CORONA, CALIF. – Costs associated with the termination of certain distribution agreements combined with the costs of addressing possible regulations and defending the company from potential litigation had a negative impact on first-quarter earnings for the Monster Beverage Corp. For the quarter ended March 31, net income fell 17% to $63,496,000, equal to 38c per share on the common stock, down from $76,099,000, or 44c per share, during the same quarter of the previous year.

Revenue for the quarter increased 7% to $554,951,000, up from $517,313,000 during the first quarter of fiscal 2012.

“While we are pleased to report another quarter of sales growth, there were a number of exceptional costs that affected profitability in the quarter,” said Rodney C. Sacks, chairman and chief executive officer. “Despite the single digit category growth rates we are seeing, the Monster Energy brand continued to grow in excess of category growth, both in North America and Europe. Monster Energy Zero Ultra, launched in the third quarter of 2012, has gained considerable traction, and has become our second best-selling product. We are continuing to plan launches in new international markets.”

The “exceptional costs” that affected profitability included $8.4 million for distributor transitions and the termination of certain distributors, and $4.9 million for professional service costs, of which $3 million was related to legal and regulatory matters.

In a conference call with financial analysts on May 8, Mr. Sacks said the energy beverage market was soft during the first quarter.

“We believe (the softness is) partially due to the ongoing negative publicity that continues to appear in the media questioning the safety of energy drinks and suggesting limitations on their ingredients including caffeine and or the levels thereof and a minimum age restrictions for consumers,” he said. “In some of our international markets the energy drink category also appears to have slowed in the quarter.”

With regards to the distribution costs, Mr. Sacks said the company is starting to see benefits of the changes in the New York and San Diego markets.

“(We) are hopeful that our sales and market shares in those respective territories will increase during the remaining quarters of 2013,” he said.

Mr. Sacks said whether professional services rise or fall depends on a number of factors.

“We think that if the F.D.A. has its scientific hearing and things start becoming a little clearer, I think a lot of things will clear up and I think a lot of the – there may be a falloff in the professional fees. We’ve had to deal with a number of challenges from different quarters. And, that’s just necessitated the engagement of a lot of lawyers.

“But, it’s very difficult to tell how long that will go on for. For example, we’ve engaged medical consultants to obviously consult with us on some of the litigious matters but also to deal with the P.R. issues. And, all those costs and lobbyists are things that we have not normally dealt with in the past. We believe a lot of that will settle down and then those costs will settle down a little more than they have been in the first quarter. But, again I just don’t know.”