10-QPeriod: Q3 FY2013

Monster Beverage Corp Quarterly Report for Q3 Ended Sep 30, 2013

Filed November 12, 2013For Securities:MNST

Summary

Monster Beverage Corporation (MNST) reported solid revenue growth in the third quarter and first nine months of 2013, driven primarily by its flagship Monster Energy® brand. Net sales increased by 8.9% for the quarter and 7.3% for the nine-month period, reaching $590.4 million and $1.71 billion, respectively. While gross profit saw significant increases, net income experienced a slight decline year-over-year for the nine-month period, largely due to increased operating expenses, particularly those related to professional services for litigation and regulatory matters. The company also noted a strategic shift in marketing its energy drinks from "dietary supplements" to "conventional foods." The company's balance sheet shows a healthy increase in current assets, with cash and cash equivalents rising to $287.0 million and short-term investments nearly tripling to $315.6 million. This robust liquidity, combined with strong operating cash flow of $275.8 million for the nine months, positions the company well to manage its operations, capital expenditures, and ongoing share repurchase program. However, investors should monitor the increasing operating expenses and the various legal proceedings and regulatory inquiries that could potentially impact future financial performance.

Financial Highlights

44 data points
Beta

Revenue

$590.42M

52.1% Gross Margin

Net Income

$92.19M

15.6% Net Margin

Total Assets

$1.51B

Cash & Equivalents

$287.02M

Free Cash Flow

$166.00M

Financial Statements
Beta
Revenue$590.42M
Cost of Revenue$282.95M
Gross Profit$307.47M
Operating Expenses$156.04M
Operating Income$151.43M
Net Income$92.19M
Shares Outstanding (Basic)1.00B
Shares Outstanding (Diluted)1.04B

Key Highlights

  • 1Net sales for the nine months ended September 30, 2013, increased by 7.3% to $1.71 billion, driven by strong performance in the Monster Energy® brand.
  • 2Gross profit margin improved to 52.1% for Q3 2013 and 52.5% for the nine months, up from 50.5% and 51.7% in the prior year periods, respectively.
  • 3Operating expenses increased by 17.4% for the quarter and 18.9% for the nine months, primarily due to higher legal and professional service costs related to regulatory matters and litigation.
  • 4Net income for the nine months ended September 30, 2013, decreased by 3.5% to $262.6 million, impacted by increased operating expenses and a higher effective tax rate.
  • 5Cash provided by operating activities significantly increased by 26.5% to $275.8 million for the nine-month period.
  • 6The company ended the period with strong liquidity, holding $287.0 million in cash and cash equivalents and $325.3 million in short-term and long-term investments.
  • 7Monster Beverage Corporation is facing multiple legal proceedings and regulatory inquiries concerning product marketing, safety, and ingredients, which are being vigorously defended.

Frequently Asked Questions

The primary driver of revenue growth was the strong performance of the Monster Energy® brand, which accounted for the vast majority of the overall increase in gross and net sales for both the three- and nine-month periods ending September 30, 2013. Increased domestic and international demand, along with expansion into new international markets, contributed to this growth.

Key challenges include increasing operating expenses, particularly those related to ongoing litigation and regulatory matters concerning advertising, marketing, ingredients, and product safety. The company is also subject to various legal proceedings, including class-action lawsuits and inquiries from state and city attorneys general. Additionally, international operations present currency exchange rate risks and challenges in managing foreign markets.

The company's liquidity position strengthened significantly. Cash provided by operating activities increased by 26.5% to $275.8 million. This, combined with a substantial increase in short-term investments, led to cash and cash equivalents increasing to $287.0 million and short-term investments reaching $315.6 million by the end of the period.

Yes, the company has begun transitioning the labeling and marketing of its Monster Energy®, Hansen's®, and Blue Energy® energy drink products from "dietary supplements" to "conventional foods." This change was initiated in the first quarter of 2013.