By Mike Esterl
Monster Beverage Corp.'s shares surged to a record Friday after
the energy drink maker reported strong overseas growth and
investors bet on a further lift from Coca-Cola Co., which is
preparing to take a minority stake.
Monster's share price was up 13% at $141.06 in afternoon Nasdaq
trade, pushing its stock market capitalization above $23 billion.
Earlier in the session, the stock hit a high of $143.90. Its price
has doubled since last August, when Coke agreed to pay $2.15
billion to acquire a 16.7% stake as part of an asset swap and
distribution pact.
Monster said late Thursday its fourth-quarter profit soared 65%
to $125.3 million and sales rose 12% to $605.6 million from a year
earlier, easily beating Wall Street expectations. It is the world's
second-largest energy drink maker by revenue behind Austria's
closely held Red Bull GmbH.
Corona, Calif.-based Monster and Coke expect their deal to close
in the second quarter. Some investors think Coke could increase the
minority stake as the world's largest beverage company looks to
diversify amid slowing soda sales.
"Materially better results since the Coke deal was announced in
August 2014 increases the likelihood of an outright acquisition of
Monster by Coke, in our view," Mark Astrahan, a beverage analyst at
Stifel Nicolaus, wrote in a research note.
Coke can't increase its stake in Monster beyond 25% under a
four-year standstill agreement without negotiating a waiver. Coke
declined to comment on any additional stake plans. It also has
spent more than $2 billion to acquire a 16% stake in countertop
coffee maker Keurig Green Mountain Inc. since last year.
Even if Coke doesn't increase its stake, investors expect
Monster's international rollout to accelerate with the help of
Coke's massive distribution network. Monster has the largest share
of the U.S. energy drink market in volume terms but lags behind Red
Bull overseas. Coke sells drinks in every country other than Cuba
and North Korea.
Monster said fourth-quarter gross sales outside the U.S. rose
16% to $160.1 million from $137.9 million a year earlier. The
company also reported it booked operating income of $13.8 million
outside North America, compared with a loss of $4.4 million in the
year-earlier quarter, boosted by its growing business in Europe and
Japan.
It said Thursday it expects to start selling its namesake energy
drink in India soon. Chief Executive Rodney Sacks also told
investors last month that the company expects to begin operations
in China "more quickly" with Coke's help, but didn't give a launch
date.
Monster also is benefiting from improving economic conditions in
the U.S., where rising wages and falling gasoline prices are
putting more money in consumers' wallets. The company said its U.S.
retail sales rose 11% in the four weeks ended Jan. 24, citing
Nielsen store-scanner data, after sales growth slowed in 2014
before rebounding late in the year.
But energy drink companies face regulatory risks amid health
concerns. In addition to caffeine and sugar, energy drinks contain
exotic ingredients such as taurine and ginseng marketed as
delivering extra kick.
Companies have faced heightened scrutiny in the U.S. since 2012,
when New York state Attorney General Eric Schneiderman launched a
probe into marketing and health claims and the Food and Drug
Administration disclosed it was investigating unconfirmed reports
linking energy drinks to more than a dozen deaths.
Monster and other energy drink companies say their products are
safe and contain about half as much caffeine per ounce as a
Starbucks coffee.
Write to Mike Esterl at mike.esterl@wsj.com
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