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Can Monster’s 3Q15 Sales Benefit from Coca-Cola’s Energy Brands?

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Addition of new brands

The completion of Monster Beverage’s (MNST) strategic partnership with Coca-Cola (KO) in June 2015 added Coca-Coca’s energy drink brands to its portfolio. These brands include NOS, Full Throttle, Burn, Mother, Play, Power Play, Relentless, and Nalu.

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New segment classification

With the closure of the transaction with Coca-Cola in 2Q15, Monster Beverage revised its segment classification into the following three segments:

  1. Finished Products: This segment comprises the company’s Monster Energy drink products.
  2. Concentrate: The principal products of this segment include the energy drink brands (also called “strategic brands”) acquired from Coca-Cola. This segment generates revenue by selling concentrates to authorized bottlers that combine the concentrates with sweeteners and water to produce finished beverages.
  3. Other: This segment’s principal products include the brands disposed to Coca-Cola.

In 2Q15, the Finished Products segment represented 93.9% of Monster Beverage’s net sales. The Concentrate segment and the Other segment represented 1.9% and 4.2%, respectively, of the company’s net sales in 2Q15.

Monster Beverage constitutes 2.6% of the PowerShares DWA Consumer Staples Momentum Portfolio (RHS) and 1% of the iShares U.S. Consumer Goods ETF (IYK).

Contribution of Coca-Cola brands

Net sales of the strategic brands acquired from Coca-Cola as part of a strategic deal that closed on June 12 contributed $13 million to Monster Beverage’s net sales in 2Q15. The addition of Coca-Cola’s brands expands Monster Beverage’s already strong energy drinks portfolio. These new brands and the expanded distribution agreement with Coca-Cola should help Monster capture further opportunities in the US energy drink market and in international markets.

According to data provided Beverage Marketing Corporation, energy drinks posted the second-highest volume growth of 9.7% in US liquid refreshment beverages in the first half of 2015. Ready-to-drink coffee, ready-to-drink tea, and bottled water posted volume growth of 19.1%, 7.4%, and 6.8%, respectively, in 1H15. Sports drinks posted volume growth of 3.8%. Weakness continued in the US carbonated soft drinks category, which fell 0.9% in its 1H15 volume.

To capture the growing demand for energy drinks, PepsiCo (PEP) launched four new flavors under its AMP energy brand in May 2015. Dr Pepper Snapple (DPS) is also looking for growth beyond soda. The company acquired a stake in the BodyArmor sports drink line in August 2015.

The next part of this series discusses the trend in Monster Beverage’s margins.

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