Monster Beverage says it's been hit harder as a 'blue-collar brand.' It plans to raise prices anyway.

By Bill Peters

'Our consumers are more hard pressed than consumers in other categories,' exec says

Monster Beverage Corp. was one of the S&P 500's biggest laggards on Thursday after the energy-drink maker's quarterly results, reported Wednesday, spooked investors.

But even as executives warn of strains on consumer spending, Monster (MNST) is going in the opposite direction of some clothing retailers and fast-food chains: The company is planning to raise prices by roughly 5% on core beverage brands in the U.S. starting on Nov. 1 and said it was on the lookout for "further pricing actions."

Management pointed to the brand's dominant market position, the popularity of energy drinks, and price increases for some other products as justification. But some analysts suggested that the move could backfire, potentially leading to price cuts or other promotions as the company tries to win back choosier customers.

"Ultimately, we think [Monster] will need to promote back a significant portion of the higher pricing as it goes into the market," TD Cowen analyst Robert Moskow said in a research note on Thursday.

TD Cowen cut its sales and profit growth estimates for Monster for this year and next and lowered its price target to $50 from $55. Over at BofA, analysts also trimmed their price target on the stock and said that energy-drink demand in the U.S. "may see further softening."

Shares of Monster were down 10.9% on Thursday. The stock is down 21.9% so far this year.

Analysts and executives have blamed some of the usual suspects for Monster's difficulties: Higher prices for basics, gas and energy, which have squeezed its lower-income consumers. Moreover, big-box retailers like Walmart Inc. (WMT) and Costco Wholesale Corp. (COST) have siphoned business from the convenience stores where people often go to buy energy drinks, Stifel analysts have said.

There's also lots of competition, and some analysts have said that after throwing dozens of new drinks at consumers, Monster's growth in the U.S. might be tapped out.

Monster executives, during the company's earnings call on Wednesday, acknowledged some of those issues, but they expressed confidence that raising prices was the right move for the business.

"The current situation in the U.S. is actually relatively unprecedented," Hilton Schlosberg, one of the company's co-CEOs, said. "And we've not seen inflation levels and interest rates [like this] for one heck of a long time."

However, he said that in markets abroad where energy drinks have been around longer, the industry has rebounded after slowdowns. And the company said that energy drinks are more popular, and that consumers see them as an affordable luxury.

"It's kind of a situation where we're a blue-collar brand," Schlosberg added. "And our consumers are more hard pressed than consumers in other categories. And that's why maybe we have seen a larger reduction than other competitive products in the space."

But management expressed confidence in the ability of Monster, as a large player in the energy-drinks industry, to raise prices. Schlosberg said that "at the end of the day, some of those competitive products have had price increases, which we have not had yet, and we will have later this year."

-Bill Peters

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08-08-24 1504ET

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