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Assessing Monster Beverage’s 4Q14 performance by segments

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Segment overview

Monster Beverage (MNST) operates its business through two segments—Direct Store Delivery (or DSD) and the Warehouse segment. The principal products of the DSD segment are energy drinks, and the Warehouse segment includes juice-based and soda beverages. The DSD segment primarily sells its products through an exclusive distributor network. In contrast, the Warehouse segment sells products directly to retailers.

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Segment performance

Monster Beverage’s DSD segment, comprising energy drinks, is the dominant segment of the company, accounting for about 96% of its net sales. In 2014, the DSD segment’s net sales increased 10.3% to $2.37 billion. This increase was due to higher volumes driven by increased domestic and international consumer demand, as well as the company’s expansion into new international markets.

The contribution margin, or segment profitability, of the DSD segment increased by 25% to $908.8 million. Monster Energy’s 4Q14 net sales for the DSD segment increased by 12.6% to $584.8 million, compared to 4Q13.

In 2014, net sales for the Warehouse segment declined by 3.4% to $95.7 million. Segment profitability of the Warehouse segment was $3.0 million in 2014, compared to a loss of $1.7 billion in 2013.

New segment classification

In August 2014, Monster Beverage announced a long-term partnership with Coca-Cola (KO), under which the two companies will swap their energy and non-energy drink businesses. We will discuss this deal in more detail in Part 6 of this series. After this deal is completed, Monster Beverage plans to have two operating segments:

  • Concentrate: Comprises various energy drink brands transferred to the company from Coca-Cola
  • Finished Products: Plans to include the company’s Monster Energy drink products, which currently account for majority of the DSD segment

Monster Beverage and peers like PepsiCo (PEP), Coca-Cola, and Dr Pepper Snapple (DPS) collectively form 16% of the Consumer Staples Select Sector SPDR Fund (XLP). The next part of this series will discuss Monster Beverage’s improved 2014 margins.

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