Monster Beverage Company reported +15.2% year-over-year sales growth in the third quarter, even as increased expenses and cost of goods continue to drag on the energy drink maker’s margins despite price increases.
Gross profit was $833 million making up 51.3% of net sales, a regression from Q3 2021 when profits were 55.9% of sales.
Monster leadership affirmed that the +6% price increase instituted in the U.S. on September 1 had begun to improve margins but would be monitored closely in Q4. The company expects to take more pricing actions internationally in early 2023.
“We continue to believe that some of these increased costs we are experiencing are likely to be transitory,” CEO and chairman Rodney Sacks said during the call. “Consumer demand remains solid, even with the pricing actions that have been taken in 2022.”
Monster executives defended the company’s decision to prioritize product availability at the expense of higher input costs for fuel, freight, materials and logistical fees. Sacks assured investors on the call that the company continues to work through its inventory of higher priced imported cans and has started to see a reduction in cost of sales from more locally sourced aluminum used throughout the system.
“As you know, inflation is rampant. But on the other hand, there are some good things that are coming out,” said vice chairman Hilton Schlosberg. “We’ve seen freight rates coming down. There was a lot of capital expenditure put into new equipment and containers.”
The company is betting on innovation to bring it through the challenging economic environment. The company is set to launch its Monster Energy Zero Sugar drink, a new no-sugar analog of its flagship flavor, in U.S. markets in January, followed by the release of its first alcoholic beverage, The Beast Unleashed, in Q1 2023.
Sacks noted that The Beast Unleashed would be introduced by CANarchy and flow through “certain beer distributors in the United States, utilizing a phased approach launch, with the goal of being national by the end of 2023.”
“Our alcohol innovation pipeline is robust,” he added. “In addition to The Beast Unleashed, we will relaunch Wild Basin Hard Seltzer with new packaging and great new flavors and taste profiles. The Dale’s beer family will get a refresh, including the introduction of Dale’s American Light Lager, an easy-drinking lager with 4.2% ABV, 95 calories and 2.5 carbs per 12 oz. serving. We also have several additional innovative alcohol beverage products under development and look forward to sharing use of those products at a later date.”
Net sales for Monster’s existing alcoholic beverage brands, comprising the various craft beers and hard seltzers purchased as part of Monster’s CANarchy acquisition, were $26.8 million this quarter.
Also in the pipeline for Monster is canned water, with the launch of Monster Tour Water in both still and sparkling varieties in the first half of 2023. Previously available exclusively as a backstage item for musicians on Monster-sponsored tours, the unflavored water product will come in 19.2 oz. cans. Monster is also set to launch its new performance product: a four-SKU line branded Rainstorm available in 12 oz. slim cans “to compete directly with certain competitive new entrants in the energy drink category in the United States.” No other details were made available.
Credit Suisse reported it is “particularly bullish” on the Tour Water and Zero Sugar because platform innovation from Monster tends to accelerate with new product releases even as “sources indicate Bang Energy is being removed from shelves and losing focus from retailers and distributors.
Sales of the company’s Monster Energy Drinks segment, which includes Monster Energy beverages along with the Reign Total Body Fuel and True North Pure Energy Seltzer brands, was $1.5 billion for the Q3, up 13% from $1.33 billion for the same period last year.
The company’s strategic brands segment sale, which includes various energy drink brands acquired from The Coca-Cola Company and Monster’s affordable energy brands, increased 19.3% to $88.8 million.
Goldman Sachs reiterated its “buy” rating on the assurances given in Monster’s earnings report.
“We’re encouraged by today’s results, and we continue to expect gradual margin improvement going forward fueled by robust topline growth (strong pricing and an impressive pipeline of innovation), while COGS-related headwinds begin to ease,” Goldman Sachs analysts reported in their research report.
Analysts maintain that Monster’s management will need to remain diligent in monitoring how pricing actions impact consumer demand in the face of increased economic headwinds.
Monster share price was up 7% on Friday and was trading for $97.72 per share when the story was printed.