Monster Beverage Gives Its Growth a Big Kick Higher

An old look at Monster's customer base. Source: Monster Beverage.

In the beverage industry, a revolution has taken place, with the carbonated soft drinks that Coca-Cola helped make famous giving way to the energy drinks that Monster Beverage has turned into its primary engine for massive growth. Coming into Thursday afternoon's fourth-quarter report, Monster Beverage investors hoped that the energy-drink specialist would be able to sustain its impressive growth pace from recent years.

For its part, Monster Beverage gave shareholders a positive jolt with its results, as the company proved its staying power and revealed some of its plans to keep expanding in 2015 and beyond. Let's take a closer look at the latest results from Monster Beverage, and what they mean for investors in the future.

Monster Beverage closes an energetic yearMonster Beverage's headline numbers blew expectations out of the park, with fourth-quarter revenue soaring 12%, to $605.6 million, topping consensus projections by more than $21 million. Net income climbed an even more impressive 65%, to $125.3 million, and that produced earnings of $0.72 per share, beating estimates by $0.13.

Looking more closely at Monster Beverage's results, the company claimed successes in a number of key areas. Case-sales volume climbed 11%, to 58.6 million, and Monster also managed to boost its per-case pricing by $0.09, to $10.34. Margins improved dramatically, with cost-of-sales reductions pushing gross margins higher by 3.6 percentage points and reduced operating expenses adding seven full percentage points to Monster's operating margin. Savings came from lower distribution costs, selling expenses, and general overhead.

Monster also found growth in its international sales. The company sold $160.1 million in products to customers outside the U.S. in the fourth quarter, up 16% from the year-ago quarter.

Source: Monster Beverage.

Monster's full-year numbers were similarly strong. For 2014, net sales jumped almost 10%, to $2.5 billion, producing 43% higher net income and full-year earnings of $2.77 per share.

CEO Rodney Sacks expressed his satisfaction with the report. "We are pleased to report another quarter and year of continuing sales growth," Sacks said, and he particularly called out "solid sales growth in Japan, which is becoming one of our largest international markets." The company is also excited about its most recent energy-drink flavor launches, which Sacks sees as an integral part of Monster's strategic plan in 2015.

What will Monster Beverage do for an encore?The big news going forward, though, will be the completion of Monster's deal with Coca-Cola. Under the arrangement, Monster will get ownership of Coca-Cola's existing lineup of energy drinks in exchange for Monster's non-energy-drink beverages, including Hansen's Natural sodas.

Moreover, Monster will enjoyed most-favored status as a distribution partner globally, helping to accelerate its worldwide expansion, and leveraging Coca-Cola's global presence to increase awareness and open up new potential markets. As Sachs sees it, the deal will provide Monster with "complementary product offerings in many countries, access to new geographies, as well as access to new channels, including vending and specialty accounts." Monster hopes to complete the deal during the second quarter of 2015.

CEO Rodney Sacks, testifying before Congress in 2013. Source: C-SPAN.

One interesting consequence of the company's international success was a drop in Monster's effective tax rate. Some of Monster's foreign subsidiaries end up having no income-tax expense because of deferred tax assets that they have on their balance sheets.

The one concern that Monster discussed was the potential impact of regulatory and litigation expenses related to the safety and advertising of energy drinks. Monster spent just $2.9 million during the fourth quarter on those costs, but the $20.6 million it spent throughout 2014 was 15% higher than its 2013 expenses.

Monster Beverage shareholders were certainly pleased with the results, as the stock climbed 7% in the first hour-and-a-half of after-hours trading following the announcement. Yet investors won't truly get a full sense of just how big the Coca-Cola deal will be until it actually closes. For that, Monster Beverage shareholders will have to wait until the second half of 2015; but by all indications, it looks as though it will be worth the wait.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and Monster Beverage. The Motley Fool owns shares of Monster Beverage and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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