A slowdown in the US energy beverage sector, particularly within the convenience store channel, has pushed Monster Beverage Corp. into unfamiliar territory.
During an earnings call on 7th August, Hilton Schlosberg, co-chief executive officer, was asked to put the slowdown into historical context. He responded, “… Historically, we’ve seen declines in quarterly year-over-year volumes, really, only during the financial crisis and COVID lockdowns in the US, and they particularly, significantly, impacted foot traffic. The current situation in the US is actually relatively unprecedented.”
Schlosberg explained that the decline has been driven by a reduction in consumer spending and lower foot traffic in the convenience channel. He cited reports indicating that foot traffic to convenience stores has dropped by as much as 3% to 3.5%.
He added that Nielsen data from measured channels showed the situation worsening in July.
“… We’ve always spoken about our non-measured channels and our non-measured channels have continued to be a significant part of our activities and continue to grow,” Schlosberg said. “But looking at the Nielsen numbers … the July numbers are — so, it’s not (as) dramatic, but it is a worsening trend.”
Monster Beverage’s net income for the quarter ended 30th June was $425.4 million, or 41¢ per share, compared with $413.9 million, or 40¢ per share, in the second quarter of the previous year. Sales increased by 2.5% to $1.90 billion from $1.85 billion. Net changes in foreign exchange currency rates negatively impacted results by $67.7 million, including $34 million related to Argentina.
The 41¢ EPS exceeded the 40¢ EPS estimate forecasted by BofA Global Research. While BofA Global Research maintained its “buy” rating for Monster Beverage, it lowered the price objective from $60 to $56, citing weak demand in the energy category.
“Our buy rating reflects our view that weak demand for the category is transitory and (Monster Beverage Corp.) is well-equipped to weather this slowdown,” said Peter T. Galbo, research analyst for BofA.
Monster Beverage announced its financial results after the markets closed on 7th August. The company’s stock price on the Nasdaq closed at $45.01 on 8th August, down 11% from $50.53 per share on 7th August.
The company plans to implement a price increase of approximately 5% on its core brands and packages, effective 1st November in the United States, said Rodney Sacks, co-CEO.
“… We had one increase in the last two years,” Schlosberg noted. “And our competitors in the ready-to-drink beverage space have had multiple. So, we still see it as an opportunity and we think it is something that we should pursue and move forward with.”
In the company’s Monster Energy Drinks segment, sales increased by 3.3% to $1.74 billion from $1.69 billion. This segment primarily includes Monster Energy drinks, Reign Total Body Fuel high-performance energy drinks, Reign Storm total-wellness energy drinks, Bang Energy drinks, and Monster Tour Water.
In the company’s Strategic Brands segment, sales rose by nearly 10% to $109.2 million from $99.7 million. This segment primarily includes various energy drink brands acquired from The Coca-Cola Co. as well as Monster Beverage’s energy brands Predator and Fury.
“We are pleased with the rollout of Predator and Fury, our affordable energy drink portfolio, in a number of markets internationally,” Sacks said. “We are proceeding with plans for further launches of our affordable energy brands.”
In the Alcohol Brands segment, sales fell by 32% to $41.6 million from $61.1 million, primarily due to decreased sales volumes of flavoured malt beverages. This segment includes The Beast Unleashed and Nasty Beast hard tea as well as various craft beers and hard seltzers.
“During the quarter, we took a write-down of approximately $8.1 million relating to certain brewery closures,” Sacks said. The company also recently appointed a new president of Monster Brewing.
Sacks added that The Beast Unleashed is now available in 50 states and Nasty Beast, a hard tea line introduced in the first quarter, is available in 49 states.
In the Other segment, sales decreased by 4.2% to $7 million from $7.3 million. This segment primarily includes certain products of American Fruits & Flavors, LLC, a subsidiary of Monster Beverage.
Over the first six months of the fiscal year, Monster Beverage reported net income of $867.4 million, or 84¢ per share, up 7% from $811.3 million, or 78¢ per share, in the same period of the previous year. Sales increased by 7% to $3.80 billion from $3.55 billion.