Never Mind the Lawsuits: People Are Drinking More Monster Energy

via http://blogs.wsj.com

Despite some negative headlines in recent months, people just can’t seem to get enough of energy drinks — consumers and investors alike. Recent numbers suggest sales of the caffeinated Monster Energy drink rose by double-digits in the last month compared to a year prior, and today shares in the company were up nearly as much.

Monster Beverage Corp. MNST -0.28% has had a tough few months on the regulatory front, with San Francisco’s city attorney accusing the company of marketing to children despite alleged health risks. On a federal level, regulators are investigating whether energy drinks as a whole pose “significant” risks if drunk in excess or by vulnerable groups such as young people. A similar probe is underway in New York, as is a lawsuit in Maryland over the death of a teenager.

But sales are going strong, according to a note out today from analysts at Stifel, who attended the company’s recent shareholder meeting:

The company said gross sales in April and May increased 9% y/y [year-on-year], implying May y/y sales growth of 12%-13%, an acceleration from 6% y/y growth in April. Relatedly, the company cited U.S. scanner data indicating a similar acceleration in y/y growth for the latest 4-week period, through May 25, 2013, up 9.7% for Monster, compared to up 7.5% for the 13-week period.

We believe the acceleration is encouraging, particularly given disappointing 1Q13 and April sales, relative to Street expectations. It also indicates overall sales growth remains solid and that end-demand has not worsened, in spite of concerns that negative publicity from regulatory noise has impacted category and company sales growth. Further, y/y comparisons become increasingly favorable in June (lapping +15% y/y sales growth in June, compared to +39% and +33% in April and May, respectively) and in 2H13, implying a sales growth acceleration over the balance of 2013.

Monster’s international sales, which account for 20% of the total, were up by 17% in April and May.

The company’s defense of its product has been pretty simple: it says it contains significantly less caffeine than coffee, which is more popular among both teenagers and adults. Here’s Monster Chairman Rodney C. Sacks on the company’s most recent earnings call:

Unfortunately, inaccurate, speculative and biased articles continue to be published in the media regarding energy drinks and, in particular, the caffeine levels therein. The simplest and most effective way of addressing those comments is to compare the caffeine levels in Monster Energy drinks from all sources to the caffeine levels of coffeehouse coffee such as, for example Starbucks SBUX +1.41% or Caribou, as this comparison is easily understood by and is meaningful to consumers.

Coffee has been and continues to be extensively and safely consumed every day in the U.S. by many tens of millions of consumers, many of whom are teenagers. In making such comparison we believe it is appropriate to use Starbucks’ 16-ounce medium-sized brewed coffee, which is the same size as a regular 16-ounce Monster Energy drink. A Starbucks 16-ounce brewed coffee contains approximately 330 milligrams of caffeine, which is double the approximate 160 milligrams of caffeine in the same-size Monster Energy drink. A 16-ounce Caribou brewed coffee contains between 305 and 370 milligrams of caffeine. Based on statistics provided by the research firm NPD, we believe that coffee consumption in the U.S. by teens under 18 is significantly higher than their consumption of energy drinks.

Consumers don’t seem too worried about the risk for now, hence the sales growth. And that helped the company’s shares, which were up 10.5% today. The stock is still down about 15% from where it was a year ago.