Monster Beverage Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Financial statements are unaudited. Dollar figures below are in millions except per-share amounts.
Business context
Monster develops and markets energy drinks and concentrates through three segments: Monster Energy Drinks, Strategic Brands, and Other. The Monster Energy Drinks segment generated 94.3% of Q3 net sales. Management reported record third-quarter net sales, driven primarily by higher worldwide volume and consumer demand.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | First 9 months 2021 | First 9 months 2020 |
|---|---|---|---|---|
| Net sales | $1,410.6 | $1,246.4 | $4,116.3 | $3,402.4 |
| Gross profit | $789.2 | $736.5 | $2,340.9 | $2,033.2 |
| Gross margin | 55.9% | 59.1% | 56.9% | 59.8% |
| Operating income | $444.5 | $458.6 | $1,384.6 | $1,230.9 |
| Operating margin | 31.5% | 36.8% | 33.6% | 36.2% |
| Net income | $337.2 | $347.7 | $1,056.2 | $937.9 |
| Diluted EPS | $0.63 | $0.65 | $1.97 | $1.75 |
| Operating cash flow | Not reported separately | Not reported separately | $928.0 | $949.2 |
Q3 net sales rose 13.2% year over year; case sales increased 14.3% to 160.0 million 192-ounce case equivalents. Nine-month sales increased 21.0%, with case sales up 23.5% to 460.0 million. International sales represented approximately 37% of Q3 revenue and grew 18.7% year over year.
Q3 gross margin contracted 3.2 percentage points and operating margin 5.3 points. Management attributed margin pressure principally to higher aluminum and imported-can costs, logistics, and geographic sales mix; higher freight, warehousing, and marketing expenses also weighed on operating results. Average net sales per case fell 0.8% in Q3 and 1.9% for the nine-month period.
At September 30, cash and cash equivalents were $1,712.7, short-term investments $1,224.1, and long-term investments $28.3. Current assets were $4,383.7 and current liabilities $932.2. The company reported $0.2 outstanding on a $15.0 China credit facility. Operating cash flow was $928.0 for the first nine months; investing activities used $381.7 and financing activities provided $21.5. Cash and cash equivalents increased $532.3 during the period.
Material changes and management commentary
- Q3 revenue growth did not translate into higher quarterly earnings: operating income declined 3.1% and net income declined 3.0% year over year. For the first nine months, operating income increased 12.5% and net income increased 12.6%.
- Q3 operating expenses increased 24.0% to $344.7, including higher outbound freight and warehouse costs, payroll, distributor termination costs, sponsorships, and marketing. Nine-month expenses increased 19.2%; the period included a $16.9 reversal of amounts previously accrued for an intellectual property claim.
- Management cited shortages of aluminum cans in the U.S. and EMEA, NOS concentrate shortages, freight and port disruptions, trucking and shipping-container constraints, ingredient delays, labor shortages, and limited co-packing capacity. The company said these constraints prevented it from fully meeting increased demand in some regions.
- COVID-19-related uncertainty and inflation increased costs and could affect supply, demand, staffing, and distribution. The company said it did not foresee a material impact on co-packer or distributor capacity at filing, but warned that continued disruption could materially affect its supply chain. It was using reduced promotions and pricing actions to address higher costs.
- No specific revenue or earnings guidance was provided. Management expected substantial liquidity and estimated capital expenditures, excluding share repurchases, would be less than $200.0 through September 30, 2022, subject to change with business opportunities.
- Purchase commitments for raw materials were approximately $130.0; contractual obligations, primarily sponsorships and marketing, were approximately $212.7. The company reported ordinary-course litigation and no accrued loss contingencies at quarter-end; management believed the litigation in aggregate was unlikely to materially harm financial position or results.
Most important facts for investors to verify
- Whether supply constraints and rising input, freight, and labor costs persist, and whether pricing actions can offset them without weakening demand or volume.
- Whether volume growth continues to outpace pressure on gross margin, average sales per case, and operating margin.
- How working-capital needs evolve: accounts receivable and inventory increased materially during the first nine months and reduced operating cash flow.
- Exposure to major distributors: three named Coca-Cola bottlers each represented approximately 10%–12% of sales, and Coca-Cola relationships are significant to distribution.
- Whether the stated capital-expenditure estimate, liquidity outlook, legal contingencies, and remaining $441.5 share-repurchase authorization (as of November 5, 2021) change.