Hansen Keeps Growin’ in Q3, amid Signs that Energy Category May Be on Mend; Transition to Bottlers Advances; More Overseas Markets Added; Asahi Soon a Partner?    Amid a few signs that once-booming energy segment may be emerging from year-long funk, Hansen Natural continued to hit new sales and profit peaks in 3d qtr, with net sales rising 8.1% to $307.9 mil, and operating income surging 13.6% to $92.9 mil.  Net sales for co’s DSD segment, where Monster Energy sales are concentrated, grew by 9.6% to $282.4 mil.  Case sales rose to 29.8 mil from 28 mil, and despite what some report to be intense promotional activity in markets like Southwest and Calif, avg price per case rose to $10.33 from $10.17. For 9 mos, net sales increased 9.4% to $852.4 mil and operating inc increased 24% to $251.5 mil. 

Still, partly because promotional costs run higher in overseas markets, co missed earnings expectations for 1st time this year, sending shares skidding $2-3 in early trading Fri from $37 close on Thurs, just before earnings were announced.  “Disappoints, but still gaining share,” wrote Stifel Nicolaus’ Mark Astrachan, adding:  “We believe current valuation underestimates Hansen's earnings power.”

As usual on conference call with investors, chmn/ceo Rodney Sacks offered panoply of scanner data to make case that Monster continues to outgrow rivals, with Red Bull also turning in strong performance and smaller NOS brand continuing surge, but Rockstar, Amp and Full Throttle all losing ground.  Full Throttle, NOS and Monster are generally in Coke stable, Rockstar and Amp in Pepsi stable, and Red Bull independent.

Tho economy’s prospects are still cloudy, Rodney offered encouraging insight that, per Nielsen scanner data, energy drink sales in convenience-and-gas and grocery channels grew for 1st time since Mar, edging up 0.9%.  Still, downturn in construction hit Monster’s blue-collar base heavily, exacting biggest impact on that demo’s favored 24-oz can.  By contrast, Monster’s core 16-oz can was up in Q3.  Asked why Red Bull did so well, too, Rodney guessed that it’s because of attention co has been focusing on weaker areas, as well as higher register ring as its 16-oz can garners greater traction.  In C&G, Monster was up 5.4%, Red Bull 5.3%, while Rockstar slipped 4%, Amp 4.4% and Full Throttle 13.1%.  Smaller NOS brand grew by 23.2%.

Progress Cited in Transition to Coke Bottlers    Sacks made case that, after earlier bumps in road, various transitions to Coke bottlers and Bud wholesalers are gettin’ on track.  In both Atlanta and Fla, share is now higher than pre-transition but share still lags in Tex, where brands exited powerful Dr Pepper Snapple distribution system.  In Houston, heavily independent c-stores “continue to be a challenge.”  Detroit has also shown “softness” since transition, he said.  Overall, tho, revamped distribution map “is paying dividends.”

Extensions: Java Monster Ails; Import, Espresso, Nitrous Racking Up Sales    Among extensions to core Monster brand, Java Monster continued to lose share at hands of Pepsi/Starbucks Doubleshot, with silver lining that smaller chunk of sales by expensive-to-make items helped boost Monster gross margin to 53.6% from 51.4%. Newer entries are chalking up meaningful revenue #s: Monster Import, $8.4 mil in Q3, noncarb Espresso $4.3 mil, 12-oz Nitrous $13 mil.  (At recent NACS c-store expo, Monster execs noted that can shortage has Nitrous shipping with Rexam resealable “cap can” in western markets but in non-resealable Ball cans in East.)

Hitman Shot Adopts Lower-Price Strategy; Evaluates Other Options   Like every other rival to 5 Hour shot line, Hansen is struggling to make meaningful impact in still-growing sector.  Sacks credited 3-oz Hitman with sales that are “close to Red Bull” and way ahead of NOS, Amp and Full Throttle, but he’s “not satisfied with sales rate.”  (Recall that behind scenes Hansen has been challenging 5 Hour claims and even trying to force name change to less-specific claim.)  He also decries “irrational” pricing.  So, as anticipated (BBI, Sep 25), co has embarked on lower-price push that’s putting Hitman on shelf at $1.99, more in line with canned entries.  But it’s also evaluating other unspecified alternatives, he said.

Peace Tea Line Gets Coke Partner into Game   Peace tea line, prepriced at 99 cents per 23.5-oz can, offers “our largest single customer” (meaning Coke) a value line with which to challenge dominant players (AriZona, Lipton).  Brand, whose debut caused stir at NACS, will go into Coke system, adding potentially hi-volume leg to Hansen biz and better profits as higher-margin items are intro’d down road.  Hansen figures its big energy drink biz and ties to Coke and Anheuser-Busch give it scale unavailable to others, like New Age (with Xingtea), that have similarly tried to challenge AriZona on its turf.  At same time, it offers chance to restore margins beaten down by AriZona pricing policies.  Recall that in past KO has tried to acquire AriZona to buttress tea offering.

Monster Accelerates Offshore Push; Asahi a Potential Partner in Asia?   Outside US, brand is gaining share in Canada and Mexico.  Continental Europe “progressing satisfactorily” and UK is doing a bit better after bumpy start.  Sacks said Hansen execs are sitting down with CCE folks to explain why Monster entries should be viewed as complement to their other brand (higher-margin Relentless).  New distributor has been recruited for Ireland and Australia went live in Q3 via Schweppes.  Finland also aboard in Q3.  All told, sales to customers outside US came to $50 mil vs $30.7 mil in 08 period.

Despite some delays, Brazil remains in plans for launch later this year.  Sacks said co is considering other Latin American markets as well as Asia, tho no fixed plans yet. Sacks hopes to announce “meaningful” new relationship in near future.  Sources said co has been in talks with Asahi Brewing; attendees at NACS show spotted Asahi execs visiting with Monster brass, so deal may be close. 

Company Experiments with Owning Some Properties    With costs of participating in extreme sports soaring as other marketers bid up athlete sponsorships, Monster has embarked on experiment in owning some of properties it employs.  Push, which mimics strategy that energy pioneer Red Bull has employed for decade, includes activities like Epicenter 09 concert in Pomona, Calif, which lost $$ but should break even in future, Rodney said.