Hansen Gets a Big Boost From an Energy Drink
In the pumped-up market for energy drinks, a small Corona company has created a monster.
Hansen Natural Corp., once an obscure seller of fruit juices and sodas, is growing at a furious pace thanks to its Monster Energy line of beverages. It has been a welcome jolt for Hansen’s investors and has spawned multimillion-dollar stock gains for its top two executives.
Monster has become the second-best-selling energy drink behind industry leader Red Bull, which is battling with several new rivals that hope to capture the market’s surging sales.
Industrywide U.S. sales of the caffeine-laced drinks are expected to climb to nearly $3 billion this year from $2 billion in 2004 and should keep growing at least 50% annually for the next two years, predicted John Sicher, editor and publisher of trade journal Beverage Digest.
Consumers love the instant gratification of an energy boost, and “that is a growing component of the popularity of energy drinks,” he said.
Hansen is growing even faster than the industry. The company on Wednesday said its sales for the first nine months of 2005 nearly doubled from the same period last year, to $251 million from $130 million. Nine-month earnings more than tripled, to $44 million, or $1.84 a share, from $13 million.
The results sparked a 13% jump that day in Hansen’s stock price, which has more than tripled this year and has skyrocketed 18-fold from two years ago.
The stock closed Friday at $67.48 a share, up 9 cents for the session, giving the company a total market value of $1.6 billion.
All of this is getting Hansen noticed even though it’s much smaller than privately held Red Bull of Austria, which had 2004 sales of 1.7 billion euros, or nearly $2 billion.
When Forbes magazine published its annual list of the 200 best small companies last month, Hansen was No. 1. This month, Citigroup analyst Gregory Badishkanian joined the few analysts who follow Hansen, with an initial “buy” rating on the stock.
But Hansen’s skeptics also are paying close attention. An unusually large amount of Hansen’s stock has been targeted by short sellers, or those traders who hope to profit from a stock falling in price.
The short-selling is a big bet that energy drinks are another fad, Hansen’s growth will slow as competition heats up and its stock price will eventually tumble.
New energy drink rivals include such giants as Coca-Cola Co., which is distributing Rockstar and Full Throttle, and PepsiCo Inc., which sells SoBe No Fear and SoBe Adrenalin Rush.
Although some analysts and Hansen executives acknowledge that sales growth for energy drinks undoubtedly will slow from its feverish pace, they contend that sales still will manage double-digit annual gains in the coming years -- enabling Hansen to keep growing as well.
Hansen Chairman and Chief Executive Rodney Sacks, when asked if the short-selling concerns him, replied, “Not at all.” He also rejected the notion that energy drinks in general, and Monster in particular, are merely a fad.
In an interview, Sacks noted that Red Bull continued selling well eight years after hitting the U.S. market. Energy drinks also should keep enjoying strong demand because their appeal is spreading to different types of consumers, he said.
The drinks initially were mostly bought by men 18 to 30 years old, especially at night, when the drinks also are used as cocktail mixers, Sacks said. But that age group has widened to 13 to 50, he said, and women now account for one-third of Monster’s customers.
In addition, “about one-third of energy drinks are now consumed before lunch,” and are often “used as a substitute for coffee and orange juice in the morning,” he said.
“How long will it last? I don’t know,” said Sacks, 55. “But I define a fad as something that comes in and a year later it’s gone. I don’t consider this a fad.”
The Monster line has benefited from Hansen’s ability to secure widespread distribution for the drinks as well as the product’s savvy marketing campaign, analysts said.
For example, Hansen countered Red Bull’s 8.3-ounce cans with 16-ounce cans of Monster that cost roughly the same, about $1.99 apiece, they said. “The idea was to give the consumer a better deal,” Sacks said.
The company’s sponsorship of “extreme” sports such as skateboarding and motocross also helped.
Monster is sold in black cans with neon-green claw marks on the side, and Hansen describes the mixture as “the meanest energy supplement on the planet.”
“They’ve established a real brand with Monster, and that’s not easy to do,” Sicher of Beverage Digest said.
Hansen also sells such wholesome drinks as apple juice, fruit smoothies and “natural” sodas.
The company dates back to 1935, when Hubert Hansen started a juice business in Los Angeles.
After a trip through bankruptcy in the late 1980s, the firm was sold in 1992 to two South African businessmen -- Sacks and Hilton Schlosberg, Hansen’s vice chairman and chief financial officer -- for $14.6 million.
They targeted the energy drink market after Red Bull -- popularized by marketing executive Dietrich Mateschitz, who began selling the drink in his home country of Austria in 1987 -- rapidly expanded in Europe and plunged into the U.S. market.
Red Bull, which has made Mateschitz a billionaire, is now sold in 130 countries, and the company says it has no fear of Monster and the other new entrants.
Their arrival “really just validates the category,” and Red Bull “is committed to staying ahead of the curve,” said Patrice Radden, a spokeswoman at Red Bull’s North American headquarters in Santa Monica.
For now, Sacks and Schlosberg are enjoying the financial rush from Monster. The pair lead a group of Hansen insiders who together own 25.6% of Hansen’s stock, according to the most recent proxy, a stake now worth nearly $400 million.
But they’re also cautious about the future, and Hansen doesn’t provide earnings guidance to Wall Street.
“The future is uncertain,” Sacks told analysts this week. “We don’t know where it is all going to go.”
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Jostling for jolt
Hansen’s performance has soared on the strength of Monster, its entry in the rapidly growing market for energy drinks.
Top-selling energy drinks and market share of U.S. retail sales in dollars on Aug. 31
Red Bull*: 46%
Monster: 13.2%
Rockstar*: 9.5%
SoBe No Fear: 6.6%
SoBe Adrenalin Rush: 5.2%
*Data include sales of diet drinks.
Sources: Beverage Digest, Bloomberg News
