10-QPeriod: Q1 FY2009

Monster Beverage Corp Quarterly Report for Q1 Ended Mar 31, 2009

Filed May 11, 2009For Securities:MNST

Summary

Monster Beverage Corporation (formerly Hansen Natural Corporation) reported a strong first quarter for 2009, demonstrating robust top-line growth and improved profitability. Net sales increased by 15.1% to $244.2 million, driven primarily by strong volume and price increases in its core Monster Energy® brand energy drinks. The company's gross profit margin also saw significant improvement, expanding to 53.3% from 49.4% in the prior year, benefiting from increased sales in higher-margin channels and decreased raw material costs. Despite an increase in operating expenses, largely due to marketing and distribution initiatives, operating income surged by 53.6% year-over-year. Net income rose by an impressive 44.3% to $41.6 million, or $0.44 per diluted share. The company highlighted its strong cash position, with $279.1 million in cash and cash equivalents, though it also noted an impairment charge related to its auction rate securities, which are illiquid due to market conditions. Overall, the quarter reflects continued successful execution of the company's growth strategy, particularly in its high-margin energy drink segment.

Key Highlights

  • 1Net sales increased 15.1% to $244.2 million compared to the prior year quarter.
  • 2Gross profit margin improved significantly to 53.3% from 49.4%, driven by favorable product mix and lower raw material costs.
  • 3Operating income increased 53.6% to $65.8 million.
  • 4Net income grew 44.3% to $41.6 million, or $0.44 per diluted share.
  • 5The company reported strong cash and cash equivalents of $279.1 million at the end of the quarter.
  • 6A $3.5 million other-than-temporary impairment charge was recognized on auction rate securities.
  • 7International sales increased to 11.9% of net sales, up from 8.5% in the prior year period.

Frequently Asked Questions

The increase in net sales was primarily driven by higher sales volume and increased sales price per case for certain Monster Energy® brand energy drinks, as well as the introduction of new products like the Monster Hitman Energy Shooter™ line. Increased sales of Hansen’s Natural Sodas® also contributed.

The improvement in gross profit margin was attributed to several factors, including increased sales of higher-margin Direct Store Delivery (DSD) segment products (like energy drinks) compared to lower-margin Warehouse segment products, a decrease in the proportion of lower-margin Java Monster™ sales, a decrease in the cost of certain raw materials (like apple juice concentrate), and reduced trade marketing costs.

The company holds auction rate securities which have experienced failed auctions, leading to illiquidity. As of March 31, 2009, the company recognized an impairment of $15.5 million on these securities, of which $3.5 million was deemed other-than-temporary and charged to income, while $11.5 million was considered temporary and recorded in other comprehensive loss. While the company does not anticipate this impacting its overall liquidity, continued market uncertainty could lead to further impairments.

The company is involved in several legal matters, including trademark infringement litigation, securities class action lawsuits, and derivative litigation. The company believes these complaints are without merit and intends to defend itself vigorously. A settlement was reached in April 2009 for the Gate City Beverage Company arbitration. Several other cases are ongoing with scheduled hearings and mediations.