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Monster Beverage Corp (MNST)·Q4 2013 Earnings Summary

Executive Summary

  • Q4 2013 delivered solid top-line growth with net sales up 14.7% to $540.8M, while diluted EPS rose 13.7% to $0.44; gross margin contracted 50 bps to 51.2% due to widespread inventory damages and reserves, FX losses (~$3.6M), and a higher tax rate (42.2%) .
  • DSD segment net sales increased 15.2% to $519.4M; international gross sales rose to $137.9M (vs. $115.2M), indicating continued momentum outside the U.S., particularly in EMEA, despite category moderation .
  • Management highlighted strong consumer traction for the Ultra line (Ultra Red launch) and Muscle Monster, while acknowledging cannibalization of certain SKUs and international profitability headwinds pending local production ramps (Japan, India, South Africa) .
  • No formal guidance provided; management expects the effective tax rate to normalize in 2014 and noted January 2014 gross sales +12.6% YoY, but cautioned against extrapolation; consensus estimates from S&P Global for Q4 2013 were unavailable .

What Went Well and What Went Wrong

What Went Well

  • Ultra portfolio strength: “Monster Energy Ultra Red, launched in September 2013, has rapidly become among our best-selling products. In fact, the Monster Energy Ultra line continues to surpass expectations.”
  • Domestic share gains and category outperformance: In the 13 weeks through Jan 25, 2014, Monster U.S. sales grew 17.9% vs. category +7.6%; market share in C&G channel rose to 33.9% (+2.2 pts YoY) .
  • International momentum and share gains: EMEA net sales +15.2% YoY with market share gains across UK, Spain, Germany, France, South Africa; India launch underway post regulatory approvals .

What Went Wrong

  • Gross margin pressure: Q4 gross margin fell to 51.2% (−50 bps YoY), driven by widespread damages/reserves (~$6M), and lower-margin international mix .
  • Elevated tax rate and FX headwinds: Effective tax rate rose to 42.2% (vs. 39.1% LY); FX losses of ~$3.6M (Japan, South Africa) pressured EPS .
  • Cannibalization and SKU weakness: Ultra line growth partially cannibalized Absolutely Zero and Lo-Carb; certain Rehab SKUs, Import, Khaos, and glass bottle offerings underperformed; warehouse division posted a quarterly operating loss amid higher apple juice concentrate costs and promotional allowances .

Financial Results

Year-over-Year (Q4 2012 → Q4 2013)

MetricQ4 2012Q4 2013
Net Sales ($USD Millions)$471.5 $540.8
Gross Profit ($USD Millions)$243.9 $277.2
Gross Margin (%)51.7% 51.2%
Operating Income ($USD Millions)$113.9 $134.8
Operating Margin (%)24.2% 24.9%
Net Income ($USD Millions)$68.0 $76.1
Diluted EPS ($)$0.39 $0.44

Sequential (Q3 2013 → Q4 2013)

MetricQ3 2013Q4 2013
Net Sales ($USD Millions)$590.4 $540.8
Gross Margin (%)52.1% 51.2%
Operating Income ($USD Millions)$151.4 $134.8
Diluted EPS ($)$0.53 $0.44

Segment and Geographic

MetricQ4 2012Q4 2013
Net Sales – DSD ($USD Millions)$451.0 $519.4
Net Sales – Warehouse ($USD Millions)$20.5 (implied by +4.5%) $21.4
Gross Sales to Customers Outside U.S. ($USD Millions)$115.2 $137.9

KPIs and Cost Structure

KPIQ4 2012Q4 2013
Case Sales (thousands; 192-oz equivalents)46,386 52,780
Avg Net Sales per Case ($)$10.17 $10.25
Distribution Costs (% of Net Sales)4.7% 4.5%
Selling Expenses (% of Net Sales)12.5% 10.8%
G&A ($USD Millions; % of Net Sales)$48.8; 10.3% $59.6; 11.0%
Effective Tax Rate (%)39.1% 42.2%
Share Repurchase (Q4)—~1.0M shares @ $56.98 avg

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Formal Financial GuidanceFY/Q1 2014NoneNoneMaintained (company does not provide guidance)
Effective Tax RateFY 2014—“Anticipate rates should return to a more normalized level in 2014”Qualitative improvement (no range)
Production Ramp (Japan)H1 2014—“On track to commence full commercial production in Japan in March”Operational milestone
France Excise Tax MitigationQ1 2014—Reformulation in process; Q1 sales to France expected −~$3M due to Q4 pre-buyQualitative headwind near term

Earnings Call Themes & Trends

TopicQ2 2013 (Prior-2)Q3 2013 (Prior-1)Q4 2013 (Current)Trend
Regulatory/LegalFDA/IOM hearings; elevated legal spend; safety reaffirmed Senators’ letter; ABA model guidelines proposed Ongoing litigation updates; safety reiterated; avoid comment on specifics Continued, noise abating per mgmt
Supply Chain & DamagesInternational margin mixed; lower costs aided margins Higher gross margin on mix; compensation for past damages Widespread damages/reserves (~$6M); plan for local production to reduce damages Near-term headwind; mitigation in progress
Product PerformanceZero Ultra second-best SKU; Ultra Blue launch; Muscle Monster launched Ultra Blue among top SKUs; Muscle Monster building share Ultra Red rapid adoption; Muscle Monster gaining; some cannibalization Strong, with mix/cannibalization effects
Regional Trends (EMEA)EMEA net sales +13%; share gains across major markets EMEA net sales +8.6%; share gains continue EMEA net sales +15.2%; broad share gains; France excise tax impacts timing Improving with share momentum
JapanFX headwinds; launch effects normalize; vending distribution expanding Test production in Japan/Korea; sales out > sales in Full commercial production targeted March; FX losses pressure Local production nearing; FX headwind persists
MexicoMixed monthly Nielsen due to OXXO promotions September softness; August strength December: category +22.6%; Monster +20.9% (share −0.5 pts) Volatile, promo-driven
Health/Safety NarrativeEmphasis on comparative caffeine content vs coffee; safety affirmed Safety affirmed; ABA guidelines support Safety reiterated; minimal adolescent focus; primary demo 18–34 Consistent messaging

Management Commentary

  • “We are pleased to report another year of continuing sales growth… Monster Energy® Ultra Red… has rapidly become among our best-selling products… Muscle Monster®… is now ranked second… in the ready-to-drink protein drink segment in the convenience and gas channel in the United States.”
  • “The company continued to make good progress in the fourth quarter and achieved record fourth quarter gross sales, up 14%… net sales up 14.7%.”
  • “During the fourth quarter, our operating income was negatively affected by professional services costs of $4.7 million… foreign exchange losses of about $3.6 million… and an increase in the effective tax rate to 42.2%… We anticipate that the rates should return to a more normalized level in 2014.”
  • “Gross profit… was impacted by certain inventory damages and reserves.”
  • “We are satisfied with the performance of our international expansion… plans for production in Japan and Korea continue to move forward… on track to commence full commercial production in Japan in March.”

Q&A Highlights

  • France excise tax/reformulation: Management expects to reformulate without material sales impact; noted Q4 pre-buy in France (~$3M) to mitigate Jan 1 tax; Q1 sales to France likely down by similar amount .
  • Damages impact quantified: Approximate $6M excess damages/reserves in Q4; widespread across regions; local production expected to reduce damages .
  • Category and weather: Management cautiously attributes February slowdown primarily to harsh winter weather; confident in category’s improving trajectory .
  • Local production challenges: Japan slim-can manufacturing constraints and water/flavor sensitivities delayed ramps; commitment to unique packaging vs ease-of-production .
  • International profitability: Tightening cost controls; shifting more promotional spend to distributors; local production in Japan/India/South Africa to aid margins .

Estimates Context

  • Wall Street consensus estimates (S&P Global) for Q4 2013 Revenue and Primary EPS were unavailable due to access constraints; as a result, we cannot benchmark reported results versus consensus at this time. Values retrieved from S&P Global were unavailable.
MetricQ4 2013 Consensus# of Estimates
Revenue ($USD Millions)UnavailableUnavailable
Primary EPS ($)UnavailableUnavailable

Key Takeaways for Investors

  • Revenue growth remained robust (+14.7% YoY) with EPS up 13.7%, but margin pressure from damages, FX, and tax rate masked underlying strength; watch for normalization in tax and damages mitigation via local production in 2014 .
  • Ultra and Muscle Monster drove mix benefits and share gains; expect continued traction, with some cannibalization to legacy diet SKUs .
  • International expansion is a key medium-term lever: EMEA momentum and share gains sustained; local production in Japan (March target) and India should improve margins and reduce damages/FX sensitivity .
  • Near-term headwinds include French excise tax timing (Q1 impact) and persistent FX volatility; management’s operational actions (reformulation, local production) are credible offsets .
  • U.S. category backdrop improving; Monster outpaced peers in recent Nielsen reads, supporting domestic growth assumptions into 2014 .
  • Cost discipline and distributor alignment internationally (shifting promotional burden, restructuring in Europe) should support profitability inflection over time .
  • No formal guidance; monitor monthly/quarterly updates (e.g., January +12.6% gross sales YoY) cautiously due to timing/promotional variability; focus on strategic execution milestones and mix trends .
Note: Gross sales is a non-GAAP metric used internally; GAAP comparisons rely on net sales and margins as presented in the 8-K **[865752_0000865752-14-000003_e991.htm:2]** **[865752_0000865752-14-000003_e991.htm:4]**.