Monster Beverage Reports 2016 Second Quarter Financial Results

 

–Second Quarter Net Sales Rise 19.3% to $827.5 million–

–Board Authorizes New $250.0 Million Share Repurchase Program–

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Tender Offer Completed
On June 15, 2016, the Company completed its previously announced $2.0 billion “modified Dutch auction” tender offer (the “Stock Repurchase”). An aggregate of 12,820,512 shares were accepted for payment, which represented approximately 6.3 percent of the shares issued and outstanding prior to the completion of the purchase, at a purchase price of $156.00 per share. As a result, diluted earnings per share for the 2016 second quarter have been computed on a weighted average number of shares of common stock and common stock equivalents of 204,968,106, as compared with 181,417,112 shares in the 2015 second quarter.

Factors Impacting Profitability
Results for the three- and six-months ended June 30, 2016 and 2015 were impacted by (i) the previously announced $2.0 billion “modified Dutch auction” tender offer, (ii) the acquisition of flavor supplier and long-time business partner American Fruits & Flavors (“AFF”) (the “AFF Transaction”), and (iii) the long-term strategic partnership entered into with The Coca-Cola Company in June 2015 (the “TCCC Transaction”).
The AFF Transaction was accounted for in accordance with Financial Accounting Standards Board Accounting Standards Codification 805 “Business Combinations.” Raw material cost savings from the AFF Transaction were minimally realized in the three-months ended June 30, 2016, as the Company’s inventory on hand prior to the AFF Transaction, as well as the inventory acquired in the AFF Transaction, recorded at fair value, were not recognized through cost of goods sold until the end of the 2016 second quarter. As of June 30, 2016, the Company’s inventory on hand is recorded at the cost to AFF. As a result, the full extent of the cost savings from the AFF Transaction will be recognized in subsequent quarters.

Second Quarter Results
Gross sales for the 2016 second quarter increased 19.7 percent to $945.8 million from $789.9 million in the same period last year. Net sales for the 2016 second quarter increased 19.3 percent to $827.5 million from $693.7 million in the same period last year. Unfavorable currency exchange rates reduced gross sales by approximately $5.2 million and net sales by approximately $4.1 million in the 2016 second quarter. Excluding accelerated recognition of deferred revenue, gross and net sales would be reduced by $5.0 million in the second quarter of 2016.

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Net sales for the Company’s Monster Energy® Drinks segment, which is comprised of the Company’s Monster Energy® drink products (previously the Finished Products segment), for the 2016 second quarter increased 14.2 percent to $743.5 million from $651.2 million for the same period last year. Excluding accelerated recognition of deferred revenue, gross and net sales for the Monster Energy® Drinks segment would be reduced by $5.0 million in the second quarter of 2016. Net sales for the Company’s Strategic Brands segment, which include the various energy drink brands acquired from TCCC as a result of the TCCC Transaction (previously the Concentrate segment), for the 2016 second quarter increased 496.4 percent to $77.4 million from $13.0 million in the comparable 2015 quarter (effectively from June 13, 2015 to June 30, 2015). Net sales for the Company’s Other segment for the 2016 second quarter were $6.6 million compared with $29.5 million for the same period last year. Net sales of $6.6 million for the Company’s Other segment for the 2016 second quarter represent third-party sales acquired as part of the AFF Transaction in the quarter. Included in net sales for the Company’s Other segment for the 2015 second quarter was $29.5 million of net sales (effectively from April 1, 2015 to June 12, 2015), related to the brands disposed of as a result of the TCCC Transaction.

Net sales to customers outside the United States rose to $200.2 million in the 2016 second quarter from $151.3 million in the corresponding quarter in 2015.

Gross profit, as a percentage of net sales, for the 2016 second quarter, increased to 62.6 percent from 56.9 percent for the comparable 2015 second quarter. Gross profit, as a percentage of net sales, excluding acceleration of deferred revenue was 62.4 percent for the 2016 second quarter.

Operating expenses for the 2016 second quarter were $229.3 million, compared with $189.8 million in the second quarter last year. Excluding distributor termination costs and the specific expenses referred to in the table above, operating expenses for the 2016 second quarter were $198.9 million, as compared with $166.1 million in the second quarter last year.

Distribution costs as a percentage of net sales were 3.2 percent for the 2016 second quarter, compared with 4.1 percent in the second quarter last year.

Selling expenses as a percentage of net sales for the 2016 second quarter were 11.2 percent, compared with 10.4 percent in the second quarter last year.

General and administrative expenses for the 2016 second quarter were $110.0 million, or 13.3 percent of net sales, compared with $89.4 million, or 12.9 percent of net sales, for the comparable 2015 second quarter. Stock-based compensation (a non-cash item) was $11.5 million for the second quarter of 2016, compared with $8.5 million in the second quarter last year. General and administrative expenses for the 2016 second quarter, excluding acceleration of deferred revenue, distributor termination costs and the specific expenses referred to in the table above were $79.7 million, or 9.7 percent of net sales, compared with $65.7 million, or 9.5 percent of net sales, for the comparable 2015 second quarter.

Operating income for the 2016 second quarter was $288.5 million, compared with $366.1 million in the second quarter of last year. Operating income, excluding acceleration of deferred revenue, the gain on the sale of Monster Non-Energy, distributor termination costs and the specific expenses referred to in the table above, was $313.9 million for the 2016 second quarter, compared with $228.4 million in the 2015 second quarter.

The effective tax rate for the 2016 second quarter was 36.1 percent, compared with 37.3 percent in the same period last year.

Net income for the 2016 second quarter was $184.2 million, compared with $229.0 million in the same period last year. Excluding acceleration of deferred revenue, the gain on the sale of Monster Non-Energy, distributor termination costs and the specific expenses referred to in the table above, net income for the second quarter of 2016 increased 41.7 percent to $203.0 million, compared with $143.2 million in the comparable 2015 second quarter. Net income per diluted share for the 2016 second quarter was $0.90, based on 205.0 million shares outstanding, versus $1.26, based on 181.4 million shares outstanding, in the second quarter of 2015. Excluding acceleration of deferred revenue, the gain on the sale of Monster Non-Energy, distributor termination costs and the specific expenses referred to in the table above, net income per diluted share for the 2016 second quarter increased 25.3 percent to $0.99 from $0.79 in the comparable 2015 second quarter.

Rodney C. Sacks, Chairman and Chief Executive Officer, said: “We are pleased to report continued progress on the implementation of our strategic alignment with Coca-Cola bottlers internationally. In particular, we launched Monster Energy® drinks in August with the eight Coca-Cola bottlers in Mexico. We have also signed distribution agreements with the ten Coca-Cola bottlers operating in Brazil, and plan to launch our Monster Energy® drinks in Brazil with these Coca-Cola bottlers in November 2016. In the United States, we are continuing to see improvements in our levels of distribution. We are at an advanced stage in our planned launch of Mutant, which we expect to commence in September 2016.

“The continued strength of the U.S. dollar, distributor transitions and uncertainties with certain of our international non-Coca-Cola distribution networks, impacted our results,” Sacks added.

2016 Six Months
Gross sales for the six months ended June 30, 2016 increased 14.9 percent to $1.72 billion, from $1.50 billion for the comparable period a year earlier. Net sales for the first six months of 2016 rose to $1.51 billion, from $1.32 billion for the same period in 2015. Excluding accelerated recognition of deferred revenue would reduce gross and net sales by $5.0 million and $39.8 million in the first six months of 2016 and 2015, respectively.

Gross profit as a percentage of net sales was 62.4 percent for the first six months of 2016, compared with 57.8 percent for the comparable period in 2015. Gross profit, as a percentage of net sales, excluding acceleration of deferred revenue was 62.3 percent for the first six months of 2016, compared to 56.5 percent for the comparable 2015 period.

Operating expenses for the six months ended June 30, 2016 were $397.7 million, compared with $551.2 million in the same period last year. Operating expenses, excluding distributor termination costs and the specific expenses referred to in the table above, were $362.9 million for the first six months of 2016, compared with $317.8 million in the comparable 2015 period. Operating income for the first six months of 2016 was $543.2 million, compared with $373.8 million for the comparable period in 2015. Operating income, excluding acceleration of deferred revenue, the gain on the sale of Monster Non-Energy, distributor termination costs and the specific expenses referred to in the table above, was $573.0 million for the first six months of 2016, compared with $405.9 million in the first six months of 2015.

Net income for the six months ended June 30, 2016 was $348.1 million, or $1.69 per diluted share. The effective tax rate was 36.0 percent for the six months ended June 2016, versus 37.6 percent for the first six months of 2015. Net income, excluding acceleration of deferred revenue, distributor termination costs and the specific expenses referred to in the table above, was $369.6 million for the first half of 2016, or $1.79 per diluted share. Net income, for the six months ended June 30, 2015 was $233.4 million, or $1.31 per diluted share. Net income, excluding acceleration of deferred revenue, the gain on the sale of Monster Non-Energy, distributor termination costs and the specific expenses referred to in the table above, was $254.9 million for the first half of 2015, or $1.43 per diluted share.

Share Repurchase Program
On August 2, 2016, the Company’s Board of Directors authorized a new repurchase program for the repurchase of up to $250.0 million of the Company’s outstanding common stock. No availability remained under the previously-authorized share repurchase programs. The Company expects to make the share repurchases from time to time in the open market or through privately-negotiated transactions, or otherwise, subject to applicable laws, regulations and approvals. The timing of the share repurchases will depend on a variety of factors, including market conditions, and the share repurchases may be suspended or discontinued at any time.

For more information: Seeking Alpha

Fuente: Seeking Alpha


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