Hansen Natural (HANS)

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See all Bulls Reasons Bulls: Reasons To Buy Energy drinks are on fire 0% agree Energy drinks are on fire The energy drink sector is the fastest growing sector in the beverage industry and accounts for 85% of Hansen's 2006 net sales. View or Edit Reason 0 votes 0% agree Strong expertise in marketing and sales 0% agree Strong expertise in marketing and sales Nearly 80% of Hansen's employees specialize in sales & marketing, a skill that is crucial to success in the trendy alternative beverage industry. View or Edit Reason 0 votes 0% agree Incredible growth over the past few years 0% agree Incredible growth over the past few years From 2004 - 2006, net sales have nearly quadrupled and net income has almost quintopled. View or Edit Reason 0 votes 0% agree See all 4 Bears Reasons Bears: Reasons To Sell "Hansen has limited financial, marketing and distribution resources" 0% agree "Hansen has limited financial, marketing and distribution resources" Compared to most of its competitors, Hansen has limited financial, marketing and distribution resources. View or Edit Reason 0 votes 0% agree Hansen has limited financial, marketing and distribution resources 0% agree Hansen has limited financial, marketing and distribution resources Compared to most of its competitors, Hansen has limited financial, marketing and distribution resources. View or Edit Reason 0 votes 0% agree Competition in hot alternative beverages create downward margin pressure 0% agree Competition in hot alternative beverages create downward margin pressure Increasing competition in the alternative beverage sector will narrow margins and market share and increase marketing costs in the long run. View or Edit Reason 0 votes 0% agree Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

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Hansen Natural (NDAQ:HANS), headquartered in Corona, California, is an alternative beverages company that specializes in energy drinks. The company's Monster Energy® brand accounts for 85% of sales in 2006 and is gaining in market share against arch rival Red Bull (privately held). Overall, Hansen has experienced tremendous growth from 2004 - 2006, and its volatile stock price reflects how much the small company depends on the energy drinks niche. With Cadbury Schweppes Bottling Group and Wal-Mart Stores (WMT) as the company's primary customers, the firm generated $606 million in revenue during annual 2006, a 74% increase from the previous year. Hansen employs 748 people, the vast majority of which specialize in sales and marketing, key activities for a highly competitive space.

Trends affecting the energy drink space include health concerns around obesity, which would reduce demand in the Hansen's non-diet beverages, as well as the rise in key input prices, including aluminum, PET plastic, and high fructose corn syrup. Continuing rises in these commodities could affect bottom line margins as well as lower topline demand if the company passes along prices increases to customers.

Mark Hall, President of the Monster Beverage division, Hilton H. Schlosberg, Vice Chairman and CFO and Rodney C. Sacks, Chairman and CEO of Hansen Natural Corporation, ring the opening bell.

[edit] Company Overview

Founded in 1990 and headquartered in Corona, California, Hansen develops, markets, sells and distributes alternative beverages. Led by its Monster energy drink brand, the firm has generated impressive growth in recent years. The energy drinks sector is amongst the fastest growing in the beverage industry and retail sales are expected to reach $6.9 billion in 2007, up about 33 percent from 2006^[1]. Hansen brands include:

• Energy Drink Brands: Monster Energy®, Lost® Energy™, Joker Mad Energy™, Unbound Energy® and Ace™ brand names as well as Rumba™ brand energy juice

• Non-carbonated Brands: Java Monster™ non-carbonated dairy based coffee drinks, Junior Juice® fruit juices for toddlers, Fizzit™ vitamin and mineral drink mixes in powdered form

• Carbonated Sodas: Blue Sky® natural sodas, premium natural sodas with supplements, organic natural sodas, seltzer waters

2006 sales by product line ^[3]

[edit] Key Customers

The firm's customers include Cadbury Schweppes Bottling Group (privately held; formerly known as Dr. Pepper Bottling/7UP Bottling Group), Wal-Mart Stores (WMT) (including Sam’s Club), Kalil Bottling Group (privately held), Trader Joe’s (privately held), John Lenore & Company, Costco, Kroger, Safeway and Albertsons (privately held).

• Cadbury Schweppes Bottling Group accounted for approximately 19%, 18% and 13% of net sales for 2006, 2005, and 2004, respectively^[4]
• Wal-Mart, Inc. (including Sam’s Club) accounted for approximately 12% of net sales for the 2006^[5]

2006 sales by customer type ^[6]

[edit] Trends & Forces

[edit] Heavy dependence on Monster Energy® drinks for revenue, profit

Energy drinks accounted for 85% of Hansens' total revenue in fiscal year 2006, the majority of which came from the popular Monster Energy® product line. The energy drink sector of the beverage industry is exploding, encouraging new and traditional beverage companies to develop their own energy brands. Hansen's energy drinks compete directly with Red Bull, Rockstar, Full Throttle, No Fear, Amp, Adrenaline Rush, 180, Extreme Energy Shot, Red Devil, Rip It, Nos, Boo Koo, Mountain Dew, Mountain Dew MDX, Vault and many other brands. Any loss in energy drink market share by Monster or a downturn in the alternative beverages sector will severely impact the company's earnings.

[edit] Growing obesity concerns hurt Monster Energy® sales

There is increasing awareness and concern for the health consequences of obesity (also see Natural & Organic Foods Consumption). This may reduce demand for the firm's non-diet beverages, which could affect profitability in the vital Monster Energy® drink line.

[edit] Raw material price fluctuations impact costs

The principal raw materials used by Hansen are aluminum cans, glass bottles and PET plastic bottles as well as juices, high fructose corn syrup, sucrose and sucralose, the costs of which are subject to fluctuations. Due to the consolidations that have taken place in the glass industry over the past few years, the prices of glass bottles continue to increase.

[edit] Marketing success directly impacts sales

Due to stiff competition, the company must affect consumer preferences and attempt to differentiate its products via expensive and clever marketing. The firm increased expenditures for sales and marketing programs by approximately 50­­% in 2006 compared to 2005. As of December 31, 2006, Hansen employed 591 employees in sales and marketing activities, of which 231 were employed on a full-time basis. As of December 31st, 2006, the firm employed a total of 748 employees.

[edit] Competition

The beverage industry is highly competitive. Hansen competes against a variety of companies, ranging from local to international. The firm's best known competitors are Coca-Cola Company (KO) , Pepsico (PEP), Cadbury Schweppes (CSG), Red Bull Gmbh, Kraft Foods (KFT), Nestle Beverage Company, Tree Top and Ocean Spray.

The company's energy drinks, including Hansen’s® energy, Diet Red, Monster Energy®, Lost® Energy™, Joker Mad Energy™, Ace™ Energy, Unbound Energy® and Rumba™ energy juice in 8.3-, 15.5-, 16- and 24-ounce cans, compete directly with Red Bull, Rockstar, Full Throttle, No Fear, Amp, Adrenaline Rush, 180, Extreme Energy Shot, Red Devil, Rip It, NOS, Boo Koo, and many other brands. The Coca-Cola Company and PepsiCo Inc. also market and/or distribute additional products in that market segment such as Mountain Dew, Mountain Dew MDX and Vault ^[7].

[edit] Soft Drink Market Share

As you can see from the table below, Hansen maintains a small, but rapidly growing, market share in the beverage industry. Its small size means most of its competitors have substantially greater financial, marketing and distribution resources. The firm does have the advantage, however, of focusing on a particular sector of the beverage industry: alternative drinks.

Caffeine content for different energy drinks ^[9]

Energy drinks accounted for nearly 85% of net sales in 2006. Monster Energy brand, the firm's best selling product, provides the customer a moderate amount of caffeine. The company's marketing strategy, however, suggests that it is the best energy drink around.

[edit] Energy Drink Market Share

Hansen is the second largest energy drink manufacturer, capturing approximately 15.3%% of the 2006 global market share. Nearly 85% of 2006 net sales were generated by Hansen's energy drink products. In 2004, Red Bull had 59.2% of the energy market share while Hansen had just 4.6%. Without a doubt, the company is gaining on its competitors in its most important sector. Below is a table that displays 2006 market share of different brands within the energy drink sector.

[edit] Notes

1. ↑ Reuters: Hansen Natural Q3 misses view; shares sink
2. ↑ HANS 10k, Item 6, pg. 31
3. ↑ HANS 10k, Index, pg. 121
4. ↑ HANS 2006 10K, Item 1, pg. 15 - 16
5. ↑ HANS 2006 10K, Item 1, pg. 15 - 16
6. ↑ HANS 10k, Item 1, pg. 15
7. ↑ HANS 10K, Item 1, pg 14
8. ↑ Beverage Digest, Top 10 Carbonated Soft Drinks in 2006
9. ↑ ResearchBuy, Energy Drinks Market Research
10. ↑ BUILDER Online, Builder 100 Listing 2006