10-QPeriod: Q1 FY2013

Monster Beverage Corp Quarterly Report for Q1 Ended Mar 31, 2013

Filed May 10, 2013For Securities:MNST

Summary

Monster Beverage Corporation reported net sales of $484.2 million for the first quarter of 2013, a 6.5% increase year-over-year, primarily driven by its flagship Monster Energy® brand. While gross sales showed a 7.3% increase, net sales growth was somewhat tempered by a 12.8% rise in promotional and other allowances. Operating income declined by 15.0% to $107.3 million due to a significant 26.0% increase in operating expenses, which included costs related to distributor terminations and ongoing litigation. The company's balance sheet reflects robust current assets, with cash and cash equivalents increasing to $242.5 million. Despite the increase in operating expenses and a slight decline in profitability, the company generated strong operating cash flow of $45.9 million. Monster Beverage also continued its share repurchase program, exhausting its November 2012 authorization and initiating a new one in April 2013. Investors should note the significant increase in operating expenses and the resulting impact on operating income. The company is also facing a growing number of legal and regulatory challenges, particularly concerning the marketing and safety of its energy drinks. While sales growth remains positive, the rising costs and potential liabilities warrant close monitoring.

Financial Highlights

44 data points
Beta

Revenue

$484.22M

52.1% Gross Margin

Net Income

$63.50M

13.1% Net Margin

Total Assets

$1.15B

Cash & Equivalents

$242.53M

Free Cash Flow

$37.16M

Financial Statements
Beta
Revenue$484.22M
Cost of Revenue$232.18M
Gross Profit$252.04M
Operating Expenses$144.73M
Operating Income$107.31M
Net Income$63.50M
Shares Outstanding (Basic)993.15M
Shares Outstanding (Diluted)1.04B

Key Highlights

  • 1Net sales increased by 6.5% to $484.2 million in Q1 2013 compared to Q1 2012, driven by the Monster Energy® brand.
  • 2Operating income decreased by 15.0% to $107.3 million, primarily due to a 26.0% increase in operating expenses.
  • 3Operating expenses rose significantly, impacted by $8.3 million in distributor termination costs and increased legal/professional service fees.
  • 4Cash and cash equivalents increased to $242.5 million as of March 31, 2013.
  • 5Generated $45.9 million in cash flow from operations during the quarter.
  • 6The company repurchased $13.4 million of its common stock and announced a new $200 million repurchase program.
  • 7Monster Energy® brand accounted for approximately 91.9% of net sales for the quarter.

Frequently Asked Questions

The primary driver of revenue growth was the company's flagship Monster Energy® brand, which saw increased domestic and international consumer demand and expansion into new international markets. Net sales for the Monster Energy® brand increased by approximately $28.6 million, representing 96.7% of the overall net sales increase.

Operating income declined by 15.0% due to a significant 26.0% increase in operating expenses. These higher expenses were attributed to several factors, including $8.3 million in costs associated with terminating existing distributors, increased professional service costs (including legal and accounting fees related to regulatory matters and litigation), higher payroll, and increased outbound freight and warehouse costs.

Monster Beverage is facing numerous legal and regulatory challenges. These include class action lawsuits alleging misleading marketing and product safety concerns (such as the Anais Fournier case and the Wellman Action), securities litigation, derivative lawsuits against management, inquiries from state attorneys general, and litigation initiated by the San Francisco City Attorney concerning marketing practices, product labeling, and caffeine content, particularly regarding adolescent consumption.

The company generated $45.9 million in cash flow from operations in Q1 2013, and its cash and cash equivalents stood at $242.5 million. They believe their cash on hand, coupled with their revolving line of credit, is sufficient for working capital needs, capital expenditures (estimated below $50 million through March 31, 2014), share repurchases, and other corporate purposes for at least the next 12 months. The company also completed a $13.4 million share repurchase and announced a new $200 million program.