A Member of Pat McKeough’s Inner Circle recently asked for his advice on Monster Beverage, an energy drink company that’s now the second-largest brand in its field.
Pat likes the company’s recent acquisition in the craft beer and hard seltzer markets as well as its strong track record of rising revenues and earnings. However, Pat notes the company will continue to be challenged by rising costs.
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MONSTER BEVERAGE CORP. (Symbol MNST on Nasdaq; www.monsterbevcorp.com) markets energy drinks under the Monster Energy brand. Monster is the second-largest energy drink brand behind Red Bull. Its drinks are distributed in more than 138 countries worldwide. Coca-Cola Co. (symbol KO on New York) owns 17% of the company’s shares.
Over the five years from 2017 to 2021, the company’s revenue rose 64.4%, from $3.37 billion in 2017 to $5.54 billion in 2021. Earnings per share rose 80.0% between 2017 and 2021, from $1.45 to $2.61.
For the three months ended June 30, 2022—a key quarter in the company’s pandemic recovery—Monster recorded revenue of $1.66 billion, up 13.2% from $1.46 billion a year earlier. Sales were higher due largely to increased volumes for its flagship Monster Energy brand. Overall, the company sold 184.2 million cases, up 14.1% from 161.5 million cases. The latest quarter also included $32.4 million in sales from its acquisition of Canarchy Craft Brewery Collective LLC (see below).
The company earned $273.4 million, or $0.52 a share, in the quarter. That was down 32.3% from $403.8 million, or $0.76. The lower earnings reflected much higher costs—including for aluminum cans, as well as ingredients, shipping and freight, and labour.
Monster holds cash of $2.5 billion and has no debt.
Those quarterly earnings reflect Monster’s February 17, 2022, acquisition of Canarchy for $330 million in cash.
Inner Circle: Recent acquisition should capitalize on a growing demand for Monster Beverage
Canarchy supplies craft beverages throughout the U.S., U.S. territories and 20 countries; it has seven manufacturing locations and 900 employees. Canarchy will function independently after the deal closes, retaining its own organizational structure and team.
In fact, Canarchy is the parent company for several craft beer and hard seltzer brands, including Cigar City, Oskar Blues, Deep Ellum, Perrin Brewing, Squatters and Wasatch. The transaction did not include Canarchy’s standalone restaurants.
Going forward, the Canarchy acquisition should be transformative for Monster Energy—Canarchy provides it with a springboard into the alcoholic beverage market. The company believes the purchase will provide it with all the infrastructure it needs, including people, distribution systems and licensing, along with alcoholic beverage development expertise and manufacturing capabilities.
The company’s entry into alcoholic beverages comes at a time of growing demand for drinks that combine traditionally non-alcoholic beverages with a hint of alcohol.
Elsewhere, sales in all of Monster’s channels remain steady, including convenience stores and gas stations. Also, its distribution partnerships with Coca-Cola have successfully expanded Monster’s foothold in international markets.
Like many manufacturers, Monster will continue to be challenged by rising costs, at least in the near term. The company aims to pass added costs on to its customers through price increases, but inflation could continue to slow profit growth.
Recommendation in Pat’s Inner Circle: Monster Beverage Corp. is a hold.
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