Monster Beverage Corporation (MNST, Financial) released record fourth quarter and full year results for 2021 on Thursday amid ongoing reports that executives are mulling a possible deal with Constellation Brands (STZ, Financial).
It was Bloomberg that first reported that the beverage giants were in merger talks, and that a deal could be reached in the coming weeks if talks continue to go smoothly. Monster’s founders are said to be convinced that diversifying their product line would be a plus in such a deal, said CNBC's David Faber. He pointed out, however, that a lot of Monster shareholders are expressing reservations about such a deal. He added, "Things are moving a bit slower" than a report in Bloomberg had suggested. Analysts are also wondering how Coca-Cola (KO, Financial), which owns a 19% share in Monster, will react to such a deal.
If it does happen, the merger would establish a beverage company with more than $14 billion in sales and in excess of $5 billion in Ebitda. It could also mean cost synergies of around 3% of the combined company revenue.
A merger between the two “would be another major step into alcoholic drinks,” said Barron's. The two companies have similar market capitalizations, with Monster Beverage at $43.7 billion and Constellation Brands at $44.3 billion. “That wasn’t the case when reports of a potential tie-up first emerged in November as Monster stock has fallen around 8% since then.”
For that reason, RBC Capital Markets analysts “see a merger of equals, with a 50-50 split between the shareholders of each company, as the most likely scenario if a merger ends up being agreed.”
On Thursday, Monster reported that it achieved record fourth quarter and full-year net sales, with annual net sales exceeding the $5.5 billion mark for the first time in the company’s history.
Fourth quarter earnings showed a dip compared to the previous year from $471.74 million, or 88 cents per share, in last year's fourth quarter to $321.31 million, or 60 cents per share, in the fourth quarter of 2021. Revenue for the quarter jumped 19.1% to $1.43 billion, up from just $1.20 billion last year. Net changes in foreign currency exchange rates had an unfavorable impact on net sales for the fourth quarter of $2.4 million.
Net sales for the company’s Monster Energy Drinks segment, which primarily includes the company’s Monster Energy drinks, Reign Total Body Fuel high performance energy drinks and True North Pure Energy Seltzers, increased 20.7% to $1.35 billion for the fourth quarter, up from $1.12 billion for the 2020 fourth quarter.
During the quarter, the company experienced increased aluminum can costs attributable to higher aluminum commodity pricing, as well as the costs of importing aluminum cans. In addition, Monster experienced increased ingredient and other input costs, including shipping and freight, labor, trucking, fuel, co-packing fees, secondary packaging materials, increased outbound freight costs and production inefficiencies, which resulted in increased costs of sales and increased operating costs.
Rodney C. Sacks, Chairman and Co-CEO, said in a statement that management was pleased to report record net sales for the fourth quarter “despite the ongoing impact of the Covid-19 pandemic, particularly of the Omicron variant.”
During the quarter, the company expanded distribution of its brands in a variety of international markets. In the United States, it launched the Monster Reserve line during 2021’s final quarter, and in the beginning of 2022 launched Juice Monster Aussie Lemonade, Rehab Monster Watermelon, Reign Total Body Fuel, Reignbow Sherbet and Ultra Peachy Keen. Executives also completed an acquisition of CANarchy Craft Brewery Collective LLC on Feb. 17.
Vice Chairman and Co-CEO Hilton H. Schlosberg said that his company “continued to experience challenges meeting demand in the United States and EMEA in the fourth quarter, largely as a result of a shortage in aluminum cans, the availability of co-packing capacity and procurement difficulties in other inputs.”
The shortage of shipping containers and global port congestion continues to impact operations, Schlosberg added. “Due to the actions we have taken to procure additional aluminum cans from domestic sources as well as from imports, and with production from two new aluminum can suppliers in the United States, we currently have sufficient supplies of aluminum cans to meet demand.” He warned, however, that Monster continues to experience shortages in the availability of co-packing capacity for certain of its products.
