Hansen Natural Outlook

August 7/BMI Americas Food and Drink Insights -- Energy drink producer Hansen Natural has justified its strong valuation by posting quarterly results better than analysts' expectations. For Q2, Hansen's net sales grew by 21.8% year-on-year to $365.7 million, while net earnings increased by 11% to $63.8 million. The firm's results were boosted by strong growth outside the U.S., with international sales increasing by 69% to $66.6 million. Hansen trades with a price-to-earnings ratio at the top end of the soft drinks sector and is even valued higher than rapidly growing emerging market businesses such as Coca-Cola Femsa . This valuation stems from the firm's huge growth potential, and with the international rollout helping to support this growth, this valuation looks increasingly justified.

Hansen's flagship product, the Monster energy drink, delivered resilient growth during the downturn, and the company's results have set it apart from the wider soft drinks sector. The sector has suffered as consumers cut back on consumption of carbonated soft drinks, due to health concerns and generally reduced spending on discretionary items during the economic downturn. This strength can be attributed to the popularity of Monster, which is in a high-growth category and gaining market share.

Monster is the second bestselling energy drink in the U.S., but outside this market, the firm has only limited distribution. However, Hansen has focused on extending Monster's international reach and now generates 18% of its revenues outside the United States. In October 2009, it signed a deal with The Coca-Cola Company and Coca-Cola Enterprises to distribute the drink in six Western European countries, Canada and parts of the United States. This rollout is gradually proving to be effective, with Monster's strong international sales growth in Q210 suggesting that it is gaining market share across Europe.

In the U.S., the brand is also gaining market share. In the last few years, Monster has been the fastest growing energy drink of the "big three" ( Red Bull, Monster and Rockstar), and this outperformance continued in 2009.

The relatively immature nature of the U.S. energy drinks market means that it is likely to continue to grow at a time when other parts of the soft drinks sector are stagnating or declining. This immaturity also means that it is probably too early to call which of the top brands will emerge as the dominant one. Although Red Bull's leading position makes it an early frontrunner, the firm is up against the distribution and marketing might of Coca-Cola, and its leading position could well be chased down over the next few years -- a scenario that would bode well for Hansen's earnings and supports the high valuation of the company's shares.  

From the August 9, 2010, Prepared Foods' Daily News
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