Monster Beverage Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited interim results. Monster develops and markets energy drinks and concentrates through Monster Energy Drinks, Strategic Brands and Other segments.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $1,461.9 million | $1,093.9 million | $2,705.8 million | $2,156.0 million |
| Gross profit / margin | $836.8 million / 57.2% | $659.5 million / 60.3% | $1,551.8 million / 57.4% | $1,296.7 million / 60.1% |
| Operating income / margin | $526.0 million / 36.0% | $407.3 million / 37.2% | $940.1 million / 34.7% | $772.3 million / 35.8% |
| Net income | $403.8 million | $311.4 million | $719.0 million | $590.2 million |
| Diluted EPS | $0.75 | $0.59 | $1.34 | $1.10 |
| Operating cash flow | — | — | $586.6 million | $440.5 million |
- Q2 net sales rose 33.6% year over year; case sales increased 38.0%. Six-month net sales rose 25.5%; case sales increased 29.0%.
- Monster Energy Drinks generated $1,367.1 million of Q2 sales, up 33.0%; Strategic Brands generated $86.9 million, up 45.9%.
- Q2 gross margin fell 3.1 percentage points and operating margin fell 1.2 points. Management cited geographic sales mix and higher raw-material freight-in and aluminum-can costs. Average net sales per case declined 3.1% to $9.01.
- At June 30, cash and cash equivalents were $1,584.2 million, short-term investments $969.0 million and long-term investments $91.0 million. Total current assets were $3,950.7 million versus current liabilities of $887.5 million.
- Debt was limited: $5.0 million was outstanding under a $15.0 million China credit facility. The filing reports $3.6 million of net debt borrowings during the first half. Operating cash flow was $586.6 million; investing activities used $180.2 million and financing activities provided $14.3 million.
Changes, outlook and risks
- Growth reflected higher worldwide volume and consumer demand, with a favorable foreign-exchange effect of $38.6 million on Q2 sales. International sales were 37% of Q2 net sales, compared with 30% a year earlier.
- Management reported North American and European aluminum-can shortages that constrained its ability to meet Q2 demand. Shipping-container shortages, port congestion and other raw-material logistics issues also posed supply risks. Freight inefficiencies and higher freight costs increased both cost of sales and operating expenses.
- COVID-19 remained uncertain: management reported a resurgence, including new variants, and potential effects on demand, while saying the supply chain remained largely intact and no material liquidity impact was then expected. Management stated it expected liquidity to remain substantial and estimated capital expenditures, excluding share repurchases, would be less than $200 million through June 30, 2022. No specific revenue or earnings guidance was provided.
- Q2 operating expenses included a $16.9 million benefit from reversing an accrual related to an intellectual-property claim. An adverse jury verdict in the Hubert Hansen name dispute had been reversed on appeal and remanded for a new trial; no loss contingencies were recorded at quarter-end. Management believed litigation in aggregate was unlikely to materially harm financial position or results.
- Key ongoing risks include input-cost inflation and the ability to pass costs on, supply and distribution disruptions, COVID-related demand uncertainty, foreign-exchange exposure, regulation and litigation, and reliance on large customers and the Coca-Cola distribution network. Three customers each represented approximately 11%–12% of Q2 sales. The filing states there were no material changes to the risk factors in the 2020 Form 10-K.
Important facts for investors to verify
- Whether can availability, freight constraints and elevated input costs persist, and how they affect demand fulfillment and margins.
- Whether sales growth continues after the unusually weak COVID-affected Q2 2020 comparison, and whether volume growth can offset lower average sales per case.
- How much of reported growth reflects foreign exchange and geographic mix, versus underlying volume and pricing.
- Developments in the remanded intellectual-property case and other litigation, plus the status of the $441.5 million remaining under the share-repurchase authorization as of August 6, 2021.
- Customer and distributor concentration, including dependence on Coca-Cola-affiliated bottlers and the related commissions and commercial arrangements.