyes Coca-Cola (11%), and Coca-Cola European Partners (10%) are major customers. TCCC also launched its own energy drink, Coca-Cola Energy, in Europe in 2019 and in the U.S. in 2020, after an arbitration award in its favor.
Other risks include the expanding international footprint, which carries more currency and regulatory exposure; potential excise taxes and caffeine or size restrictions on energy drinks; personal injury lawsuits; trademark litigation with Vital Pharmaceuticals over the Reign name; and COVID-19 disruption to China-sourced ingredients and co-packing. The company repurchased about $707 milliond of stock during 2019, and about $536.6 million remained authorized at year-end under the two active programs.
For investors, the central questions are how durable the growth is given the TCCC relationship and the emergence of TCCC's own energy brand, and whether margins can hold as international mix rises and input costs increase. The balance sheet is strong, and cash generation supports continued buybacks.
02—Key points
Key Highlights
- Record net sales of $4.20 billion (+10.3% YoY), with the Monster Energy Drinks segment contributing $3.90 billion (92.9% of sales).
- Net income of $1.11 billion (+11.6%) and diluted EPS of $2.03 (+15.2%); operating margin held at 33.4%.
- Case sales of 448.8 million (+9.2%), with average net sales per case up 1.1% to $9.31, aided by the Nov 2018 U.S. and Feb 2019 Canada price increases (~$101.9M impact).
- Gross margin declined to 60.0% from 60.3%, driven by geographic and product mix; operating expenses rose 10.3% to $1.12 billion.
- Strong liquidity: $798.0M cash and $546.0M of investments; operating cash flow of $1.11B; repurchased ~$707M of stock in 2019 with $536.6M of authorization remaining.
- Concentration risk: TCCC holds ~19% of shares and is the primary distribution partner; TCCC launched Coca-Cola Energy in Europe in 2019 and the U.S. in 2020, a direct competitive threat.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Monster Beverage kept $0.26.
- Revenue$4.20B100.0%
- Cost of revenue−$1.68B40.0%
- Gross profit$2.52B60.0%
- Operating costs−$1.12B26.6%
- Operating income$1.40B33.4%
- Interest, other & tax−$295.1M7.0%
- Net income$1.11B26.4%
Where FY2019 revenue went
$4.20B- Cost of revenue: $1.68B, 40% of revenue
- Operating costs: $1.12B, 27% of revenue
- Net income: $1.11B, 26% of revenue
- Interest, other & tax: $295.1M, 7.0% of revenue
Kept 26% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 28, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $4.20B$3.81B | +10.3% |
| Cost of Revenue | $1.68B$1.51B | +11.3% |
| Gross Profit | $2.52B$2.30B | +9.7% |
| Operating Expenses | $1.12B$1.01B | +10.3% |
| Operating Income | $1.40B$1.28B | +9.3% |
| Net Income | $1.11B$993.00M | +11.6% |
| EPS (Basic) | $0.51$0.45 | +14.6% |
| EPS (Diluted) | $0.51$0.44 | +15.3% |
| Shares Outstanding (Basic) | 2.17B2.23B | −2.7% |
| Shares Outstanding (Diluted) | 2.19B2.26B | −3.1% |
05—Questions
Frequently Asked Questions
What drove the revenue growth in 2019?
Net sales grew 10.3% to $4.20 billion, primarily from Monster Energy Drinks segment growth of 11.6%. Key drivers were the launch of Reign Total Body Fuel in Q1 2019, higher worldwide volume of core Monster Energy products (case sales up 9.2%), and about $101.9 million from price increases in the U.S. and Canada. Unfavorable foreign exchange reduced net sales by about $69.2 million.
How dependent is Monster on Coca-Cola (TCCC)?
Very dependent. TCCC owns about 19% of the stock and has nominated a board director. Its bottlers, including Coca-Cola Consolidated (13% of 2019 net sales), Reyes Coca-Cola (11%), and Coca-Cola European Partners (10%), are the main distributors. TCCC also launched its own energy drink, Coca-Cola Energy, in Europe in 2019 and the U.S. in 2020. Management acknowledges this could divert distributor attention and market share.
Is the balance sheet healthy, and how is cash being returned to shareholders?
Yes. At year-end 2019 the company had $798.0 million in cash and cash equivalents and $546.0 million in investments, with a $10 million revolving credit line and no borrowings outstanding. Operating cash flow was $1.11 billion. Monster repurchased about $707 million of stock in 2019 (including shares withheld from employees), and roughly $536.6 million remained authorized under repurchase programs as of February 2020. The company pays no cash dividends.
What are the main regulatory and litigation risks?
Energy drinks face growing regulation, including excise taxes (such as Mexico's expanded tax effective January 2020 and taxes in several U.S. cities), caffeine limits, age restrictions, can-size limits, and warning-label requirements. The company is defending personal injury wrongful-death lawsuits, which management believes lack merit, and it faces a New York Attorney General inquiry. The company does not believe any of these matters will be materially adverse, but it notes that outcomes are uncertain.
Are margins at risk as the business expands internationally?
Possibly. Gross margin fell 30 basis points to 60.0% in 2019, and management attributes this to geographic and product mix. International gross margins are generally lower than U.S. margins, and international gross sales rose to 33% of the total. Rising aluminum, sweetener, and dairy costs, plus the company's limited ability to hedge raw materials, add further pressure. Partial offsets include pricing and cost management initiatives.
06—Continue