Monster Beverage Corp (MNST)’s Hiding Under the Bed: Starbucks Corporation (SBUX)

Page 1 of 2

Monster Beverage Corp (NASDAQ:MNST) may need a shot of its own drink. The once high-flying growth story has come back within gravity’s pull, as its most recent earnings report confirms. After six quarters in a row with top-line growth of 24% or more, Monster delivered just a 15% increase in sales for the second consecutive period, this time reaching $471.5 million. CEO Rodney Sacks suspected the negative publicity surrounding energy drinks in general, and Monster Beverage Corp (NASDAQ:MNST) in particular, helped cause the slowdown. Net income for the quarter grew just 5.3% to $68 million, while per-share earnings increased from $0.35 to $0.39, assisted by share buybacks. In the fourth quarter alone, Monster spent more than $300 million on share repurchases.

Monster Beverage Corp (NASDAQ:MNST)Earnings missed estimates by $0.02, but investors took the report in stride as shares gained modestly the day after the report came out.

Safety concerns
Sacks spent the initial part of the call adamantly defending Monster Beverage Corp (NASDAQ:MNST)’s energy drinks against recent reports that it was implicated in a small number of deaths in which the FDA has found no causality.

In a drawn-out comparison with coffee, and Starbucks Corporation (NASDAQ:SBUX) in particular, Sacks refuted the accusations against Monster Energy one by one. Many critics point out that Monster is popular with teens, but Sacks said that teens consume more coffee overall than energy drinks. He also said that the general population drinks 25 times more coffee than energy drinks, and noted that Monster has no more caffeine than equivalent coffee drinks do. It’s also not consumed any quicker than coffee, as coffee-drinkers like to finish their beverages before they become cold. Critics have also attacked Monster Beverage Corp (NASDAQ:MNST) for calling itself a “dietary supplement” under FDA regulations, but Sacks explained that FDA restrictions on dietary supplements are tighter than on food products. Under the advice of the American Beverage Association, Monster has since changed its categorization to a “food product.”

While Sacks’ principal intention was to rebuff the health-related accusations toward Monster, there was also a powerful subtext. Coffee is a clear competitor to Monster, and the size of the coffee market is huge. By repeating the similarities between coffee and energy drinks, Sacks is hoping to convince a few Starbucks Corporation (NASDAQ:SBUX) drinkers to switch to his product. Even just grabbing a small chunk of the coffee market could help Monster double sales.

International expansion
Monster continued to build sales overseas in the quarter. Sales outside the U.S. grew nearly 30% in the quarter, and the company showed particularly strong growth in Europe. In the U.K., its market share has improved to 10%, and that country is now its second-biggest market. Monster also entered new markets including Peru, Slovenia, South Korea, Chile, and Singapore in the quarter and in the beginning of 2013. It’s also planning to enter India as well as other countries this year. Expenses related to developing new markets ate into gross margins, as North American gross margins improved on a year-over-year basis, though companywide they fell from 52.3% to 51.7%.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!