KO Coca Cola Company

By Mike Esterl and Anne Steele 

Monster Beverage Corp. on Thursday said sales growth slowed sharply in the third quarter, weighed down by a transition to using Coca-Cola Co. distributors for its products, before speeding up again in October.

Revenue at the energy drink maker rose 4.1% to $788.0 million in the three months ended Sept. 30 from a year earlier, far weaker than the 14% growth in the first half of the year.

But Monster said sales bounced back in October, rising 12%, including 10% growth in the U.S., its main market.

Coca-Cola acquired a 16.7% stake in the Corona, Calif. company in June 2015 as part of an asset swap in which it also became Monster's preferred distributor. That move should accelerate Monster's overseas expansion but has caused uneven results in the near term amid sometimes rocky handovers from longtime distributors.

Monster said third-quarter results also were hurt by weaker foreign currencies and advance purchases by retailers in the year-earlier period ahead of price increases.

The latest sales slowdown renews questions about whether the years of rapid revenue growth at energy drink makers such as Monster could become a thing of the past. "We do believe we'll see an increase in growth rates next year, but we don't have any crystal ball," Chief Executive Rodney Sacks told analysts on an earnings conference call.

Monster's share price, down 5.9% this year, fell another 6.5% to $131.12 in after-hours trading.

Mr. Sacks said distribution continues to improve in the U.S., as the company also increasingly shifts distribution to Coca-Cola bottlers overseas.

Monster launched its namesake energy drink in Beijing in September and Shanghai in October, part of a broader launch across major Chinese cities in the coming months. Distribution shifted to Coke partners in Mexico and South Africa in the third quarter. Coke bottlers also took the reins in Turkey and Brazil in recent weeks.

In the September quarter, the company earned $191.6 million, or 99 cents a share, up from $174.6 million, or 84 cents a share, a year earlier.

The company said unfavorable currency exchange rates hit sales by about $2.6 million during the quarter.

Analysts polled by Thomson Reuters had projected adjusted profit of $1.12 a share on $818.8 million in revenue.

Gross margin improved to 63.8% from 61.5% a year ago.

Write to Mike Esterl at mike.esterl@wsj.com and Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

November 03, 2016 19:30 ET (23:30 GMT)

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