With rumors circulating that the energy drink leader may be closing in on a merger deal with Constellation Brands, Monster Beverage Corporation reported record growth for the fourth quarter and full year 2021 in an earnings report Thursday, with 2021 net sales up 20.5% to over $5.5 billion.
Despite continued supply chain challenges and inflationary pressures, Monster saw full-year sales rise significantly from $4.6 billion in 2020, with gross profit as a percentage of net sales at 56.1%, compared to 59.2% in the year before. The decrease in gross profit was a result of rising costs of aluminum cans and other raw materials, as well as higher freight-in costs and geographical sales mix.
The report comes amid reports that Monster is in negotiations over a potential merger with bev-alc giant Constellation Brands, whose beer portfolio includes Mexican import brands Corona, Modelo and Pacifico. According to Bloomberg, the combined company would have a market value of about $90 billion and, as of February 15, “people familiar with the matter” said a deal could be reached “in the coming weeks.”
On February 17, Monster completed its acquisition of CANarchy Craft Brewery Collective LLC for $330 million, bringing a roster of craft beer brands into its portfolio including Oskar Blues, Cigar City, Deep Ellum, Perrin Brewing, Squatters and Wasatch. Sacks said on the call that CANarchy will continue to operate independently and retain its organizational structure and team.
Though the Constellation Brands rumor was not mentioned during the earnings call, chairman and co-CEO Rodney Sacks said the CANarchy acquisition gives Monster “a good base” in beverage alcohol on which to build but is “not the complete answer” to its ambitions in alcohol. Sacks complimented the staff and distribution infrastructure currently in place, while adding that Monster will aim to refine its organization in order to scale and expand.
“We are going to look at taking the distribution system [and] refining a little bit,” Sacks said. “We’re looking at addressing their products and taking steps to invigorate their sales and looking at our own products that we’ve been developing, that we have discussed previously … and deciding where to help to launch those through the CANarchy system. And we will separately address the possible M&A of additional brands, whether in… the malt side, the beer side or the spirit side. Those are things that are opportunities.”
Even amid discussions of potential M&A activity, Credit Suisse analyst Kaumil Gajrawala wrote that while “investments in alcohol are likely,” the firm does not view Monster’s “management as large-scale acquirers.”
Monster did not acquire CANarchy’s collection of stand-alone restaurants. The future of some of those locations became clearer this week when Squatters founders Peter Cole and Jeff Polychronis and investors struck a deal to buy back the Squatters- and Wasatch-branded locations throughout Utah. Cole and Polychronis followed in the footsteps of fellow founder Lynne Weaver, who, with a group of investors, bought back Inglewood, California-based Three Weavers in June 2021.
However, Oskar Blues’ Boulder taproom, which was included in the sale to Monster, shuttered earlier this month.
For the first three weeks of 2022, off-premise dollar sales of the CANarchy portfolio declined -18%, to $7.1 million, according to market research firm IRI. These sales are compared to the same period in 2021, which was cycled against a period in 2020 before the COVID-19 pandemic had forced the closure of bars and restaurants, facilitating elevated off-premise spending.