01—Abstract
Summary
Summary of the 10-K filed March 1, 2023. Cited figures are marked; the original filing is the authoritative source.
Monster Beverage's FY2022 10-K shows a company still growing strongly at the top line but with sharply compressed profitability.
Net sales rose 13.9% to a record $6.31 billiona, driven by higher Monster Energy brand volumes (energy drink case sales up 14.4% to 701.7 million cases) and pricing actions, with international sales reaching about 37% of the total. However, gross margin fell from 56.1% to 50.3% on freight, aluminum can, ingredient and co-packing cost inflation, and operating expenses rose 21.3%, so operating income declined 11.8% to $1.58 billion and net income fell 13.5% to $1.19 billion (diluted EPS $2.23 versus $2.57). Management said pricing actions and improved logistics began lifting margins in the second half of 2022.
The balance sheet remains very strong, with $1.31 billionb in cash, $1.36 billion in short-term investments and $3.76 billion of working capital, and operating cash flow was $887.7 million, down from $1.16 billion. Capital was returned through buybacks totaling $771 million in 2022, and $682.8 million of authorization remained as of March 1, 2023. The company also entered the alcohol beverage category via the $329.5 million CANarchy acquisition, which produced a $31.5 million operating loss in its partial first year.
Investors should weigh the strong brand momentum and cash position against margin pressure, reliance on The Coca-Cola Company's distribution network and TCCC's roughly 19.5%c stake, and the pending VPX/Bang litigation award that has not been recognized. As a note on timing, the filing was dated March 1, 2023, and the company announced a 2-for-1 stock split on February 28, 2023, which is reflected in the subsequent events note and should be considered when comparing per-share figures.
02—Key points
Key Highlights
- Record net sales of $6.31 billion, up 13.9% year over year, with energy drink case sales up 14.4% to 701.7 million cases
- Gross margin compressed to 50.3% from 56.1% due to freight, fuel, aluminum can, ingredient and co-packing cost inflation
- Operating income fell 11.8% to $1.58 billion; net income declined 13.5% to $1.19 billion, with diluted EPS of $2.23 versus $2.57
- Strong liquidity with $1.31 billion cash and $1.36 billion short-term investments; operating cash flow of $887.7 million
- Returned capital through $771 million of share repurchases in 2022; $682.8 million of authorization remained as of March 1, 2023
- Entered alcohol beverages via the $329.5 million CANarchy acquisition, which posted a $31.5 million operating loss in its partial year
- Concentration risk: The Coca-Cola Company holds about 19.5% of shares and its bottler network is the primary distribution channel; top bottlers account for roughly 33% of net sales combined
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, Monster Beverage kept $0.19.
- Revenue$6.31B100.0%
- Cost of revenue−$3.14B49.7%
- Gross profit$3.17B50.3%
- Operating costs−$1.59B25.2%
- Operating income$1.58B25.1%
- Interest, other & tax−$393.1M6.2%
- Net income$1.19B18.9%
Where FY2022 revenue went
$6.31B- Cost of revenue: $3.14B, 50% of revenue
- Operating costs: $1.59B, 25% of revenue
- Net income: $1.19B, 19% of revenue
- Interest, other & tax: $393.1M, 6.2% of revenue
Kept 19% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2022filed March 1, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $6.31B$5.54B | +13.9% |
| Cost of Revenue | $3.14B$2.43B | +28.9% |
| Gross Profit | $3.17B$3.11B | +2.1% |
| Operating Expenses | $1.59B$1.31B | +21.3% |
| Operating Income | $1.58B$1.80B | −11.8% |
| Net Income | $1.19B$1.38B | −13.5% |
| EPS (Basic) | $0.56$0.65 | −13.1% |
| EPS (Diluted) | $0.56$0.65 | −13.2% |
| Shares Outstanding (Basic) | 2.11B2.12B | −0.4% |
| Shares Outstanding (Diluted) | 2.13B2.14B | −0.5% |
05—Questions
Frequently Asked Questions
Why did Monster's profit fall even though sales grew nearly 14%?
Gross margin dropped about 580 basis points, from 56.1% to 50.3%, as freight, fuel, aluminum can, ingredient and co-packing costs rose faster than pricing. Operating expenses also grew 21.3%, driven by G&A, freight and warehouse costs, and selling and marketing spend, so operating income fell 11.8%.
Is Monster's pricing power recovering?
Management implemented a U.S. price increase effective September 1, 2022, along with international price increases and reduced promotions. These actions improved gross margins in the third and fourth quarters of 2022 compared with the second quarter, though the full-year margin still declined. Net sales per case fell 1.9% to $8.82, partly due to geographic and product mix.
How concentrated is Monster's distribution and ownership?
Monster relies heavily on Coca-Cola bottlers. TCCC network bottlers handle U.S. distribution and most international territories, and TCCC owns about 19.5% of the common stock, with one board nominee. Coca-Cola Consolidated, Reyes and Coca-Cola Europacific Partners together accounted for about 33% of 2022 net sales. The company also notes that disagreements over TCCC agreement terms could arise.
What is the status of the VPX (Bang Energy) litigation?
A September 2022 jury awarded Monster Energy Company about $293 million in false advertising and trade secret damages against Vital Pharmaceuticals. A separate April 2022 arbitration award of $175 million plus a 5% royalty was confirmed by the court, but VPX has appealed and filed for Chapter 11 in October 2022. Monster made no accounting recognition of either award because they are not yet realized or realizable, and VPX made a first $3.6 million royalty payment in February 2023 subject to clawback.
Does the company have any debt or dividend policy investors should know about?
Monster carries essentially no debt. Its only borrowings are a small line of credit in China ($7.8 million outstanding) and an undrawn $10 million Comerica revolver. The company has never paid cash dividends and does not expect to in the foreseeable future, instead returning capital through buybacks and stock splits, including the 2-for-1 split announced on February 28, 2023.
06—Continue