3/2/2007

WSJ.com

By: Stephanie Kang

Investors in Hansen Natural Corp. shares may want to say, "I'll drink to that."

For nine consecutive years through 2005, the Corona, Calif., beverage company posted double-digit revenue gains from stocking convenience-store and supermarket aisles with an ever-expanding array of juices, fizzy drinks and energy beverages. Results for 2006 will be released tomorrow.

A successful rollout of new products, particularly the company's well-timed entry into the energy-drink market, helped to make Hansen the best 10-year performer among 1,000 companies in this year's Shareholder Scoreboard, with a compound average annual return of 74% for the decade through 2006.

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An investor who put $1,000 into Hansen shares at the end of 1996 would have had a spectacular $253,614 at the end of last year. So far this year, the stock is up 9.2%.

Founded by Hubert Hansen and his three sons in the 1930s, Hansen made its mark selling fresh fruit juices in Southern California and later launching a line of natural sodas and other products. But the company's recent torrid sales growth -- in the high double digits for 2004 and 2005 -- stems from a trendy, heavily caffeinated drink called Monster Energy.

Launched in 2002, in a 16-ounce version that was nearly twice the size of competitors for about the same price, Monster was positioned as a young, hip brand to help snatch market share from leader Red Bull GmbH.

In 2006, sales of energy drinks made up about two-thirds of Hansen's revenue, says Longbow Research analyst Alton Stump. Because of their higher price tags, energy drinks are more profitable than soda and juice products. What's more, analysts say the energy-drink market is one of the few sectors in the beverage industry that's rapidly growing.

While Red Bull found success as a popular nightclub and bar drink when mixed with vodka, Monster "appealed to a niche that's more blue-collar, more daytime consumer," says Andrew Sawyer, an analyst for Goldman Sachs in New York. Its huge serving size appeals to young male consumers, and action-sports stars like freestyle motocross rider Mike Metzger have been paid to endorse the Monster brand.

Hansen is giving Monster and other brands, already well-known in Southern California, a marketing push around the country. A distribution deal with Anheuser-Busch Cos. is putting Monster drinks on the shelves of convenience stores, grocery chains and other retailers that already do business with the brewing company. Hansen recently announced plans to extend that distribution agreement to bars, nightclubs and restaurants.

The company also is expanding the Monster line with offshoots like a low-carbohydrate version and a new carbonated drink called Monster Energy Khaos, which contains 70% juice. It has launched other energy-drink brands like Lost Energy Drink, Rumba Energy Juice and Joker Mad Energy Drink.

The growth of the energy-drink market has made other drink makers eager to cash in on the niche. Goldman's Mr. Sawyer says there are now 200 energy drinks on the market, including brands from giants Coca-Cola Co. and PepsiCo Inc. He recently downgraded Hansen's stock to "neutral" from "buy" because he doesn't think the stock can rise much further for now, though he says the company's fundamentals remain strong.

Analysts also are waiting for the results of an investigation by an independent committee of its board into options backdating related to 12,000 shares the company says were "inadvertently" awarded to a company director in November 2004, after the grant had expired. And Hansen is likely to follow Red Bull's example and slightly raise its prices this year to absorb higher prices for aluminum and sweetener.