Sales of energy drinks unfazed by weak economy; Monster Energy drinks accounted for 94% of parent Hansen Natural's sales in Q2, but whether companies can achieve growth outside U.S. remains to be seen
August 24, 2011
– There are some things you pay for no matter the weak economy-- or maybe because of the weak economy. Energy drinks are one.
Sales of Monster Energy drinks, the high-caffeinated elixir with the neon "M" logo, are growing fast, propelling the earnings of owner Hansen Natural Corp. Energy drinks as an industry are growing as well, but Hansen says Monster is outpacing some competitors like Red Bull, NOS, AMP and Full Throttle.
Hansen said it sold $484 million worth of Monster drinks in the second quarter, a 28 percent increase over the previous year. And though the Los Angeles-area company also sells sodas, teas and smoothies, the Monster drinks accounted for 94 percent of the increase in gross sales.
Wall Street says Hansen is helping the Monster brand with new products aimed at a demographic besides young males pulling all-nighters. For example, zero-calorie and low-carb offerings likely appeal to female customers, said Stifel Nicolaus analyst Mark Astrachan. Java Monster, with flavors like Irish blend and toffee, probably brings in older customers. And electrolyte-infused Monster Rehab may bring in athletes.
Hansen shares climbed nearly 11 percent since the beginning of August through Tuesday. During that time, the S&P 500 has lost 10 percent. On Wednesday, shares hit a new 52-week high of $86.88 Hansen's performance is also a window into how people deal with the stress of a faltering economy, just as U.S. cigarette sales showed their first uptick in years during the 2008 financial crisis.
To be sure, Hansen is aware that a weak economy could force customers to pull back even on small luxuries like a caffeine jolt. "We are in very uncharted waters now," longtime CEO Rodney Sacks said in a call with analysts Aug. 4. "But we are positive."
The bulk of Monster's sales come from inside the U.S. Hansen knows it needs to tap foreign markets that are faster-growing and less crowded with energy drink offerings. Hansen launched Monster Energy in Greece, Cyprus, Lithuania, Latvia, Estonia, Ukraine and Portugal and Colombia so far this year. It plans to move into additional countries in Central and Eastern Europe, South America and Asia.
Sacks enthused about the international possibilities on the call with analysts. He said Hansen officials would go into new markets in South America and find that local auto racers had unofficially decked out their cars in Monster decals.
"We don't even know who they are, we have never seen them or heard of them," Sacks said. "What it shows you is there is an awareness for the brand and an affinity for the brand even in markets we haven't gotten to yet."
But Sacks also noted that the company had recorded operating losses in most of the newer countries, although he thinks the investments will pay off in the long run.
Agata Kaczanowska, a beverage analyst at IBISWorld, cautioned that the high-fueling energy drinks may not translate to other markets.
"It's a cultural thing in the U.S., it's a go-go-go type of society, and not every culture has the (same) mentality," she said. "However, on the flip side, energy drinks have become so popularized in American media that it creates this expectation that, `Oh, maybe this is normal, this is what people should be drinking.'"
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