10-QPeriod: Q1 FY2017

Monster Beverage Corp Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 8, 2017For Securities:MNST

Summary

Monster Beverage Corporation reported strong first-quarter 2017 results, with net sales reaching a record $742.1 million, an increase of 9.1% year-over-year. This growth was driven by increased consumer demand for its core Monster Energy® brand, which saw net sales rise by $43.8 million. The company also experienced significant gross profit improvement, up 13.7%, largely due to raw material cost savings from the American Fruits & Flavors (AFF) acquisition and favorable product sales mix. Despite a notable increase in operating expenses, largely attributed to distributor termination costs and higher marketing spend, net income still grew by 8.6% to $178.0 million. Diluted earnings per share also saw a healthy increase of 15.8% to $0.31. The company maintained a robust cash position, ending the quarter with $576.3 million in cash and cash equivalents, and demonstrating healthy operating cash flow generation.

Financial Highlights

46 data points
Beta

Revenue

$742.15M

64.8% Gross Margin

Net Income

$177.98M

24.0% Net Margin

Total Assets

$4.35B

Cash & Equivalents

$576.34M

Free Cash Flow

$173.87M

Financial Statements
Beta
Revenue$742.15M
Cost of Revenue$261.27M
Gross Profit$480.87M
Operating Expenses$216.61M
Operating Income$264.26M
Net Income$177.98M
Shares Outstanding (Basic)1.14B
Shares Outstanding (Diluted)1.16B

Key Highlights

  • 1Record net sales of $742.1 million for Q1 2017, up 9.1% year-over-year.
  • 2Gross profit increased by 13.7% to $480.9 million, with gross profit margin improving to 64.8% from 62.2% due to cost savings and favorable product mix.
  • 3Net income rose by 8.6% to $178.0 million, with diluted EPS growing 15.8% to $0.31.
  • 4Operating expenses increased significantly by 28.6%, primarily driven by $19.9 million in distributor termination costs and increased marketing and commission expenses.
  • 5Cash and cash equivalents stood at $576.3 million at the end of the quarter, with strong operating cash flow of $193.0 million generated.
  • 6The company announced a new $500 million share repurchase program in February 2017.

Frequently Asked Questions

The primary driver of the net sales increase was a rise in consumer demand for the core Monster Energy® brand, contributing approximately $43.8 million to the overall sales growth. Sales of the Strategic Brands segment also increased by 16.4%.

Operating expenses increased by 28.6%, mainly due to $19.9 million in costs related to distributor terminations, higher payroll expenses ($13.0 million), increased spending on sponsorships and endorsements ($6.8 million), and higher commission expenses ($5.0 million).

The acquisition of American Fruits & Flavors (AFF) in April 2016 contributed to a significant improvement in gross profit. The company reported approximately $23.3 million in raw material cost savings in the first quarter of 2017 related to this acquisition, which helped offset increased operating expenses and boosted gross profit margins.

Monster Beverage Corporation believes its cash flow from operations, along with its existing cash reserves and credit facilities, will be sufficient to meet its working capital needs, capital expenditures (estimated to be less than $150 million through March 31, 2018), and other corporate purposes for at least the next 12 months. The company also announced a new $500 million share repurchase program.