CORONA, CALIF. — Energy drinks remain a pandemic-resistant category, with Monster Beverage Corp. reporting record sales in the first quarter. The company’s margins were negatively impacted by supply chain issues that the company warned may continue into the second quarter.
Net income for the first quarter ended March 31 was $315 million, equal to 59¢ per share on the common stock, up 11.5% from $279 million, or 52¢ per share, in the same period a year ago. Quarterly sales grew 14.5% to $1.24 billion from $1.06 billion the year prior.
Sales in the Monster Energy Drinks segment, which also includes Reign Total Body Fuel, grew 17.9% to $1.17 billion. Sales in the Strategic Brands portfolio, which includes energy drink brands purchased from the Coca-Cola Co., grew 5.1% to $67.8 million.
Given its volume growth and current supply constraints in the aluminum can market, the company is experiencing shortages in its aluminum can requirements. It is taking steps to source additional quantities of cans from South America and Asia, but logistical issues including ocean freight and port-of-entry congestion could delay such supply, said Rodney Sacks, chairman and co-chief executive officer of Monster, during a May 6 conference call with analysts.
The issue was not the price of the cans but rather an increase in freight and logistics spending, which resulted in gross margins slipping to 57.5% from 60% in the first quarter.
“We broke our orbits,” Mr. Sacks said. “In other words, we've always tried to manufacture and sell within regions to avoid excessive shipping costs. We had to break that this year to satisfy consumer demand, so that was a factor that impinged on the results.”
The company is looking to avoid price increases in order to defend its share in the energy drinks category.
“Last time, we went ahead and did it irrespective of Red Bull's strategy with regard to pricing,” Mr. Sacks said. “This time around, we're examining what they will be doing… They're importing a substantial amount of their cans and product from overseas, so we'll be watching that.”
There are other ways to take price up, including reassessing the structure of promotional allowances to move margins in a more positive direction, he added.
“We don't want to disturb the business that is doing very well,” Mr. Sacks said. “We’re happy with where the business is going. We're happy with our share, and we don’t want to disturb what we already have.”