Overview: Eminence Capital's 1Q14 positions (Part 9 of 9)
Eminence Capital and Monster Beverage
Ricky Sandler’s Eminence Capital initiated new positions in Cadence Design Systems (CDNS), McDonald’s Corp. (MCD), Restoration Hardware Holding (RH), and Ralph Lauren Corp. (RL). It sold shares in Advance Auto Parts Inc. (AAP) and Monster Beverage Corp. (MNST).
Eminence Capital exited a position in Monster Beverage Corp. (MNST) that accounted for 1.80% of the fund’s 4Q13 portfolio. The position was initiated in 4Q12, according to previous 13F disclosures.
Monster Beverage develops, markets, sells, and distributes “alternative” beverages such as ready-to-drink iced teas, lemonades, single-serve juices, juice cocktails, and fruit beverages. According to Beverage Marketing Corporation, domestic U.S. wholesale sales in 2013 for the “alternative” beverage category of the market was estimated at approximately $37.7 billion, representing an increase of approximately 5% over the estimated domestic U.S. wholesale sales in 2012 of approximately $35.9 billion.
The company’s Monster Energy drinks represented 92.9% of net sales for the three-months ending March 31, 2014. Other brands include Hansen Naturals and Blue Sky. Monster Beverage has two reportable segments, namely Direct Store Delivery (DSD), whose principal products comprise energy drinks, and Warehouse, whose principal products comprise juice-based and soda beverages. Monster noted in its annual filing that The Coca-Cola Company (TCCC), North American Bottlers, Anheuser-Busch Distributors, New CCE (Coca-Cola Enterprises), and Coca-Cola Hellenic are the primary domestic and international distributors of Monster Energy products.
Monster sees rumors of acquisition by Coca Cola
Energy drink maker Monster Beverage has seen speculation that it could be an attractive acquisition target for Coca Cola (KO) due to the latter’s declining soda sales. Analysts cited by news reports said that Coca-Cola already distributes around half of Monster Beverage’s beverages to retailers across the U.S. According to reports, Coca-Cola was looking at acquiring Monster earlier in 2012, but dropped the plan due to Monster’s increased valuation. In the energy drinks space, Monster’s market share stands at 39%, behind Red Bull with a 43% share.
Monster beats earnings estimates, but misses on revenue
After two quarters of missing earnings estimates, Monster beat consensus for earnings per share (or EPS) in 1Q14. It posted net income of $95.25 million or $0.55 per share for the first quarter, up from $63.5 million or $0.37 per share in the prior-year quarter. However, net sales for the quarter came below estimates despite an increase of 10.7% to $536.13 million from $484.22 million in the same quarter last year. The Direct Store Delivery segment represented 95.9% of total net sales for the quarter.