Q1 2022 Monster Beverage Corp Earnings Call

May 5, 2022

Good day and welcome to the Monster beverage company first quarter 2022 conference call.

All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I would now.

Like to turn the conference over to Rodney sacks, and Hilton Schlossberg. Please go ahead.

Thank you good.

Good afternoon, ladies and gentlemen, thank you for attending this call I'm Rodney Sachs Hilton Schlosberg, our Vice Chairman and co Chief Executive Officer is all Nicole as is Tom Kelly, Our Chief Financial Officer, Tom Kelly will now read our cautionary statement.

Before we begin I would like to remind listeners that certain statements made during this call may constitute forward looking statements within the meaning of section 27, a the Securities Act of 1933 as amended and section 21 E of the Securities Exchange Act of 1934.

As amended and are based on currently available information regarding the expectations of management with respect to revenues profitability future business future events financial performance and trends as well as the future impact of the COVID-19 pandemic on the company's business and.

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Management cautions that these statements are based on our current knowledge and expectations and are subject to certain risks and uncertainties. Many of which are outside the control of the company that may cause actual results to differ materially.

Materially from the forward looking statements made during this call.

Please refer to our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K filed on February 28, 2022, including the sections contained there and risk factors and forward looking statements for a discussion on specific risks and.

Ts that may affect our performance.

The company assumes no obligations to update any forward looking statements, whether as a result of new information future events or otherwise.

I would now like to hand, the call over to Rodney sacks.

Thank you.

The company achieved record first quarter net sales of 1.52 billion in the 2022 first quarter 'twenty, 2.1% higher than net sales of 1.24 billion in the 2021 comparable period as in recent quarters to meet increased demand for our products rather than.

It's out of stocks for certain lines that reach out the company incurred operational inefficiencies in the United States and in various countries, resulting in increased costs during.

During the 2022 first quarter. The company continued to procure additional quantities of aluminum cans from suppliers in the United States and abroad. In response to increased consumer demand in the first quarter of 'twenty to 'twenty two the company experienced significant increases in cost of sales relative to the comparative.

2021 first quarter, primarily due to increased freight rates and fuel costs, including costs relating to the importation of aluminum cans as well as aluminum can costs attributable to higher aluminum commodity pricing.

The company also experienced a significant increase in ingredient and other input costs secondary packaging materials co packing fees and production inefficiencies.

We continue to experience additional global supply chain challenges, including the lack of adequate shipping containers and port congestion, which resulted in shortages of certain ingredients and finished products.

This necessitated the company if raging substantial quantities of certain ingredients internationally, particularly to EMEA Asia Pacific and Latin America, as additional costs and inefficiencies.

Furthermore, the company experienced significant increases in distribution expenses, including increased fuel freight and warehousing costs, which adversely impacted operating expenses.

Company continues to address the challenges and its supply chain as it navigates through the uncertainty of the current global supply chain environment.

In the United States. The company secured additional co packing capacity to meet increased demand for certain of its products. The company estimates that approximately 46 million of costs in the quarter were the result of operating inefficiencies due in part to strong consumer demand, including the importation of aluminum cans as well as <unk>.

COVID-19 related issues, such as port congestion shortage of shipping containers, resulting in the need to airfreight ingredients, which the company continues to address in addition increased commodity and raw material costs, including aluminum other ingredient costs and secondary packaging and good during the quarter amounted to approximately 40.

$5 million and increases in freight rates and fuel impacted gross profit by approximately 6 million.

Most profit as a percentage of net sales for the <unk> 2022 first quarter was 51, 1% compared with 57, 5% in the 2021 first quarter. The decrease in gross profit percentage for the 'twenty 'twenty. Two first quarter was primarily the result of the items mentioned previously.

As well as geographical sales mix. Additionally.

Additionally, golf requires.

At face value step up all they cannot keep inventories of $3 8 million, which together with expenses related to the acquisition of Kownacki, a $4 2 million during the quarter adversely affected both gross margins and operating expenses the.

The decrease in gross profit as a percentage of net sales for the 'twenty to 'twenty. Two first quarter was partially offset by pricing actions operating expenses for the 'twenty to 'twenty, two first quarter with $377 2 million compared with $308 million in the 2021 first quarter as a percentage of net.

Net sales operating expenses for the 2022 first quarter with 24, 8% compared with 24, 2% in the 'twenty to 'twenty, one first quarter distribution expenses for the 2022 first quarter increased to $81 4 million, which is an increase of 49 point.

7% or five 4% of net sales compared to $54 4 million or four 4% of net sales in the 2021 first quarter.

The 27 million increase in distribution expenses was primarily due to increased freight out costs of $20 6 million as a result of higher outbound freight rates and fuel increased volume and out of all but freight as well as higher warehouse expenses of $6 4 million as a result of <unk>.

Higher raw material and finished good product inventories Indian United States and EMEA, we believe that a portion of the increase in distribution expenses that we experienced in the quarter are likely to be transitory the.

The increase in other operating expenses was primarily due to increased expenditures for traveling and entertainment increased payroll expenses increased professional services expenses, including accounting and legal expenses increased commissions and increased sponsorships and endorsements. During this comparative 2021 first.

Water the company decreased expenditures for travel and entertainment as well as our marketing programs largely as a consequence of the COVID-19 pandemic the impact of the COVID-19 pandemic was less pronounced on such expenses during the 2022 first quarter operating expenses as a pause.

Net sales for the 'twenty to 'twenty, two first quarter were 24, 8% as compared to operating expenses as a percentage of net sales for the 2019 first quarter pre COVID-19.

Which was 27, 7%.

Out to new suppliers of aluminum cans in the United States are now operational and as a result, we are able to decrease our reliance on the use of imported aluminum cans in the United States and in other states, we anticipate seeing a reduction in cost of sales related to the use of imported aluminum cans in the.

Latter half of 2022.

Although we expect to reduce the importation of aluminum cans into EMEA in the second half of 'twenty 'twenty. Two we will only see a reduction in cost of sales off to work through current inventories all the imported cans in EMEA.

We rebuilt and increased finished product inventory levels across the United States and EMEA to reduce excess of cost of long distance freight to satisfy demand and to return to our orbit strategy of producing in closer proximity to our customers. The cost of repositioning finished products to distribution centers.

<unk> are included in freighting costs.

Rational income I'm, sorry, operating income for the 2022 first quarter decreased three 5% to $399 5 million from $414 1 million in the 'twenty to 'twenty, one comfort parents of quarter, primarily due to the company's operations in EMEA and Asia Pacific.

Net income decreased six 7% to $294 2 million as compared to $315 2 million in the 2020, one comparable quarter diluted earnings per share for the 2022 first quarter decreased six 8% to 55 cents from 59 cents in the first quarter of <unk>.

2021.

Through pricing actions during the quarter. The company was able to record positive pricing actions in excess of 3% in the United States and in EMEA due to continued cost pressures. The company is planning for a niche sales price increase in the range of 6% market wide in the United States effective set.

<unk> 2022 the company is also monitoring the opportunity for additional pricing actions internationally as well as in the United States.

According to the Nielsen reports for the 13 weeks through April 23, 2022 for all outlets combined, namely convenience grocery drug mass merchandisers sales in dollars in the energy drink category, including energy shots increased by 11, 5% versus the same period a year ago.

Sales of the company's energy brands, including Ryan were up eight 6% in the 13 week period sales of Monster were up 10, 6% sales of Orion were down 6.1% sales of nausea decreased three 5% and sales of full throttle increased five 5% sales of Red Bull.

<unk>, 7.8% sales of Rockstar increased bought four of a percent sales of five hour decreased one 2% and VP expanse sales decreased eight 1% the sales growth of the monster brand exceeded that of Red Bull in the period.

According to Nielsen for the four weeks ended April 23, 2020, $2000 in the energy drink category in the convenience and gas channel, including energy shots in dollars increased three 8% over the same period the previous year.

Sales of the company's energy brands, which include reign increased four 8% in the four week period in the convenience and gas channel sales of Monster increased by five 7% over the same period versus the previous year range sales decreased 2% nausea was down two 3% and full throttle was up seven.

0.1% sales of Red Bull were down four 8% Rockstar was down one 7%.

Five hour was down five 2% and V. P X bank sales decreased by 11, 7%.

According to Nielsen for the four weeks ended April 23, 2022, the company's market share of the energy drink category in the convenience and gas channel, including energy shots in dollars increased <unk> four of a point to 37.5% monster share increased <unk> six share points to 31, 6%.

Ryan share decreased <unk>, one of a share point to 2.4% nausea share decreased <unk> two points to two 6% and full throttle share remained at 0.7 of a percent red Bull's share decreased 1.5 points to 35, 3% Rockstar share was down <unk> two points.

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236% five hour's share was lower by four four of a point to.

Four 4% and VP expansion decreased 1.2 points to six 6%.

According to Nielsen for the four weeks ended April 'twenty, three 2022 sales in dollars of the coffee plus energy drink category, which includes Java Monster line in the convenience and gas channel decreased five 3% over the same period the previous year.

A Java monster, including Java, Monster, 300, and Java Monster Nitro Cold brew with 2.4% higher in the same period versus the previous year sales of Starbucks energy were 11, 7% lower Java monster share, including drove amongst the 300 and Java monster not draw a cold brew of the car.

E plus energy category, which primarily include a Java Monster Java Monster 300, Java Monster Cold Brew, Starbucks double shot and Triple shot Rockstar roasted and Bang keto coffee for the four weeks ended April 'twenty three 2022 was 55, 3% up 4.2 points.

While Starbucks energy share was 42, 9% down 3.1 points.

According to Nielsen in all measured channels in Canada for the 12 weeks ended March 26 2022.

And Andrew negatively but sales in the OXXO convenience chain, which dominates the market sales in the OXXO convenience chain in turn can be materially influenced by promotions that may be undertaken in that chain by one or more energy drink brands. During a particular month. Consequently, such activities could have a significant impact on the monthly Nielsen statistics for Mexico.

Got it.

According to Nielsen for the month of March 'twenty, 'twenty, two compared to March 2021 monsters retail market share in value decreased in Argentina from 45 to 245 per cent Monster energy continues to be the leading energy brand in value you know Argentina.

According to Nielsen for the months of March month of March 2022, compared to March 2021 monsters retail market share in value increased in Brazil from 34, 9% to 40.2% Monster is now the leading energy brand in value in Brazil, marking another important milestone for our brand itself.

Erica in Chile monsters retail share for the month of March 2022 decreased from 40% to 36, 3% due to a shortage of shipping containers, a bottler in Chile, Chile is in the process of validating its new production line in order to increase our in country production.

I'd like to point out that the Nielsen numbers in EMEA should only be used as a guide because the channels read by Nielsen in EMEA vary from country to country and are reported on varying dates within the month referred to from country to country.

According to Nielsen in the 13 week period, ending April two 2022 monsters retail market share in value as compared to the same period. The previous year grew from 14, 7% to 16, 2% in Germany monsters retail market share in value as compared to the same period the previous year the koran from 'twenty.

Four 7% to 23% in South Africa.

According to Nielsen in the 13 week period, ending March 27, 2022 monsters retail market share in value as compared to the same period. The previous year grew from 25, 5% to 27, 1% in Denmark from 31, 9% to 32, 1% in France from 27.

One 9% to 29, 3% in Great Britain from 27, 2% to 27, 6% in Norway from 18, 1% to 21, 4% in Poland from city, 6% to 37.8% in Spain and from 14, 9% to 15, 9% in <unk>.

Weeden.

Monsters retail market share in value as compared to the same period of the previous year declined from 15 points to 14, 9% in Belgium from 8.1% to 7.9% in the Netherlands and from 28% to 27, 9% in the Republic of Ireland.

According to Nielsen in the 13 week period, ending February 27, 2022 monsters retail market share in value as compared to the same period. The previous year grew from 15, 8% to 17, 7% in the Czech Republic from 37, 2% to 38, 3% in Greece and from 27% to 27.

6% in Italy.

According to Nielsen in the 13 week period until the end of February 2022 predators retail market share in value as compared to the same period. The previous year grew from 14, 5% to 23, 3% in Kenya and from three 3% to 14, 7% in Nigeria.

According to IRI in Australia monsters market share in value for the months ending April 10, 2022 increased from 13% to 13, 6% as compared to the same period the previous year mother's market share in value decreased from 11.5 to 10, 4% during the same period the market share of the comes.

These brands in Australia for the month ended April 10 to 2020 to decrease from 24, 5% to 24%.

Going to IRI in New Zealand monsters market share in value for the four weeks ended April 17, 2022 increased from 12, 7% to 12, 9% as compared to the same period, the previous year lift plus market share in value decreased from six 4% to six 1% and mothers.

Market share in value increased from five six to five 7% market share of the company brands in New Zealand for the four weeks ended April 17.

2022 remained at 24, 7%.

According to <unk> in Japan in the last month.

Ending March 2022 monsters market share in value in the convenience store channel as compared to the same period the previous year grew from 51% to 52.5%.

According to Nielsen in South Korea in the last month, ending March 2022 monsters market share in value in all outlets combined as compared to the same period the previous year grew from 54.8% to 59.4%.

We again point out that in certain market statistics that cover single months or four week periods may often be materially.

Influenced positively and negatively by promotions or other trading factors during those periods.

Net sales to customers outside the U S with $553 $4 million 36, 4% of total net sales in the 2022 first quarter compared to 459 4 million or 36, 9% of total net sales in the corresponding quarter in 2021 foreign currency exchange.

These rates had a negative impact on net sales in U S dollars by approximately $32 9 million in the 2022 first quarter.

Included in reported geographic sales or ourselves to the company's military customers, which are delivered in the U S and drawn shipped to the military and their customers overseas.

In EMEA net sales in the 2022 first quarter increased 21, 8% in dollars and increased 30% in local currencies over the same period in 2021 gross profit in this region as a percentage of net sales for the first quarter was 29, 6% compared to 37, 3% in the same quarter.

In 2021 gross profit in the first quarter was impacted by higher aluminum commodity pricing increased frightful imported cans increased raw material and ingredient costs as well as air freight costs.

In.

The company is continuing to address the controllable challenges in its supply chain in EMEA. We're also pleased that in the 'twenty to 'twenty two first quarter Monster gained market share in the Czech Republic, Denmark, France, Germany, Great Britain, Greece, Italy, Norway, Poland, Spain, and Sweden.

In Asia Pacific net sales in the 2022 first quarter increased one 9% in dollars and increased nine 4% in local currencies over the same period in 2021.

Gross profit in this region as a percentage of net sales was 49% versus 48, 8% over the same period in 2021 in Japan itself in the 'twenty to 'twenty two first quarter decreased five 8% in dollars, but increased three 4% in local.

Currency sales decreased over the same period in 2021 largely due to COVID-19 restrictions in Japan.

In South Korea, net sales increased to 71, 7% in dollars and 86, 1% in local currency as compared to the same quarter in 2021.

Once the remains the market leader in Japan, and South Korea and.

In China net sales decreased eight 9% in dollars and 10, 8% in local currency as compared to the same quarter in 2021, largely impacted by Covid related Lockdowns, we remain optimistic about the prospects for the monster brand in China.

You know she Ana which includes Australia, New Zealand, Tahiti, French Polynesia, New Caledonia, Papua New Guinea, and Guam net sales decreased 13, 8% in dollars and seven 9% in local currencies. So I was in Australia, and New Zealand were negatively impacted by shipping delays of certain flavors constant.

<unk> and ingredients. Furthermore, sales in Australia were also impacted by severe flooding in that country in the 2022 first quarter.

Latin America, including Mexico, and the Caribbean net sales into 2022 first quarter increased 50 to 52, 5% in dollars and increased 59.7% in local currencies over the same period in 2021 gross profit in this region as a percentage of net sales was 35, 4%.

For the 2022 first quarter versus 37, 9% in the 2021 first quarter in Brazil net sales in the 2022 first quarter increased by 72.1% in dollars and 67, 4% in local currency net sales in Mexico increased 37, 7% in dollars.

And 41.4% local currency in the 2022 first quarter net sales in Chile increased 28, 4% in dollars and 45, 5% in local currency in the 2022 first quarter.

It sells in Argentina increased 103, 1% in dollars and 146, 4% in local currency in the 2022 first quarter.

I will now discuss our litigation with vital Pharmaceuticals, Inc, which I'll refer to as V. P X. The maker of Bang energy drinks in June 'twenty, 'twenty Monster Energy company, which I'll refer to as M. A C and Orange Bank, Inc. A family on beverage business and the rightful I don't know if several trademark registrations to the bank.

<unk> initiated an arbitration against V. P X M. A C in Orange Bang allege that V. P X reached a 2010 settlement agreement with Orange Bank that restricted V. P. X is use of the bank trademark two products that all creatine based or marketed and sold only in nutritional channels as well as <unk>.

Is it a V P X infringed orange bangs trademark rights to the Bang marks.

In April 2022 the arbitrator issued a final award finding in favor of AUC and Orange Bang on all claims the arbitrator found that V. P. X is bang energy drinks, which V. P X advertises containing super Creatine and other bank branded product do not contain creatine and do not provide the benefits.

Of creatine, because bank branded products are fast north creatine based and are not limited to nutritional channels. The arbitrator found they are being sold in breach of the settlement agreement.

Ever tried to also found that V. P X is bring bang branded products infringe Orange bangs trademarks, the arbitrage rewarded M. A C in Orange bank $175 million to remedy V. P exes past misconduct and attorneys' fees and costs, which amounted to nearly $9 3 million.

The arbitrator also ordered V P extra pay M. A C and Orange bank and ongoing 5% royalty on all future net sales of bank products pursuant to the terms of the agreement between <unk> and Orange Bang The award and future royalties will be shared equally between M. A C and Orange bank.

Under the Arbitrators order EVP X fails to pay the royalty VP X is prohibited from using the Bang Bang Mark subject to certain limited exceptions M. A C. In Orange Bank have filed a motion to confirm the Arbitrator's Award V. P. X has filed a motion to vacate the arbitration award a hearing on V. P X as motion is scheduled for June 27.

In 2022.

I mean, he's law suit against V. P X for false advertising unfair competition and misappropriation of trade secrets in the Central District of California is still pending with trials scheduled to begin in August 2022 as this litigation and other pending proceedings with V. P X all SAP, Judy Kay we will not be answering.

Any questions on those matters in today's call.

In January of 2022, we introduced our first 16 ounce ultra variety 12 packs, which are being well received by consumers and we are continuing to expand our multi pack portfolio in the 'twenty to 'twenty two first quarter.

In February of 2022 we introduced new flavor innovations with ultra Peachy-keen juice Monster Aussie style eliminate rehab watermelon and Ryan <expletive>.

Rainbow Sherbet.

In February 2022 we launched our newest brand nationally true north pure energy Seltzer in full 12 ounce flavors through the Coca Cola distribution network at the end of the 'twenty to 'twenty two first quarter, we launched two new ready to drink not try infused coffee products Java Monster Cold brew.

Laughter, and Java Monster Cold Brew Sweet Black.

In Canada in January of 2022 we introduced Monster Ultra gold in February of 2022 we grew Ken.

Canada's Ryan portfolio by launching Ryan Watch Gummy bear.

We successfully launched several new products across Latin America in the first quarter of 2022.

Argentina, We launched V. All 46, the Doctor in Chile, we expanded our rain lawn by launching Melon Mania Lemon heads in Orange Dream sickle in Mexico, We launched our second predator S. K U with credits a mean green. We also launched monster Ultra gold in Puerto Rico, and Monster Mango Loco in Colombia.

In the 'twenty to 'twenty, two first quarter, we launched Monster Ultra Golden mother, Kiwi Sublime in Australia, and New Zealand, we launched our third Super fuel flavor and tropical Thunder.

In EMEA in the first quarter of 2022 we launched monster mule months denied drug and months to result in a number of countries. We also launched ultra Fiesta watermelon and gold and Joost Monarc chaotic and Pacific Punch in the number of countries. During the 2022 first quarter during the 2022 first quarters, we also launch.

Predator and reign in additional countries.

During the first quarter of 2022 we launched monster pipeline Punch and Singapore. We also introduced the predator brand in India in April 2022 we launched monster Mango Loco in Japan, we are planning to introduce the <unk> brand in several additional countries in APAC in the course of 2022.

Our co packing network is an integral part of the company's production model, which we intend to preserve.

The owner of one of the co packing facilities with which we contracted located in Norwalk, California announced earlier this year that they would be selling this facility and ceasing its operations at this facility.

To maintain adequate supply of the company's products, we have acquired the associated real property leases and equipment all of those co packing facility for a purchase price of $62 5 million. Following the purchase of the facility will be closed for a period of time before the companies able to commence production.

We estimate April 'twenty, 'twenty, two sales, including Kentucky to be approximately $6, 7% higher than in April 'twenty, 'twenty, one and four 8% higher than in April 2021 excluding Kentucky.

On a foreign currency adjusted basis, excluding Kentucky April 2022 sales would've been approximately 7.7% higher than the comparable April 2021 cells April 2022 had one less selling day compared to April 2021.

We mentioned that April 2022 sales had a challenging hurdle to meet the April 'twenty 'twenty. One sales you may recall that in our 2021 first quarter conference call to shareholders. We estimated that April 'twenty 'twenty. One sales were approximately 71, 3% higher than in April 2023.

Keep in mind that the comfort of 2022 'twenty 'twenty sales were materially adversely impacted by the COVID-19 pandemic in our 'twenty 'twenty T first quarter conference call to shareholders. We estimated that April 'twenty 'twenty cells with 22, 2% lower than April 29.

T cells.

2021 April 2020 in April 'twenty, not all had the same number of selling days.

Company had sufficient can capacity and co manufacturing filling capacity across all regions to address demand for April .

In this regard we caution again that sales over a short period, often disproportionately impacted by various factors such as for example, selling days days of the week in which holidays fall timing of new product launches and the timing of price increases and promotions in retail stores distributor incentives as well as shifts in the.

Timing of production in some instances, where our bottlers are responsible for production and unilaterally determine their production schedules, which affects the dates on which we invoice such bottlers as well as inventory levels maintained by our distribution partners, which they alter unilaterally for their own business reasons, we reiterate that sales are reached.

Period, such as a single month should not necessarily be imputed, two or regarded as indicative of results for a full quarter or any future period, if the COVID-19 pandemic and related unfavorable economic conditions continue in certain regions and new product innovation launches in those regions could be delayed in.

In conclusion, I would like to summarize some recent positive points. The company continues to address challenges in its supply chain by sourcing cans and primary ingredients and plains, increasing its manufacturing capacity and increasing finished product inventories. This should enable us to improve our service levels and lower transportation costs.

North America, EMEA and Latam.

If it was flailing facility in Ireland is now providing a large number of flavors to our EMEA region, enabling better service levels and lower landed cost to our EMEA region. We are pleased with the new additions to the Monster energy portfolio. We are planning to continue additional launches of our reign total body.

Fuel high performance energy drinks in additional international countries. We are pleased with the rollout of predator in theory, our affordable energy drink portfolio internationally, we are proceeding with plans to launch our affordable energy brands and an additional number of international.

Countries, we are enthusiastic about the opportunities that cannot keep presents while we believe that we will be able to address many of the supply chain challenges. We have faced we anticipate still having to face certain ongoing challenges in the future.

I would now like to open the floor to questions about the quarter. Thank you.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

In the interest of time, we ask that you limit yourself to one question at this time, we'll pause momentarily to assemble our roster.

Our first question comes from Dara <unk> from Morgan Stanley . Please go ahead.

Hey, good afternoon.

Okay.

U S sales continued to come in very strong again, this quarter and show a sustained decoupling versus the scanner data.

Implying obviously very strong growth in the untracked channels can you just review for us what level of growth you're seeing them as on track channels. What are the key drivers behind that.

And then as we think about the U S going forward.

Can you discuss your thoughts on potential monster topline weakness or category weakness, if we do see a consumer spending slowdown and if you think we've seen any demand impact so far from higher gas prices.

Yeah.

So turning to your first question you know there's always a disconnect between our sales.

Which our sales in the main to distributors.

And as well, we sell obviously to some direct accounts, including the untracked channels, it's really difficult.

For us to get.

Get that information to this.

The group.

They will always all I can say is that it will always be a disconnect and Nielsen is not.

True indication even for sales through the distributor system, because the legs in the distribution system as well.

And then turning to your second question about gas prices.

We've seen this before we've seen.

Gas prices moving up and we've seen.

Hum.

Sales of energy drinks, I'm really I'm staying staying the course and at the end of the day remember that we have a business that is based on a brand that is the lifestyle brand and.

Our consumers purchase the monster product because it's part of what they what they believe to be and that's what they want to be it's not something that's necessarily that price sensitive.

And that made us kind of feel confidence about a decision to take up pricing. Later this year, we really took pricing up as we mentioned through pricing actions and we will be taking pricing up.

Effective September one.

I would maybe you could add just one.

From one aspect of the traditionally the convenience channel was growing more quickly for the energy category than the mainstream grocery and drug channels and you know in recent quarters that had been reversed.

With.

This lower driving through Covid.

And then you've got high gas prices. So I mean at the moment. If you look at the latest four weeks or one week numbers. The convenience channel is growing less than if you look at the old major channels, but I think that that's something that we managed to achieve the results. We have you know despite that and despite the fact that in fact.

Convenience is our largest channel, which I just think it's positive for the future because we think that will watch itself eventually win when gas prices.

Normalized <unk> people, just getting used to the gas prices and becomes whatever that level is people will get used to it eventually and continued to drop.

Yeah. If you look for example at the last two weeks Nielsen inconvenience.

The 16th we seeing Nielsen sales.

Inconvenience.

For the energy category growing at four 8% and we've seen the following week, which is April 23rd which is what we discussed on the school convenience in that one week growing 7%. So you know it's the market will continue to grow as I said earlier monster is an affordable luxury and are we done.

Anticipate at this time seeing a dramatic fall off in sales in the convenience and gas channel.

Our next question comes from Andrea <unk> from J P. Morgan. Please go ahead. Thank you operator and good afternoon.

On the 6% price increase starting September in the U S.

I'm, assuming that's on top of the 2% average that you had in Q1.

And is that a crisis right.

And is that across all products and channels are balanced with our Tam and what are you hearing from retailers in terms of competitors falling or not.

So that price increase is in addition to the pricing actions that we took in the first quarter that we started taking in the last quarter of 2021 and will continue through this year. So we have taken positive actions, we will continue to taking it take pricing actions.

Timber one there'll be a market wide increase.

And we said approximately 6% depending on.

On channel.

And so far we have not heard any rumblings from competitors about what they're doing and what they're not doing we haven't done anything from retailers.

But you know as I said on a previous call.

Running our own brand irrespective of the competitors, we believe in the power of our brand and we have strong brands and we believe that this pricing action is justified and it certainly justified in terms of all the costs and we are seeing the cost increases and no doubt a competitor.

<unk> seen the same cost increases.

Our next question comes from Bonnie Herzog from Goldman Sachs. Please go ahead.

Alright. Thank you good afternoon.

So you guys called out certainly many pressures this quarter impacting your business today do you really feel that strong underlying demand yet.

Yes.

I wanted to circle back as I thought you guys had made some progress in some of the you know the distribution inefficiencies such as maybe already you know purchasing more supply in the U S. During the quarter as well as.

It started to operate back within your RBC, So maybe touch on that please and then.

Rodney can can you help us understand you know, maybe where things stand now as it relates to some of these pressures have they already started to eat you mentioned a few things, but you know just trying to confirm that you've already seen improvement or is it really going to take until the second half until we see improvements on your gross margin.

Then finally I'd be curious to hear how much stronger you know yourself might've been in the corner. If you could've supplied enough product itself.

Strong consumer demand, if you could quantify that that would be helpful.

Okay, well, let me just deal with the first the first part of your question Bunny and then.

And obviously you get these input on the on the rest.

Yeah.

As we look at the quarter remember the Ukraine conflict started on February the 24th So we had a dramatic increase in fuel prices, which we really didn't.

Full cost and we also had a dramatic increase in aluminum prices and if you just look at aluminum prices.

The commodity went up 65% in Q1, 'twenty two versus the previous year Q1, 2021.

So they were unexpected.

Use that surfaced in the quarter.

I think we said at the time that we were building up inventories and.

That's what we've been doing.

Absolutely been building up inventories in the in the quarter and Youll see that reflected in our balance sheets, we probably in a good position now are better than we have been in terms of supply and.

As we also said on this call is that April .

We did not have a shortage of containers or <unk>.

Or product to any significant degree.

So.

As well placed as we have been in the past to satisfy demand.

The next question comes from Kevin Grundy from Jefferies. Please go ahead.

Great. Thank you guys and good afternoon.

Two if I could just to come back to the 6% pricing.

Which is certainly a step in the right direction, but but not nearly enough to cover the inflationary pressures that you've seen over the past couple of years, maybe just comment on the magnitude of it how you arrived at that why do you believe that the appropriate number.

And then with respect to the April sales update and that's the overweight in any one given month and your point on the comparison its entirely fair, but anything that you're seeing within the business.

That gives you any concern about underlying demand it certainly doesn't sound that way, but I just wanted to ask given the.

Given given the step down from what we saw some very strong results in the quarter. So thank you for that guys.

You'll remember the hurdle we had in 'twenty one that was.

Probably one of the biggest hurdles we've seen.

And.

So I think that you know.

April as we've always said one month in isolation should not be construed as.

As indicative of performance for a quarter or a longer period of time.

The way, we got to a price increases is a price increase.

Remember, we already taking pricing actions.

And.

We look at a whole bunch of factors and there's a whole lot of factors that we take into account in determining where we should be and obviously price points are.

A big driver.

You know what we believe is fair and that the consumer will bear that becomes a very big factor in assessing the price points and then of course assessing the extent of the price increase.

The next question comes from Mark is strong from Stifel. Please go ahead.

Yes, Thanks and afternoon guys.

I guess just a short question so.

Anything preventing the company from buying stock back when the quiet period post acute filing is complete.

No.

It's the short answer is yes.

[laughter] will be recommend recommencing, some some some buying activities loved.

Lovely thank you.

So Christian short answer.

Okay.

This concludes our question and answer session I would like to turn the conference back over to Rodney sacks for any closing remarks.

Thanks, very much on behalf of months I'd like to thank everyone for their continued interest in the company. We continue to believe in the company and our growth strategy and remain committed to continue to innovate.

Philip and differentiate our brands and to expand the company both at home and abroad and in particular to expand distribution of our products through the Coca Cola bottling system internationally, we believe that if you're all well positioned in the beverage industry and continue to be optimistic about the future of our company. We hope that you will stay safe and healthy. Thank you.

You very much for your attendance.

Conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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Good day and welcome to the Monster beverage company first quarter 2022 conference call.

Participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to Rodney sacks, and Hilton Schlosberg. Please go ahead.

Thank you.

Good afternoon, ladies and gentlemen, thank you for attending this call I'm Rodney Sachs Hilton Schlosberg, our Vice Chairman and co Chief Executive Officer is on the coal as is Tom Kelly, Our Chief Financial Officer, Tom Kelly will now read a cautionary statement.

And section 21 E of the Securities Exchange Act of banking 34, as amended and are based on currently available information regarding the expectations of management with respect to revenues profitability future business future events.

Performance and trends as well as the future impact of the COVID-19 pandemic on the company's business and operations.

Materially from the forward looking statements made during this call.

Ts that may affect our performance.

The company assumes no obligations to update any forward looking statements, whether as a result of new information future events or otherwise.

I would now like to hand, the call over to Rodney sacks.

Thank you.

The company achieved record first quarter net sales of 1.52 billion in the 'twenty to 'twenty, two first quarter 22, 1% higher than net sales of 1.24 billion in 2021 comparable period as in recent quarters to meet increased demand for our products rather than experienced.

It's out of stocks for certain lines at retail the company incurred operational inefficiencies in the United States and in various countries, resulting in increased costs during.

During the 2022 first quarter. The company continued to procure additional quantities of aluminum cans from suppliers in the United States and abroad. In response to increased consumer demand in the first quarter of 2022, the company experienced significant increases in the cost of sales relative to the comparative.

The company also experienced a significant increase in ingredient and other input costs secondary packaging materials co packing fees and production inefficiencies. The company continued to experience additional global supply chain challenges, including the lack of adequate shipping containers and port congestion.

Jen, which resulted in shortages of certain ingredients and finished products.

This necessitated the company if raging substantial quantities of certain ingredients internationally, particularly to EMEA Asia Pacific and Latin America, as additional costs and inefficiencies.

Furthermore, the company experienced significant increases in distribution expenses, including increased fuel freight and warehousing costs, which adversely impacted operating expenses.

Company continues to address the challenges and its supply chain as it navigates through the uncertainty of the current global supply chain environment.

In the United States. The company secured additional co packing capacity to meet the increased demand for certain of its products. The company estimates that approximately $46 million of costs in the quarter were the result of operating inefficiencies due in part to strong consumer demand, including the importation of aluminum cans as well as <unk>.

Non teen related issues, such as port congestion shortage of shipping containers, resulting in the need to airfreight ingredients, which the company continues to address in addition increased commodity and raw material costs, including aluminum other ingredient costs and secondary packaging and good during the quarter amounted to approximately 40.

$5 million and increases in freight rates and fuel impacted gross profit by approximately $6 million.

Most profit as a percentage of net sales for the <unk> 2022 first quarter was 51, 1% compared with 57, 5% in the 2021 first quarter. The decrease in gross profit percentage for the 2022 first quarter was primarily the result of the items mentioned previously.

As well as geographical sales mix.

Additionally, golf requires I face value step up of the cannot key inventories of $3 8 million, which together with expenses related to the acquisition of Kentucky, or a $4 2 million during the quarter adversely affected both gross margins and operating expenses the.

The decrease in gross profit as a percentage of net sales for the 'twenty to 'twenty. Two first quarter was partially offset by pricing actions operating expenses for the 2022 first quarter with $377 2 million compared with $300.8 million in the 2020, one first quarter as a percentage of net.

Net sales operating expenses for the 2022 first quarter with 24, 8% compared with 24, 2% in the 2021 first quarter distribution expenses for the 2022 first quarter increased to $81 4 million, which is an increase of 49 point <unk>.

7% or five 4% of net sales compared to $54 4 million or four 4% of net sales in the 2021 first quarter.

The $27 million increase in distribution expenses was primarily due to increased freight out costs of $20 6 million as a result of higher outbound freight rates and fuel increased volume and out of all but freight as well as higher warehouse expenses of $6 4 million as a result of <unk>.

Water the company decreased expenditures for travel and entertainment as well as our marketing programs largely as a consequence of the COVID-19 pandemic the impact of the non of the COVID-19 pandemic was less pronounced on such expenses. During the 2022 first quarter operating expenses as it was.

<unk> net sales for the 2022 first quarter were 24, 8% as compared to operating expenses as a percentage of net sales for the 2019 first quarter pre COVID-19.

Which was 27, 7%.

Latter half of 2022.

<unk> are included in freighting costs.

Rational income I'm, sorry, operating income for the 2022 first quarter decreased three 5% to $399 5 million from $414 1 million in the 2021 comfort parents of quarter, primarily due to the company's operations in EMEA and Asia Pacific.

Net income decreased six 7% to $294 2 million as compared to $315 2 million in the 'twenty to 'twenty, one comparable quarter diluted earnings per share for the 'twenty to 'twenty two first quarter decreased six 8% to 55 cents from 59 cents in the first quarter of <unk>.

2021.

<unk> 2022 the company is also monitoring the opportunity for additional pricing actions internationally as well as in the United States.

Company's energy brands, including Ryan we were up eight 6% in the 13 week period sales of Monster were up 10, 6% sales of Orion were down six 1% sales of nausea decreased three 5% and sales of full throttle increased five 5% sales of Red Bull increased to seven.

0.8% sales of Rockstar increased bought four of a percent sales of five hour decreased one 2% and <unk> sales decreased eight 1% the sales growth of the monster brand exceeded that of Red Bull in the period.

According to Nielsen for the four weeks ended April 23, 2000, $22000 in the energy drink category in the convenience and gas channel, including energy shots in dollars increased three 8% over the same period the previous year.

Sales of the company's energy brands, which include reign increased four 8% in the four week period in the convenience and gas channel sales of Monster increased by five 7% over the same period versus the previous year reign sales decreased 2% nausea was down two 3% and full throttle was up seven.

0.1% sales of Red Bull were down four 8% Rockstar was down one 7% five hour was down five 2% and VP ex Bang sales decreased by 11, 7%.

What is your Nielsen for the four weeks ended April 23, 2022, the company's market share of the energy drink category in the convenience and gas channel, including energy shots in dollars increased <unk> four of a point to 37, 5% monster share increased <unk> six share points to 31, 6%.

<unk> share decreased <unk>, one of a share point to 2.4% nausea share decreased <unk> two points to two 6% and full throttle share remained at 0.7 of a percent Red Bull share decreased one five points to 35, 3% Rockstar share was down <unk> two points.

236% five hour's share was lower by four four of a point to.

Four 4% and VP expansion decreased one two points to six 6%.

According to Nielsen for the four weeks ended April 23, 2022 sales in dollars of the coffee plus energy drink category, which includes our Java Monster line in the convenience and gas channel decreased five 3% over the same period, the previous year sales of Java Monster, including Java Monster 300, and Java Monster.

Nacho cold brewed with 2.4% higher in the same period versus the previous year sales of Starbucks energy were 11, 7% lower Java monster share, including Java months of 300, and Java Monster not draw a cold brew of the coffee plus energy category, which primarily include a Java monster.

Java Monster 300, Java Monster Cold Brew, Starbucks double shot and Triple shot Rockstar roasted and Bang keto coffee for the four weeks ended April 'twenty three 'twenty 'twenty. Two was 55, 3% up 4.2 points, while Starbucks energy share was $42 nine.

<unk> is down 3.1 points.

What is your Nielsen in all measured channels in Canada for the 12 weeks ended March 26, 2022, the energy drink category increased 13, 5% in dollars sales of the company's energy drink brands increased 11, 6% versus a year ago. The market share of the company's energy drink brands was 41, 5% down <unk> seven.

Points Monster sales increased 13, 3% and its market share remained at 37.1 nauseous sales decreased 12, 8% and its market share decreased <unk> four of a point to 1.5% full throttle sales decreased 14, 9% and its market share decreased <unk> two a share.

Point to point to one five share points.

According to Nielsen for all outlets combined in Mexico, the energy drink category increased 25, 4% for the month of March 2022 Monster sales increased 28, 9% monsters market share in value increased 0.8 of a share point to 28, 3% against the comparable period of <unk>.

<unk> sells a predator increased 67% and its market share increased point not of a share point to three 7%.

The Nielsen statistics for Mexico cover single months, which is a short period that may often be materially influenced positively Andrew negatively by sales in the OXXO convenience chain, which dominates the market sales in the OXXO convenience Chinese turn can be materially influenced by promotions that may be undertaken in that chain by one or more energy drink.

Brands during a particular month consequently, such activities could have a significant impact on the monthly Nielsen statistics for Mexico.

According to Nielsen for the month of March 'twenty, 'twenty, two compared to March 2021 monsters retail market share in value decreased in Argentina from 45% to 245% Monster energy continues to be the leading energy brand in value you know Argentina.

Turning to Nielsen for the months of March month of March 2022, compared to March 2021 monsters retail market share in value increased in Brazil from 54, 9% to 44, 2% Monster is now the leading energy brand in value in Brazil, marking another important milestone for our brand in south.

Got it.

Chile monsters retail share for the month of March 2022 decreased from 40% to 36, 3% due to a shortage of shipping containers.

Butler Ranch and it truly is in the process of validating its new production line in order to increase our in country production.

7% to 23% in South Africa.

One 9% to 29, 3% in Great Britain from 27, 2% to 27, 6% in Norway from 18, 1% to 21, 4% in Poland from city, 6% to 37, 8% in Spain and from 14, 9% to 15, 49% in Sui.

Weeden.

Monsters retail market share in value as compared to the same period of the previous year declined from 15 points to 14, 9% in Belgium from eight 1% to seven 9% in the Netherlands and from 28% to 27, 9% in the Republic of Ireland.

6% in Italy.

These brands in Australia for the month ended April 10, 2022 decreased from 24, 5% to 24%.

Market share in value increased from five six to five 7% market share of the company brands in New Zealand for the four weeks ended April 17.

2022 remained at 24, 7%.

According to <unk> in Japan in the last months.

Ending March 2022 monsters market share in value in the convenience store channel as compared to the same period the previous year grew from 51% to 52, 5%.

We again point out that in certain market statistics that cover single months or four week periods may often be materially.

Influenced positively <unk> negatively by promotions or other trading factors during those periods.

Net sales to customers outside the U S with $553 $4 million 36, 4% of total net sales in the 'twenty to 'twenty, two first quarter compared to $459 4 million or 36, 9% of total net sales in the corresponding quarter in 2021 foreign currency exchange.

These rates had a negative impact on net sales in U S dollars by approximately $32 9 million in the 2022 first quarter.

Included in reported geographic sales or ourselves to the company's military customers, which are delivered in the U S and drawn shipped to the military and their customers overseas.

2021 gross profit in the first quarter was impacted by higher aluminum commodity pricing increased frightful imported cans increased raw material and ingredient costs as well as air freight costs.

In.

Asia Pacific net sales in the 2022 first quarter increased one 9% in dollars and increased nine 4% in local currencies over the same period in 2021.

Gross property in this region as a percentage of net sales was 49% versus 48, 8% over the same period in 2021 in Japan itself in the 'twenty to 'twenty two first quarter decreased five 8% in dollars, but increased three 4% in local.

Currency sales decreased over the same period in 2021, largely due to COVID-19 restrictions in Japan.

In South Korea, net sales increased 71, 7% in dollars and 86, 1% in local currency as compared to the same quarter in 2021.

Once the remains the market leader in Japan, and South Korea and.

<unk> and ingredients. Furthermore, sales in Australia were also impacted by severe flooding in that country in the 'twenty to 'twenty two first quarter.

Latin America, including Mexico, and the Caribbean net sales in the 2022 first quarter increased 50 to 52, 5% in dollars and increased 59, 7% in local currencies over the same period in 2021 gross profit in this region as a percentage of net sales was 35, 4%.

For the 2022 first quarter versus 37, 9% in the 2021 first quarter in Brazil net sales in the 2022 first quarter increased by 72, 1% in dollars and 67, 4% in local currency net sales in Mexico increased 37, 7% in dollars.

And 41.4% local currency in the 'twenty to 'twenty, two first quarter net sales in Chile increased 28, 4% in dollars and 45, 5% in local currency in the 'twenty to 'twenty two first quarter.

Net sales in Argentina increased 103, 1% in dollars and 146, 4% in local currency in the 'twenty to 'twenty two first quarter.

I will now discuss our litigation with vital Pharmaceuticals, Inc, which I'll refer to as V. P X. The maker of Bang energy drinks in June 2020, Monster Energy company, which I'll refer to as M. A C and Orange Bank, Inc. Family on beverage business and the rightful owner of several trademark registrations to the bank.

<unk> initiated an arbitration against <unk> <unk> and Orange Bang alleged that <unk> reached a 2010 settlement agreement with Orange Bank that restricted <unk> use of the bank trademark two products that are creating based or marketed and sold only in nutritional channels as well as <unk>.

Is it a V P X infringed orange bangs trademark rights to the bank marks.

In April 2022, the arbitrator issued a final award finding in favor of AUC and Orange Bang on all claims the arbitrator found that <unk> is bang energy drinks, which V. P X advertises containing super creatine and other bank branded products do not contain creatine and do not provide the benefits.

Of creatine, because bank branded products are fast not creatine based and are not limited to nutritional channels. The arbitrator found they are being sold in breach of the settlement agreement.

Ever tried to also found that <unk> bring bang branded products infringe Orange bangs trademarks, the arbitrage rewarded M. A C in Orange bank, a $175 million to remedy VP exes past misconduct and attorneys' fees and costs, which amounted to nearly $9 3 million.

The arbitrator also ordered VP extra pie M, a C and Orange bank and ongoing 5% royalty on all future net sales of bank products.

The terms of the agreement between <unk> and Orange Bank, The award and future royalties will be shared equally between <unk> and Orange Bank.

Under the Arbitrators order EVP X fails to pay the royalty vps is prohibited from using the Bang Bang Mark subject to certain limited exceptions M. A C. In Orange Bank have filed a motion to confirm the Arbitrator's Award V. Bx has filed a motion to vacate the arbitration award a hearing on V. P X as motion is scheduled for June 27.

In 2022.

M. A c's law suit against V. P X for false advertising unfair competition and misappropriation of trade secrets in the Central District of California is still pending withdrawals scheduled to begin in August 2022, as this litigation and other pending proceedings with <unk> are sub Judy Kay we will not be answered.

Any questions on those matters in today's call.

In February of 2022 we introduced new flavor innovations with ultra Peachy-keen juice Monster Aussie style eliminate rehab watermelon and Ryan <expletive>.

Rainbow Sherbet.

In February 2022, we launched our newest brand nationally true north pure energy Seltzer in full 12 ounce flavors through the Coca Cola distribution network at the end of the 'twenty to 'twenty two first quarter, we launched two new ready to drink Natera infused coffee products Java Monster Cold brew.

Laughter, and Java Monster called Bruce Sweet Black.

In Canada in January of 2020 to reintroduce Monster Ultra gold in February of 2022 we grew Ken.

Canada's Ryan portfolio by launching Ryan Watch Gummy bear.

We successfully launched several new products across Latin America in the first quarter of 2022.

Argentina, We launched V. All 46, the Doctor in Chile, we expanded our rain lawn by launching Melon Mania Lemon heads in Orange Dream sickle in Mexico, We launched our second predator SKU with credits that mean Green. We also launched monster Ultra gold in Puerto Rico, and Monster Mango Loco in Colombia in.

In the 2022 first quarter, we launched Monster Ultra Golden mother, Kiwi Sublime in Australia, and New Zealand, we launched our third Super fuel fly very tropical Thunder.

In EMEA in the first quarter of 2022 we launched monster mule months denied drug and months, resulting in a number of countries. We also launched ultra Fiesta watermelon and gold and juice Monarc chaotic and Pacific Punch in a number of countries. During the 2022 first quarter during the 2022 first quarter goes along.

Credit to and Ryan in additional countries.

During the first quarter of 2022 we launched monster pipeline Punch and Singapore. We also introduced the privilege of brand in India in April 2022 we launched monster Mango Loco in Japan, we are planning to introduce the privilege of brand in several additional countries in APAC in the course of 2022.

Our co packing network is an integral part of the company's production model, which we intend to preserve.

To maintain adequate supply of the company's products, we have acquired the associated real property leases and equipment. All of this cut backing facility for a purchase price of $62 5 million. Following the purchase of the facility will be closed for a period of time before the companies able to commence production.

We estimate April 'twenty, 'twenty, two sales, including Kentucky to be approximately $6, 7% higher than in April 2021, and 4.8% higher than in April 2021, excluding kownacki on a foreign currency adjusted basis, Excluding Kownacki April 2022 sales would've been approached.

Seven 7% higher than the comparable April 2021 cells April 2022 had one less selling day compared to April 2021, we.

We mentioned that April 2022 sales had a challenging hurdle to meet the April 2021 sales you may recall that in our 2021 first quarter conference call to shareholders. We estimated that April 'twenty 'twenty. One sales were approximately 71, 3% higher than in April 2020. Please.

Keep in mind that the comprehensive 2022, 2020 sales were materially adversely impacted by the COVID-19 pandemic in our 2020 key first quarter conference call to shareholders. We estimated that April 'twenty 'twenty sales were 22, 2% lower than April 2009.

<unk> sales.

So 2021 April 2020 in April 'twenty, not all had the same number of selling days.

Company had sufficient can capacity and co manufacturing filling capacity across all regions to address demand for April .

Period, such as a single month should not necessarily be imputed to are regarded as indicative of results for a full quarter or any future period, if the COVID-19 pandemic and related unfavorable economic conditions continue in certain regions and new product innovation launches in those regions could be delayed.

So North America, EMEA and Latam.

If it was flavor facility in Ireland is now providing a large number of flavors to our EMEA region, enabling better service levels and lower landed cost to our EMEA region. We are pleased with the new additions to the Monster energy portfolio. We are planning to continue additional launches of our Orion totaled.

To fuel high performance energy drinks in additional international countries. We are pleased with the rollout of predator in theory, our affordable energy drink portfolio internationally, we are proceeding with plans to launch our affordable energy brands and an additional number of international.

I would now like to open the floor to questions about the quarter. Thank you.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two in.

In the interest of time, we ask that you limit yourself to one question at this time, we'll pause momentarily to assemble our roster.

Our first question comes from Dara <unk> from Morgan Stanley . Please go ahead.

Hey, good afternoon.

After it hard.

U S sales continue to come in very strong again, this quarter and show a sustained decoupling versus the scanner data.

Implying obviously very strong growth in the untracked channels can you just review for us what level of growth Youre seeing those untracked channels, what are the key drivers behind that.

And then as we think about the U S going forward.

Yeah.

So turning to your first question you know there's always a disconnect between our sales.

Which our sales in the main to distributors.

And as well, we sell obviously to some direct accounts, including the untracked channels, it's really difficult.

For us to get that information to this investor group.

We'll always all I can say is it will always be a disconnect and.

Nielsen is not.

True indication even for sales through the distributor system, because the legs in the distribution system as well.

And then turning to your second question about gas prices.

You know we've seen this before we've seen.

Gas prices moving up and we've seen.

Hum.

Sales of energy drinks released this.

Staying staying the course and at the end of the day remember that we have a business that is based on a brand that is a lifestyle brand and.

Yes.

Our consumers purchase the monster products, because it's part of what they what they believe to be in.

That's what they want to be it's not something that's necessarily that price sensitive.

And that made us.

And I feel confident about our decision to take up pricing later this year, we really took pricing up as we've mentioned through pricing actions and we will be taking pricing up.

Effective September one.

I would maybe you could just.

One.

From one aspect to the traditionally the convenience channel was growing more quickly for the energy category than the mainstream grocery and drug channels and you know in recent quarters that had been reversed.

With.

This lowered driving through Covid.

And then you've got high gas prices. So I mean at the moment. If you look at the latest four weeks or one week numbers.

The convenience channel is growing less than if you look at the old major channels, but I think that that's something that we manage to achieve the results we have.

Got that and despite the fact that effect.

Convenience is our largest channel, which I just think it is.

It's positive for the future because we think that will watch itself eventually win when gas prices.

Sort of normalized <unk> people, just getting used to the gas prices and becomes whatever that level is people will get used to it eventually and continued to drop.

If you look for example at the last two weeks Nielsen.

Convenience.

On April 16th we seeing Nielsen sales in.

In convenience.

For the energy category growing at four 8% and we seeing the following week, which is April 23rd which is what we discussed on the school convenience in that one week growing 7%. So it's the market. We will continue to grow as I said earlier monster is an affordable luxury and we've done.

Anticipate at this time seeing a dramatic fall off.

Sales in the convenience and gas channel.

Our next question comes from Andrea <unk> from J P. Morgan. Please go ahead.

You operator and good afternoon.

Rodney on the 6% price increase starting September in the U S.

Im assuming thats on top of the 2% average that you had in Q1.

And is that a crisis of great.

And is that across all products and channels are balanced with our Tam and what are you hearing from retailers in terms of competitors following or not.

So that price increase is in addition to the pricing actions that we took in the first quarter that we started taking in the last quarter of 2021, and we will continue to through.

So we have taken positive actions, we will continue to taking it take pricing actions September one there'll be a market wide increase.

And we said approximately 6% depending on.

On channel.

And so far we have not heard any rumblings from competitors about what they are doing and what they're not doing we haven't done anything from retailers.

But as I said on a previous call.

Are we running our own brand.

Back to the competitors, we believe in the power of our brand and we have strong brands and we believe that this pricing action is justified and it certainly justified in terms of all the costs. We are seeing the cost increases and now that our competitors are seeing the same cost increases.

Yeah.

Our next question comes from Bonnie Herzog from Goldman Sachs. Please go ahead alright.

Alright. Thank you good afternoon.

So you guys called out.

Many pressures this quarter impacting your business can you really tell that strong underlying demand yet.

Yes.

I wanted to circle back if I thought you guys had made some progress in some of the data.

Houston inefficiencies, such as maybe already purchasing more supply in the U S. During the quarter as well as.

Starting to operate back within your RBC, So maybe touch on that please and then.

Rodney can can you help us understand you know, maybe where things stand now as it relates to some of these pressures have they already started to ease you mentioned a few things, but just trying to confirm that you've already seen improvement or is it really going to take until the second half until we see improvements on your gross margins.

And then finally I'd be curious to hear how much stronger yourself might've been in the corner, if you could've supplied enough product yet.

And it seemed like you back if you could quantify that that would be helpful.

Okay, well, let me just deal with the first.

First part of your question.

Bonnie and then we can.

You get these input on the on the rest.

As we look at the quarter remember the Ukraine conflict started on February the 24th So we had a dramatic increase in fuel prices, which we really didn't.

Full cost and we also had a dramatic increase in aluminum prices and if you just look at the aluminum prices.

The commodity went up 65% in Q1, 'twenty two versus the previous year Q1, 2021.

So they were unexpected.

Issues that surfaced in the quarter.

I think we said at the time that we were building up inventories and.

That's what we've been doing.

Absolutely been building up inventories in the in the quarter and Youll see that reflected in our balance sheet, we probably in a good position now better than we have been in terms of of supply and.

As we also say it on this call is that April .

We did not have a shortage of containers.

Or product to any significant degree.

So.

As well placed as we have been in the past to satisfy demand.

The next question comes from Kevin Grundy from Jefferies. Please go ahead.

Great. Thank you guys and good afternoon.

Two if I could just to come back to the 6% pricing.

Once he is certainly a step in the right direction, but not nearly enough to cover the inflationary pressures that you've seen over the past couple of years, maybe just comment on the magnitude of it how you arrived at that why do you believe that the appropriate number.

And then with respect to the April sales update and Thats. The overweight at any one given month and your point on the comparison is entirely fair, but anything that you're seeing within the business.

That gives you any concern about underlying demand it certainly doesn't sound that way, but I just wanted to ask given the.

Given given the step down from what we saw from very strong results in the quarter. So thank you for that guys.

You'll remember the hurdle we had.

In 'twenty one.

That was a.

Probably one of the biggest hurdles we've seen.

And.

So I think that.

April .

As we've always said one month in isolation should not be construed as a.

As indicative of performance for a quarter or a longer period of time.

The way, we got two price increases in the price increase.

Remember, we already taking pricing actions and.

We look at a whole bunch of factors and there's a whole lot of factors that we take into account in determining where we should be and obviously price points are.

A big driver.

And what we believe is fair and that the consumer will bear that becomes a very big big factor in assessing the price points and then of course assessing the extent of the price increase.

The next question comes from Mark is strong from Stifel. Please go ahead.

Yes, Thanks and afternoon guys.

I guess just a short question so.

Anything preventing the company from buying stock back one quiet period post acute filing is complete.

No.

It's the short answer is yes.

[laughter] will be recommend recommencing something some some buying activities loved.

Globally. Thank you.

So Christian short answer.

Yeah.

This concludes our question and answer session I would like to turn the conference back over to Rodney sacks for any closing remarks.

Philip and differentiate our brands and to expand the company both at home and abroad and in particular to expand distribution of our products through the Coca Cola bottling system internationally. We believe that if you are well positioned in the beverage industry and continue to be optimistic about the future of our company. We hope that you will stay safe and healthy. Thank you.

Very much for your attendance.

Conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Q1 2022 Monster Beverage Corp Earnings Call

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