Monster Beverage Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited condensed consolidated financial statements; dollar amounts below are USD millions unless otherwise stated.
Business context
Monster develops and markets energy drinks and, following its February 17, 2022 acquisition of CANarchy for approximately $330.4 million cash, craft beer and hard seltzers. CANarchy contributed to the new Alcohol Brands segment for part of the quarter. Its purchase-price allocation remains preliminary.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $1,518.6 | $1,243.8 | +22.1% |
| Gross profit / margin | $776.7 / 51.1% | $714.9 / 57.5% | +8.6% gross profit |
| Operating income / margin | $399.5 / 26.3% | $414.1 / 33.3% | -3.5% |
| Net income / margin | $294.2 / 19.4% | $315.2 / 25.3% | -6.7% |
| Diluted EPS | $0.55 | $0.59 | -6.8% |
| Operating cash flow | -$0.4 | $175.5 | — |
Energy-drink case sales rose 21.8% to 168.8 million 192-ounce case equivalents; average net sales per case declined 0.7% to $8.87. International sales were $553.4 million, about 36% of total sales. Segment sales included Monster Energy Drinks $1,404.8 million, Strategic Brands $92.6 million, Alcohol Brands $15.2 million, and Other $5.9 million.
Gross margin pressure reflected higher freight and fuel, aluminum, ingredient and packaging costs, co-packing fees, production inefficiencies and sales mix. Operating expenses rose 25.4%, including higher freight and warehousing, travel, payroll, professional services, commissions and sponsorship costs. CANarchy purchase-accounting inventory charges reduced gross profit by approximately $3.8 million; the acquired inventory was fully sold by quarter-end.
At March 31, cash and cash equivalents were $1,014.8 million, short-term investments $1,717.6 million, and long-term investments $65.7 million. Current assets were $4,743.7 million versus current liabilities of $1,044.4 million. The filing reports $9.9 million outstanding under a $15 million China credit facility; it does not identify material other borrowings. Operating cash flow was nearly zero as inventory increased $208.7 million and receivables increased $134.4 million. The company paid $330.4 million for CANarchy. Stockholders’ equity was $6,866.7 million.
Outlook, risks and contingencies
Management said available cash, operating cash generation and credit access should cover working capital and other needs for at least 12 months. It estimated capital expenditures, excluding share repurchases, would be less than $200 million through March 31, 2023. No earnings or revenue guidance was provided.
Management cited inflation and continued cost increases, supply-chain and logistics constraints, COVID-19 effects, and Russia-Ukraine-related uncertainty as risks. The conflict had no material first-quarter impact; Russia and Ukraine together represented approximately 1.1% of 2021 sales. Management is pursuing pricing actions, lower promotions and inventory positioning to mitigate costs.
Purchase commitments were approximately $384.1 million, and contractual obligations, primarily sponsorships and marketing, were approximately $335.4 million. The company disputes a potential TCCC claim of up to approximately $65 million for additional commissions or reduced marketing contributions; no amount was accrued. Separately, an arbitration award against Vital Pharmaceuticals included $175 million and future royalties, but the company said recognition would await resolution of appeals and contingencies. The company reported no loss contingencies accrued for litigation at March 31.
Key facts for investors to verify
- Whether pricing and other cost actions can offset continued input, freight and distribution inflation, and stabilize gross margin.
- Whether working-capital growth, particularly inventory and receivables, converts into stronger operating cash flow.
- CANarchy’s finalized purchase-price allocation, integration performance and ability to improve its reported operating loss.
- The outcome and financial effects, if any, of the disputed TCCC matter and the Bang-related arbitration award.
- The cash-flow discussion contains an inconsistency: the cash-flow statement reports investing outflow of $303.6 million, while MD&A states $306.6 million; confirm the intended amount.