10-QPeriod: Q2 FY2006

Monster Beverage Corp Quarterly Report for Q2 Ended Jun 30, 2006

Filed August 9, 2006For Securities:MNST

Summary

Hansen Natural Corporation, now known as Monster Beverage Corp., reported strong financial performance for the second quarter ended June 30, 2006. The company experienced significant growth in net sales, which increased by 82.6% year-over-year, reaching $156.0 million. This surge was primarily driven by the robust sales volume of its Monster Energy® brand energy drinks and other products. Net income also saw a substantial increase of 85.0%, reaching $28.2 million for the quarter. The company's Direct Store Delivery (DSD) segment, which includes energy drinks, was the main growth engine, with net sales up 106.0%. The Warehouse segment also showed growth, albeit at a slower pace. Management highlighted increased sales of Monster Energy® Khaos™ and other Monster variants as key contributors. Despite rising costs for raw materials like sucrose and increased operating expenses, the company managed to improve its gross profit margin slightly for the six-month period and maintain a healthy operating income margin, reflecting effective cost management and pricing strategies.

Key Highlights

  • 1Net sales increased by 82.6% to $156.0 million for the three months ended June 30, 2006, compared to the prior year period.
  • 2Net income for the quarter rose by 85.0% to $28.2 million, or $0.28 per diluted share.
  • 3The Direct Store Delivery (DSD) segment, primarily energy drinks, saw net sales grow by 106.0%, driven by strong Monster Energy® brand performance.
  • 4Gross profit margin for the six-month period improved to 52.2% from 51.7% in the prior year, indicating effective cost management relative to sales growth.
  • 5The company entered into agreements with Anheuser-Busch (AB) for select AB wholesalers to distribute and sell Monster Energy® and other HBC brands in designated markets, a transition that began subsequent to the quarter.
  • 6Operating income increased by 80.4% to $45.8 million for the quarter, demonstrating strong operational leverage.
  • 7The company declared a four-for-one stock split effective July 7, 2006, which has been reflected retroactively in per-share data.

Frequently Asked Questions

The primary driver of Hansen Natural Corporation's significant sales growth in the second quarter of 2006 was the increased sales volume of its Monster Energy® brand energy drinks. Specific product lines like Monster Energy® Khaos™ also contributed significantly, alongside growth in teas, lemonades, and juice cocktails.

For the three months ended June 30, 2006, the gross profit margin was 51.9%, a slight decrease from 52.6% in the prior year period. However, for the six-month period, the gross profit margin improved to 52.2% from 51.7% in the prior year. This improvement was attributed to increased sales of higher-margin DSD segment products, partially offset by factors like increased sales of lower-margin packages, the cost of shelf programs, and rising raw material costs.

The agreements with Anheuser-Busch will leverage select AB wholesalers for the distribution and sale of Hansen Natural's energy drink brands in designated markets. This strategic move is intended to support and grow the sales of their products nationwide. The transition began subsequent to the quarter, with Florida being the first state to be transitioned.

The adoption of SFAS 123R (Share-Based Payment) effective January 1, 2006, requires the company to recognize compensation expense for stock-based awards based on their fair value. This resulted in the recognition of $1.7 million in stock-based compensation expense for the three months and $3.6 million for the six months ended June 30, 2006, which was not expensed in the comparable prior year periods. This also impacted the company's general and administrative expenses and net income per share.