Analysis - Monster Beverage's self-regulation bid could pay off
Monster is aiming to introduce guidelines around the US energy drinks market, according to CLSA
Monster Beverage's bid to introduce marketing guidelines for the US energy drinks industry may take time, but could eventually cut scrutiny from regulators, according to an analyst.
The company and other producers in the category are under the spotlight of the US Food and Drug Administration (FDA), which is investigating the safety of caffeine in food products. Monster is also locked in a courtroom fight with San Francisco's attorney general, Dennis Herrera, and is awaiting the final outcome of a lawsuit over the safety and marketing of its products.
But in a note, following the group's year-to-date results last week, CLSA analyst Caroline Levy said that Monster's efforts to implement guidelines around the marketing of energy drinks, particularly to minors, could “result in a lowering of the regulatory scrutiny from government officials”. However, she warned that “finding a set of guidelines that all companies operating in the US - including Austria-based Red Bull - are amenable to may not prove a quick process”.
Levy said Monster's legal costs should fall over the rest of the year, after the group paid out US$5.3m in related expenses in Q3. The company appeared before a US Senate commerce hearing in July to defend the safety of its products.
“We do not expect a repeat of Q3's level of legal expenses in the near term, and expect EBIT as well as gross margin expansion in Q4,” the note said.
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