CORONA, CALIF. — A slowdown in the US energy beverage category, particularly in the convenience store channel, has pushed the Monster Beverage Corp. into unfamiliar territory.
When asked during an Aug. 7 conference call to put the slowdown into historical perspective, Hilton Schlosberg, co-chief executive officer, said, “… Historically, we’ve seen declines in quarterly year-over-year volumes, really, only during the financial crisis and COVID lockdowns in the US, and they particularly, significantly, impacted foot traffic. The current situation in the US is actually relatively unprecedented.”
Schlosberg said the decline has been driven by a reduction in consumer spending and lower foot traffic in the convenience channel. He said he’s seen reports of foot traffic to convenience stores being down by as much as 3% to 3.5%.
He added that Nielsen data in measured channels showed the situation getting worse in July.
“… We’ve always spoken about our non-measured channels and our non-measured channels have continued to be a significant part of our activities and continue to grow,” Schlosberg said. “But looking at the Nielsen numbers … the July numbers are — so, it’s not (as) dramatic, but it is a worsening trend.”
Monster Beverage’s net income for the quarter ended June 30 of $425.4 million, or 41¢ per share on the common stock, compared with $413.9 million, or 40¢ per share, in the previous year’s second quarter. Sales increased 2.5% to $1.90 billion from $1.85 billion. Net changes in foreign exchange currency rates had a negative impact of $67.7 million, including $34 million related to Argentina.
The 41¢ EPS came in higher than an estimate 40¢ EPS that BofA Global Research forecasted. BofA Global Research retained its “buy” rating for Monster Beverage but lowered the price objective to $56 from $60, citing weak demand for the energy category.
“Our buy rating reflects our view that weak demand for the category is transitory and (Monster Beverage Corp.) is well-equipped to weather this slowdown,” said Peter T. Galbo, research analyst for BofA.
Monster Beverage announced its financial results after the markets closed on Aug. 7. The company’s stock price on the Nasdaq closed at $45.01 on Aug. 8, down 11% from an Aug. 7 close of $50.53 per share.
The company will take a price increase of about 5% on its core brands and packages, effective Nov. 1 in the United States, said Rodney Sacks, co-CEO.
“… We had one increase in the last two years,” Schlosberg said. “And our competitors in the ready-to-drink beverage space have had multiple. So, we still see it as an opportunity and we think it is something that we should pursue and move forward with.”
In the company’s Monster Energy Drinks segment, sales increased 3.3% to $1.74 billion from $1.69 billion. The segment primarily includes Monster Energy drinks, Reign Total Body Fuel high-performance energy drinks, Reign Storm total-wellness energy drinks, Bang Energy drinks and Monster Tour Water.
In the company’s Strategic Brands segment, sales increased nearly 10% to $109.2 million from $99.7 million. The segment primarily includes the various energy drink brands acquired from The Coca-Cola Co. as well as Monster Beverage’s energy brands Predator and Fury.
“We are pleased with the rollout of Predator and Fury, our affordable energy drink portfolio, in a number of markets internationally,” Sacks said. “We are proceeding with plans for further launches of our affordable energy brands.”
In the Alcohol Brands segment, sales fell 32% to $41.6 million from $61.1 million, primarily due to decreased sales by volume of flavored malt beverages. The segment includes The Beast Unleashed and Nasty Beast hard tea as well as various craft beers and hard seltzers.
“During the quarter, we took a write-down of approximately $8.1 million relating to certain brewery closures,” Sacks said. The company also recently named a new president of Monster Brewing.
Sacks added Beast Unleashed is now available in 50 states and Nasty Beast, a hard tea line introduced in the first quarter, is available in 49 states.
In the Other segment, sales decreased 4.2% to $7 million from $7.3 million. The segment primarily includes certain products of American Fruits & Flavors, LLC, a subsidiary of Monster Beverage.
Over the first six months of the fiscal year, Monster Beverage had net income of $867.4 million, or 84¢ per share on the common stock, which was up 7% from $811.3 million, or 78¢ per share, in the same time of the previous year. Sales increased 7% to $3.80 billion from $3.55 billion.