10-QPeriod: Q1 FY2018

Monster Beverage Corp Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 10, 2018For Securities:MNST

Summary

Monster Beverage Corporation reported a strong first quarter for 2018, with net sales increasing by 14.7% year-over-year to $850.9 million. This growth was primarily driven by the Monster Energy® brand, which saw a significant increase in both domestic and international demand. Net income also saw a substantial boost, growing by 21.4% to $216.1 million, aided by a lower effective tax rate resulting from the Tax Cuts and Jobs Act. The company continued its share repurchase program, exhausting its February 2017 authorization and initiating a new one. Despite robust top-line and bottom-line growth, investors should note a decrease in gross profit margin to 60.6% from 64.8% in the prior year. This decline was attributed to increased promotional allowances, changes in geographical and product sales mix, higher input costs, and production issues. Operating expenses also rose, largely due to increased freight, payroll, and marketing costs, although this was partially offset by a significant reduction in distributor termination costs.

Financial Highlights

47 data points
Beta

Revenue

$850.92M

60.6% Gross Margin

Net Income

$216.05M

25.4% Net Margin

Total Assets

$4.74B

Cash & Equivalents

$511.36M

Free Cash Flow

$135.86M

Financial Statements
Beta
Revenue$850.92M
Cost of Revenue$335.66M
Gross Profit$515.26M
Operating Expenses$235.34M
Operating Income$279.92M
Net Income$216.05M
Shares Outstanding (Basic)1.13B
Shares Outstanding (Diluted)1.15B

Key Highlights

  • 1Net sales grew 14.7% to $850.9 million in Q1 2018, driven by strong performance of the Monster Energy® brand.
  • 2Net income increased by 21.4% to $216.1 million, benefiting from a lower effective tax rate due to the Tax Cuts and Jobs Act.
  • 3Gross profit margin declined to 60.6% from 64.8% year-over-year, impacted by increased promotional allowances, higher input costs, and production issues.
  • 4Operating expenses increased by 8.6% due to higher freight, payroll, and marketing costs, but distributor termination costs decreased significantly.
  • 5The company actively engaged in share repurchases, exhausting its February 2017 program and initiating a new $250 million repurchase plan.
  • 6International net sales showed strong growth, contributing 28% of total net sales in Q1 2018.

Frequently Asked Questions

The primary driver of revenue growth was the Monster Energy® brand, which saw increased sales by volume due to heightened domestic and international consumer demand. Net sales for the Monster Energy® Drinks segment increased by 16.7% year-over-year.

The decrease in gross profit margin was primarily due to several factors: an increase in promotional allowances as a percentage of gross sales, the impact of adopting ASC 606 on TCCC commissions, a less favorable geographical sales mix (foreign operations generally have lower margins), a shift in domestic product sales mix towards lower-margin products like Java Monster® and Monster Hydro®, and increases in certain input costs such as freight, aluminum cans, and sucralose. Production issues with Monster Hydro® and certain other cost increases also contributed.

The Tax Cuts and Jobs Act, enacted in late 2017, significantly reduced the U.S. federal statutory tax rate from 35% to 21%. This resulted in a lower effective tax rate of 23.3% for the first quarter of 2018, compared to 32.8% in the prior year, which substantially contributed to the increase in net income.

Monster Beverage actively manages its capital through share repurchases. In the first quarter of 2018, the company completed its February 2017 repurchase program, which authorized up to $500 million. Subsequently, the board authorized a new repurchase program of up to $250 million, of which no shares had been repurchased as of the filing date.