Monster Beverage Profit Hit by $206 Million in Distributor Payments

By Mike Esterl 

Monster Beverage Corp.'s profit tumbled in the first quarter, weighed down by $206 million in termination payments as it transfers distribution to Coca-Cola Co.

The energy drink maker Thursday also reported lower-than-expected revenue growth as rival Red Bull GmbH gained U.S. market share and overseas results were hurt by weakening foreign currencies.

Monster, based in Corona, Calif., said it expects to close its broader deal with Coke in early June. Coke said last August it would pay $2.15 billion for a 16.7% stake in Monster as part of an asset swap and become Monster's preferred distributor.

Net income at Monster fell to $4.4 million, or three cents a share, in the first quarter, from $95.3 million, or 55 cents a share, in the year-earlier period.

Net revenue rose 17% to $626.8 million, from $536.1 million, over the same period, boosted by $39.8 million in accelerated deferred revenue tied to distributor terminations.

Monster's shares fell 4.8% to $136.63 in recent after-hours trading.

Excluding termination fees, adjusted earnings per share were 62 cents, six cents below the estimate of analysts as calculated by Thomson Reuters. Adjusted revenue of $587 million also came in below the $601.2 million analyst estimate.

Monster said it has transferred about 84% of targeted distribution rights in the U.S. to Coke, which previously shared distribution with brewer Anheuser-Busch InBev NV. In a conference call with analysts, Chief Executive Rodney Sacks said the U.S. transition has gone "relatively smoothly" but acknowledged "minor disruptions."

Mr. Sacks said Monster plans to begin transferring overseas distribution to Coke later this year. He acknowledged that some existing distributors appeared to have pulled back in efforts to sell the energy drinks ahead of the handover, hurting sales in the most recent quarter.

But he reiterated Monster should benefit from joining Coke's massive global distribution system. Atlanta-based Coke, the world's largest maker of nonalcoholic beverages by revenue, sells its drinks in every country except Cuba and North Korea.

Monster's revenue outside the U.S. dipped to $113 million, from $115.8 million in the year-earlier quarter. Monster said the strengthening dollar had a negative impact of $12 million on foreign sales.

Write to Mike Esterl at [e-mail]

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