Cheaper gasoline prices may not be causing people to buy clothes at Macy's (M), but they are driving sales of highly caffeinated energy drinks.
So much for a nation of clean-eating Whole Foods (WFM) shoppers. According to data from research firm ISI, energy drink sales spiked 7% for the four weeks ended Feb. 21. The result marked a quick rebound from a 7.1% drop in the previous four-week period, in large part due to new product innovations and marketing of low-calorie properties. New products run the gambit from salted caramel-flavored energy coffee from Monster Beverage (MNST) to blueberry-flavored Amp from Pepsico (PEP).
But amid all the data, one name sticks out as very intriguing. That name is Monster, the stock of which hasn't done much for some time despite Coca-Cola (KO) solidifying a 16.7% stake in the company last June. I think that is about to change, and in turn reawaken speculation the energy drink maker eventually could be acquired by Coke.
Here are a few things to consider:
In a competitive market, Monster is outperforming.
Just take a look at the cooler section in the local convenience store next time you are there -- there is no shortage of choices in the energy drink market. So, when a company is able to outperform the market, it likely indicates that its new products and marketing are catching on with consumers.
According to Nielsen data, for the 13 weeks ended Jan. 23, energy drink sales at convenience, grocery, drug and mass merchandise stores rose 9.9% year over year. However, sales of Monster products increased by a faster 10.7% and outpaced industry giant Red Bull, which saw sales gain 10.1%. Sales of 5-Hour Energy gained 1.6%, Amp fell 7.4% and NOS rose 5.3%. Coca-Cola's Rockstar was just that: sales surged 21.7%.
I view Monster's relative outperformance as impressive, particularly as it hiked prices on its 16-ounce cans last Aug. 31. This bodes well ahead of Monster's new product introductions.
Its innovation engine is humming.
In such a competitive market, it's essential a company such as Monster (really all beverage companies) constantly finds way to innovate around its core brand. It could be new flavors. It could be new can sizes. It could be low-calorie options. Whatever it is, it has to arrive to market rather consistently to keep customers hooked.
I like what Monster has been releasing (full disclosure: I drink a lot of energy drinks, and consider myself a connoisseur). During the fourth quarter it launched on a nationwide basis Ultra Black, a zero-calorie cherry-flavored drink that only had been released in test form previously. Pipeline Punch also hit the market (yes, it's a fruit punch).
The company's low-calorie Ultra line will be launched in 15 new markets in Europe in the first half of 2016.
Here in the U.S., Salted Caramel Java recently arrived on shelves, as did three innovative flavors of "energy shakes." These are protein shakes with caffeine; they make a ton of sense, and there essentially are no competing products on the market. Also, a new drink called "Gronk," developed with New England Patriots star Rob Gronkowski, is launching soon.
The icing on the cake is the long-awaited launch, likely this year, of Monster in China, pending final government approval.
Integration with Coke bottlers nearing an end.
As part of the deal with Coke, Monster will be distributed by some of Coke's key bottlers; Monster also transferred ownership of its non-energy drink brands, such as Hubert's Lemonade, to Coke.
In my view, the integration with Coke bottlers has been both a slight distraction for Monster and one that causes inefficiencies in its system. However, I came away from Monster's last earnings call relatively confident the integration is nearing an end, and that Monster's stable of products will be produced more efficiently. That's welcome news as we look toward the back half of the year.
Seemingly lost in the shuffle of Monster's last earnings release ...
The company announced a new, $1.75 billion share repurchase plan. I think Wall Street wanted more given Monster's relatively clean balance sheet and because its share count rose last year due to Monster issuing new shares to Coke. But the positive I see about the stock repurchase isn't just the material boost to earnings per share that a big buyback would produce; it's also the signal it sends investors about the company's product pipeline. I also think it sends a signal to Coke that KO may want to gobble up all of a potentially undervalued Monster before some sort of bidding war could ensue down the line.