Monster Beverage Corporation (NASDAQ:MNST) develops, markets, sells and distributes alternative beverage, such as non-carbonated ready-to-drink iced teas, lemonades, juice cocktails, single-serve juices and fruit beverages.
Story So Far
Monster Beverage’s “Monster Energy Ultra Red” has become one of the brand’s top sellers. This product debuted in September 2013. Its Muscle Monster protein shakes are second in the ready-to-drink protein segment: convenience and gas channels.
Monster Beverage sells "alternative" beverages under names such as Monster Energy and Muscle Monster. Monster Beverage expanded its revenue, net income, and free cash flow 11%, 50%, and 275%, respectively, in the most recent quarter.
Global volume increases from its Monster Energy brand and expansion into international markets served as the primary catalysts for the increase in revenue. Production efficiencies and lower expenses stemming from termination of distributors, lower insurance premiums, and lower marketing expenses contributed to gains in net income.
- Warning! GuruFocus has detected 1 Warning Sign with MNST. Click here to check it out.
- MNST 15-Year Financial Data
- The intrinsic value of MNST
- Peter Lynch Chart of MNST
Favorable changes in operating assets and liabilities, specifically in inventory, accounts receivable, and income taxes payable, contributed to the year-over-year gain in free cash flow.
When we look at the company's balance sheet, we see $211.35 million in cash and $402.25 million in short-term investments, totaling $613.6 million in liquid assets. This compares nicely with last year's $222.51 million in cash, $97.04 million in short-term investments, totaling $319.55 million in liquid assets. Monster continues to be debt-free, which increases the likelihood that the company will be returning more of its income to investors once its growth starts slowing down further down the line.
The most important aspect of the Monster Energy brand dominance is that it has allowed the company to expand into other beverage segments, most recently the large protein-drinks category. The company's protein brand, called Muscle Monster, has gotten off to a good start. The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Beverages industry average. The net income increased by 50.0% when compared to the same quarter one year prior, rising from $63.50 million to $95.25 million.
In the future, Monster Beverages plans to expand into additional countries, launch new product lines, and develop new lower calorie drinks to take advantage of a shift in consumer preference for lower calorie alternative beverages.
Monster has the potential to resume higher growth by replicating its business model in international markets. Moreover, international markets still have a long runway for growth. According to Beverage Marketing, the average American consumed nearly 5 liters of energy drinks in 2010. By comparison, global per capita energy-drink consumption (including the U.S.) is now slightly more than 1 liter. Clearly, international markets have some catching up to do.
Since Monster's international operations will benefit from higher market penetration and increases in per capita consumption, overseas markets may sustain Monster's current pace of growth.
Monster Beverage shunned traditional TV and radio advertising. Instead it went where its target customers were. The company promoted events and competitions in action sports such as motocross, drifting, surfing, snowboarding and mountain biking, as well as mixed martial arts and bull riding.
Monster Beverages is one of the largest competitors in the $38 Billion alternative drink industry. Monster Energy drinks are sold in more than 114 countries across six continents. Monster's astronomical growth -- net sales were 20 times higher in 2013 than in 2003 -- has made it the No. 2 player in the energy drink market.
By overhauling its original energy-drink formula, knowing its target customers, expanding into new markets and innovating new drinks, the Corona, Calif.-based firm became a dominant force in the crowded energy-drink market.
It is not hard to make a case for Monster's continued prosperity. In addition to the massive demand driving energy drink growth, Monster's capital-light business model enables it to expand quickly and profitably. The company acts as a caretaker of its brands and outsources manufacturing and distribution. By doing so, it can expand into new territories by signing new distribution agreements; the only capital required is that needed for advertising.
Monster Beverage is one of the most aggressive investments in the beverages industry. The company continues to benefit from its formidable positioning in the energy-drink segment and its popular image. Additionally, management is now leveraging that success to position the company for growth in new product categories.