10-QPeriod: Q1 FY2006

Monster Beverage Corp Quarterly Report for Q1 Ended Mar 31, 2006

Filed May 10, 2006For Securities:MNST

Summary

Hansen Natural Corporation, operating as Monster Beverage Corp, reported a significant increase in net sales for the first quarter of 2006, up 99.5% year-over-year to $119.7 million. This strong performance was driven by robust sales volume of its Monster Energy® brand energy drinks, alongside growth from Lost® Energy™ and other brands. The company achieved record net sales and a substantial increase in net income, which rose by 138.5% to $21.1 million. This growth was supported by a higher gross profit margin and improved operating income, reflecting effective cost management and a favorable product mix. The company's operational efficiency also improved, with operating income as a percentage of net sales increasing to 29.1% from 24.5% in the prior year. The balance sheet shows a healthy increase in total assets and stockholders' equity. While cash and cash equivalents decreased from the end of the previous year, likely due to investments in short-term securities, the company maintained a strong liquidity position with significant short-term investments. Overall, the report indicates a period of strong growth and profitability for Hansen Natural Corporation, driven by its core energy drink products.

Key Highlights

  • 1Net sales surged by 99.5% to $119.7 million for the quarter ended March 31, 2006, compared to the same period in 2005.
  • 2Net income increased by 138.5% to $21.1 million, with diluted earnings per share rising to $0.84 from $0.37.
  • 3Gross profit margin improved to 52.6% from 50.5%, driven by a favorable product mix and increased sales of higher-margin products.
  • 4Operating income grew significantly by 136.6% to $34.8 million, with operating income as a percentage of net sales improving to 29.1% from 24.5%.
  • 5The Direct Store Delivery (DSD) segment, primarily energy drinks, saw net sales increase by 139.8% to $100.3 million.
  • 6Cash provided by operating activities more than doubled to $23.8 million, indicating strong operational cash generation.
  • 7The company adopted SFAS 123R, requiring the recognition of stock-based compensation expense, which resulted in $1.9 million in operating expenses for the quarter.

Frequently Asked Questions

The primary driver of the significant net sales growth was the increased sales volume of the Monster Energy® brand energy drinks, alongside contributions from other brands like Lost® Energy™ and Rumba™ energy juice. The company also benefited from an increase in the average net sales price per case.

The adoption of SFAS 123R required the company to recognize compensation expense for share-based payments based on fair value. For the first quarter of 2006, this resulted in $1.9 million of stock-based compensation expense recognized in operating expenses, impacting both net income and earnings per share negatively compared to the prior method. Pro forma figures for Q1 2005 show that recognition of this expense would have reduced reported net income and EPS.

Hansen Natural Corporation reported strong cash flow from operations, exceeding $23 million for the quarter. Despite a decrease in cash and cash equivalents due to investments in short-term securities, the company's liquidity appears robust. Management anticipates that cash from operations, along with its revolving credit facility, will be sufficient to cover working capital needs, debt servicing, and planned capital expenditures for at least the next twelve months.

The company is vigorously opposing a motion to amend a default judgment against an unrelated company to include Hansen Natural Corporation as a judgment debtor, based on an 'alter ego' theory. Management believes this motion is without merit and will not materially affect the company's financial condition. Generally, the company acknowledges being subject to litigation from time to time but believes that, in aggregate, such litigation will not have a material adverse effect on its financial position or results of operations.