Q2 2022 Monster Beverage Corp Earnings Call
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Good day to everyone. My name is Devon, and I will be your conference operator today at this time I would like to welcome everyone to the conference call.
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Mr. Rodney sacks, you may begin your conference.
Thank you good afternoon, ladies and gentlemen, thank you for attending this call I'm Rodney Sachs Hilton Schlosberg, Vice Chairman and co Chief Executive Officer is on the call is Tom.
Tom Kelly, our Chief Financial Officer, Tom Kelly will now read our cautionary statement.
I would like to remind listeners that certain statements made during this call may constitute forward looking statements within the meaning of section 27 of the Securities Act of $19 33, as amended and section 21 E of the Securities Exchange Act of $19 34.
Four 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.
Operations.
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.
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 therein entitled risk factors and forward looking statements for a discussion on the spin.
Civic risks and uncertainties 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 second quarter net sales of 1.66 billion in the 2022 second quarter, 13.2% higher than net sales of 1.46 billion in the 2021 comparable period and 16, 9% higher on a foreign currency adjusted basis.
Since the beginning of the COVID-19 pandemic and the subsequent increase demand for the company's energy drinks the company prioritized ensuring product availability for its customers and consumers. This strategic direction has remained in place throughout the global supply chain challenges and disruptions.
Adversely impacting the company's profitability.
The company continues to stand by its strategy to ensure product availability and solidify the continued long term growth of the company's brands.
The 2022 second quarter the company experienced a significant increase in cost of sales relative to the comparative twitchy 21 second quarter, primarily due to increased freight rates and fuel costs, including costs relating to the importation of aluminum cans increased ingredient and other inputs.
Costs, including secondary packaging materials and increased co packing fees increase of aluminum can costs attributable to higher aluminum commodity pricing geographical and product sales mix and production inefficiencies.
The company estimates that all of the increase in cost of sales in the 'twenty to 'twenty two second quarter of $253 million. Approximately 164.4 million was comprised of one approximately $66 7 million due to increased freight rates and fuel.
Costs, including costs relating to the importation of aluminum cans to approximately $45 9 million due to increased ingredients and other input costs, including secondary packaging materials and increased co packing fees three approximately 27.5 million Judy.
Increased aluminum can costs attributable to higher aluminum commodity pricing for approximately 15.1 billion due to geographical and product sales mix and five approximately $9 2 million jujube production inefficiencies.
The company continued 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. As a result, the company continued to if rates substantial quantities of certain ingredients.
Internationally, particularly to EMEA Asia Pacific and Latin America at additional costs and inefficiencies. Furthermore, the company experienced significant increases in distribution expenses, including increased fuel freight and warehousing costs, which adversely impacted operating Unix.
<unk> the.
The company continues to address the challenges and its supply chain as it navigates through the uncertainty of the current global supply chain environment.
Gross profit as a percentage of net sales for the 2022 second quarter was 47, 1% compared with 57, 2% in the 2021 second quarter. The decrease in gross profit as a percentage of net sales for the 'twenty to 'twenty two second quarter was partially offset by pricing actions.
Operating.
Expenses for the 2022 second quarter with $406 9 million compared with 310.9 million in the 2021 second quarter. The comparative operating expenses for the 2021 second quarter included a $16 9 million reversal of amounts previously accrued.
In connection with it.
Intellectual property claim.
As a percentage of net sales operating expenses for the 'twenty to 'twenty, two second quarter with 24, 6% compared with 21, 3% in the 'twenty to 'twenty, one second quarter and 25, 6% in the 2019 second quarter pre COVID-19.
Distribution expenses for the 'twenty to 'twenty, two second quarter increased to 87.9 million, which is an increase of 36% or five 3% of net sales compared to $64 6 million or four 4% of net sales in the 2021 second quarter and 3.4.
Percent of net sales in the 2019 second quarter pre COVID-19.
The $23 3 million increase in distribution expenses was primarily due to increased freight at expenses of $13 5 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 $9 seven.
As a result of higher raw material and finished product inventories in the United States and EMEA.
The increase in other operating expenses was primarily due to increased payroll expenses increased expenditures for sponsorships and endorsements and increased expenditures for travel and entertainment certain of these increases were the result of the company's return to activities consistent with pre COVID-19 levels.
We have decreased our reliance on imported cans and are currently purchasing aluminum cans from local sources in both the U S and EMEA, we anticipate seeing a reduction in cost of sales through increased use of domestic cans as we cycle through existing inventories of imported cans over the next few quarters.
We rebuilt and increased finished product inventory levels across the United States and EMEA to reduce the 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 disk.
Tribunal centers are included in freighting costs.
Operating income for the 2022 second quarter decreased to 29, 1% to 373.0 million from $526 million in the 2021 comparative quarter.
Net income decreased 32, 43% to $273 4 million as compared to $403 8 million in the 2021 comparable quarter diluted earnings per share for the 2022 second quarter decreased 32, 2% to 51 cents from 75 cents in the second quarter.
Out of 2021.
Through pricing actions the company was able to achieve positive pricing appreciation in the United States and in EMEA.
Due to continued cost pressures the company is implementing a niche sales price increase in the range of 6% market wide in the United States effective September one 2022 the.
The company will also be implementing price increases in the second half of 2022 and certain international markets. Some in addition to price increases or pricing actions taken earlier this year in order to mitigate the inflationary cost pressures.
According to the Nielsen reports for the 13 weeks through July 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 eight 2% versus the same period a year ago.
Sales of the company's energy brands, including Ryan were up 6% in the 13 week period sales of Monster were up seven 4% sells a Ryan were down five 6% sales of nausea decreased three 9% and sells a full throttle decreased 0.8 of a percent sales of Red Bull increased three point.
8% sales of Rockstar increased by two 1% and sales of five hour decreased 3%.
<unk> sales decreased 14, 5% to sales growth of the monster brand exceeded that of Red Bull in the period.
According to Nielsen for the four weeks ended July 23, 2022 sales in dollars in the energy drink category in the convenience and gas channel, including energy shots in dollars increased six 6% over the same period the previous year sales of the company's energy brands, which include reign increased five 6% in before we.
Period in the convenience and gas channel sales of Monster increased by six 4% over the same period versus the previous year range sales increased point, none of our present north was down one point to 8% and full throttle was down two 5% sales of Red Bull were up 3.9% Roc.
<unk> was down one 8% and five hour was down 3.5% V. P X bank sales decreased 16, 3%.
According to Nielsen for the four weeks ended July 23, 2022 the company.
These market share of the energy drink category in the convenience and gas channel.
Including energy shots in dollars decreased <unk> four of a point to 36, 1% monster share decreased from 34, 6% a year ago to 35% range shade decreased 0.1 of a share point to 2.3% normal shade decreased <unk> two of a point to 2.5%.
And full throttle share remained at seven.
All of a percent right.
Red Bull share decreased one percentage point from city seven 4% a year ago to 36, 4% Rockstar share was down <unk> three of a point to 3.5% five hour's share was lower by <unk> four of a point at four 2% and V. P expansion decreased one six points to 6%.
According to Nielsen for the four weeks ended July 23, 2022 sales in dollars of the coffee plus energy drink category, which includes our Java Monster line in the convenience and gas channel increased four 4% over the same period the previous year sales of Java Monster, including Java Monster 300, and Java Monster.
Mitra Cold brew with two 3% higher than the same period versus the previous year sales of Starbucks energy were nine 4% higher Java Monster ship.
Java Monster share, including Java Monster, 300, and Java Monster Nitro Cold brew of the coffee plus energy category, which primarily includes Java Monster Java Monster 300 do you.
Amongst the Nitro cold brew, Starbucks double shot and Triple shot Rockstar roasted and Bang keto coffee for the four weeks ended July 23, 2022 was 59% down one point, while Starbucks energy share was 47, 7% up 2.2 points.
According to Nielsen in all measured channels in Canada for the 12 weeks ended June 19, 2022, the energy drink category increased 12, 8% in dollars.
All of the company's energy drink brands increased eight 5% versus a year ago the market share of the company's energy drink brands was 40% down one six points monster sales increased 10, 8% and its market share decreased <unk> seven of a point to 34.8%.
Sales decreased nine 6% and its market share decreased <unk> four of a point to 1.5% full throttle sales increased 13% and its market share remained at <unk> six of a percent.
According to Nielsen for all outlets combined in Mexico the energy.
Drink category increased 21, 2% for the month of June .
2022.
Monster sales increased 26, 9% monsters market share in value increased 1.3 points to 28, 4% against the comparable period. The previous year. It tells a pretty tight increased 53, 1% and its market share increased <unk> eight of a share 0.24% the Nielsen statistics.
For Mexico cover single months, which is a short period that may often be materially influenced positively and negatively by sales in the OXXO convenience chain, which dominates the market sales in the OXXO convenience chain into 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 June 2022, compared to June 2021, monsters retail market share in value increased in Argentina from 46, 9% to 49, 2% once the energy continues to be the leading brand in value you know Argentina. According to Nielsen for the month of June 2022, compared to June 22.
'twenty, one monsters retail market share in value increased in Brazil from 35, 7% to say he nonpoint, 9%. Once there is now the leading energy brand in value in Brazil, marking another important milestone for our brand in South America and.
In Chile monsters retail share for the month of June 2022 decreased from 41, 9% to 38.11% due to a shortage of shipping containers.
I would 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 July 17, 2022 monsters retail market share in value as compared to the same period. The previous year grew from 25, 8% to 31, 6% in France from 27, 8% to 32, 1% in Norway and from city seven.
6% said, he nine 7% in Spain.
According to Nielsen in the 13 week period until the end of June 2022, monsters retail market share in value as compared to the same period. The previous year grew from 15, 3% to 16% in Belgium from 15.1% to 15, 4% in Germany from 28, 9%.
29, 9% in Great Britain, and from 19, 4% to 19 point to 8% and Poland monsters retail market share in value as compared to the same period the previous year declined from 25% to 20% in South Africa.
Sorting through Nielsen in the 13 week period ended June 19, 2022 monsters retail market share in value as compared to the same period. The previous year grew from 14, 5% to 15, 6% in Sweden monsters retail market share in value as compared to the same period the previous year declined from 8.5% to six six.
Percentage in the Netherlands, and from 29, 3% to 28, 1% in the Republic of Ireland Accordingly.
According to Nielsen in the 13 week period until the end of May 2022 monsters retail market share in value as compared to the same period. The previous year grew from 15% to 17, 5% in the Czech Republic and from 37.9% to 38, 7% in Greece.
Monsters retail market share in value as compared to the same period the previous year declined from 31% to 28, 3% in Italy.
According to Nielsen in the 13 week period, ending May 'twenty, two 2022.
<unk> retail market share in value as compared to the same period. The previous year grew from 25, 7% to 27, 5% in Denmark.
According to Nielsen in the 13 week period until the end of May 2022 predators retail market share in value as compared to the same period. The previous year grew from 17, 1% to 26, 8% in Kenya and from eight 1% to 15, 4% in Nigeria.
According to IRI in Australia monsters market share in value for the months ending July three 2022 increased from 13, 2% to 14, 2% as compared to the same period the previous year mother's market share in value decreased from 11, 5% to 10, 2% during the same period the market share of the company.
Brands in Australia for the month ended July three 2022 decreased from 24, 7% to 24, 5%.
According to IRI and use Zealand monsters market share in value for the four weeks ended July 10, 2022 increased from 12, 4% to 12, 6% as compared to the same period the previous year lift plus's market share in value decreased from six 9% to 6.5% and mother's market share in value.
Decreased from six 3% to five 3% market share of the company's brands and use the limit for the four weeks ended July 10, 2022 decreased from 24, 6% to 24, 5%.
According to indulge in Japan in the month, ending June 2022 monsters market share in value in the convenience store channel as compared to the same period the previous year grew from 56% to 56, 7%.
According to Nielsen in South Korea in the last month ending June 2022.
Monsters market share in value in all outlets combined as compared to the same period the previous year decreased from 61, 9% to 59, 9%.
We again point out that certain market statistics that cover single months or four week periods may often be materially influenced positively Andrew negative re bought promotions or other trading factors during those periods.
Net sales to customers outside the U S was $649 million studies on 2% of total net sales in the 2022 second quarter compared to $546 3 million or 37, 4% of total net sales in the corresponding quarter in 2021 foreign currency.
Exchange rates had a negative impact on net sales in U S dollars by approximately $53 4 million in the 2022 second quarter.
Rooted in reported geographic sales are 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 second quarter increased 13, 8% in dollars and increased 26, 8% in local currencies over the same period in 2021 gross profit in this region as a percentage of net sales for the second quarter was 26, 7% compared to.
39.8% in the same quarter in 2021 gross profit in the second quarter was impacted by increased freight for imported cans increased raw material and ingredient costs and increased co packing fees higher aluminum commodity pricing and air freight costs in local currencies gross profit as a percentage of net.
Sales for the quarter was 27, 1%.
The company is continuing to address the controllable challenges and its supply chain in EMEA.
We were also pleased that in the 'twenty to 'twenty, two second quarter Monster gained market share in Belgium, Czech Republic, Denmark, France, Germany, Great Britain, Greece, Norway, Poland, Spain, and Sweden.
In Asia Pacific net sales in the 2022 second quarter decreased one 1% in dollars and increased eight 2% in local currencies over the same period in 2021 gross profit in this region as a percentage of net sales was 44% versus 44, 4% over the same period.
In 2021 in Japan net sales in the 2022 second quarter decreased nine 6% in dollars and increased three 3% in local currency sales performance for the comparable period in 2021 was largely impacted due to COVID-19 restrictions in Japan.
In South Korea, net sales decreased five 2% in dollars and increased three 8% in local currency as compared to the same quarter in 2021 months. There remains the market leader in Japan, and South Korea.
In China net sales decreased two 1% in dollars and one 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.
In Oceana, which includes Australia, New Zealand, Tahiti, French Polynesia, New Caledonia, Papua New Guinea, and Guam net sales increased one 3% in dollars and seven 6% in local currencies sales in Australia, and New Zealand were negatively impacted by shipping delays.
Flavors concentrates and ingredients. Furthermore, sales in Australia were also impacted by severe flooding in that country in the 2022 second quarter inlet.
In Latin America, including Mexico, and the Caribbean net sales in the 2022 second quarter increased 66, 7% in dollars and increased 60 69, 7% in local currencies over the same period in 2021 gross property in this region as a percentage of net sales was 36, 4% for the.
2022 second quarter versus 47% in the 2021 second quarter.
In Brazil net sales in the 2022 second quarter increased by 82, 8% in dollars and 63, 9% in local currency net sales in Mexico increased 49, 3% in dollars and 49% in local currency in the 2022 second quarter net sales in Chile increased.
26, 1% in dollars and 45, 3% in local currency in the 2022 second quarter net sales in Argentina increased 200.1% in dollars and 269, 4% in local currency in the 2022 second quarter.
I will now provide the most recent update on 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 once the energy company, which I'll refer to as M. A C and Orange Bank, Inc. A family owned beverage business and the rightful owner of several trademark registrations to the bank box initiated an arbitration against V. P X M. A C. In Orange Bang alleged that V. P X breached a 2010 settlement agreement with Orange Bank.
That restricted V. P X is use of the bank trademark to products that are creating based well marketed and sold only in nutritional channels as well as claims that V. P X infringed orange Bangs trademark rights to the Bang marks.
2022 the arbitrage issued a final award finding in favor of M. A C. In Orange Bang on all claims the arbitrator awarded M. A C in Orange bank $175 million to remedy V. P. X is past misconduct as well as attorneys fees and costs, which amounted to nearly $9 $3 million. The arbitrator also order.
E P extra pay M, a C and Orange bank and ongoing 5% royalty on all future sales of <unk> energy drinks and other bank branded products pursuant to the terms of the agreement between <unk> and Orange Bank The award and future royalties will be shared equally between MPC and Orange Bank.
On July one 2022, the United States District Court for the Central District of California granted NBC in Orange Bangs motion to confirm the Arbitrator's Award and do not V P excess motion to vacate the Arbitrator's Award.
M. A C in Orange Bank have requested that the court to enter final judgment on July 28, 2022 V. P X fault a notice of appeal to the United States Court of Appeals for the non circuit.
The company will not recognize the award or royalties until such time as they are realized or realizable, yes.
Yesterday, United States Court of Appeals for the 11th Circuit issued a ruling affirms the decision of the United States District Court in the Southern District of Florida in which the district Court rejected VP excess claim that Amy sees line of reign energy drinks infringed the trade dress of it's a lot of Bang energy drinks.
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 later this month as this litigation and other pending proceedings with V. P X all sub Judy Kay I will not be answering any questions on those matches entre.
It is cool.
The first alcohol base product line that we plan to launch since the acquisition of Kentucky will be a full bodied flavored malt beverage that will be launched late in the 'twenty to 'twenty two fourth quarter under the brand name the Beast Unleashed Beast unleashed will leverage Munsters brand equity.
While carving out its own unique space in the beverage alcohol sector and will be distinguishable from the many hard seltzer brands that have become so ubiquitous over the last several years.
The Beast unleashed will have a 6% alcohol content by volume and will come in for great tasting bold flavors, which are based on certain of monster is well known and popular flavor profiles.
Alicia will be launched through distributors in the United States utilizing a phased state launch approach with the goal of being national by the end of 2023 and will initially be offered in 16 ounce single serve cans as well as a 12 can variety pack in 12 ounce sleek cans.
Alcohol innovation pipeline is robust with a number of additional innovative product lines. Currently under development. We look forward to sharing use of such additional alcohol beverage products at a later date.
We're excited about the planned launch of our new Monster Energy Zero show that energy.
Energy drink in the 'twenty to 'twenty two fourth quarter initially in the United States. Once the energy zero Sugar was specifically developed as an indistinguishable zero sugar analog of our original unique monster energy Green flavor. We are excited about the opportunities that this product will provide 12 months to consumers.
Who have come to enjoy a unique taste profile, although our original monster Green flavour, which remains a leading flavor.
In April of 2022, we launched pure North energy sources, and sleek 355 ml cans in three flavors.
Cucumber lime bacteria and grapefruit emanate in Canada at the end of June 2022 we expanded our core monster energy portfolio in Canada, Bob launching Monster reserve in two flavors watermelon and white pawn Apple Buzzy enforce 73 ml cans inlet.
In Latin America, we introduced several new energy drinks Monster energy predator and Fury product lines in certain Latin American countries in the 2022 second quarter.
In.
April 2022 in New Zealand, we launched live plus watermelon are forced to live plus.
Flavor.
In EMEA in the second quarter of 2022 we launched monster Nitro and Monster resulted in a number of countries in certain countries. We also launched Joost monarch and chaotic during the 2022 second quarter during the 2022 second quarter. We also launched additional skus of bird relentless knowledge and Ryan in certain countries.
During the second quarter of 2022, we launched predator in Turkey, and we continued the national Rollouts of credits are in India and Vietnam in June expanding the brand to east to India and North Vietnam. We also launched predator in Cambodia in July 'twenty 'twenty. Two we are planning to introduce the privilege of brand and several additional.
All countries in APAC in the second half of 2022.
In Japan, we launched Monster Super fuel killer, QE and Monster energy Ultra Sunrise in China.
We estimate July 2022 sales, including Ken all key to be approximately $12, 9% higher than in July 2021, and 11, 2% higher than in July 2021, excluding kownacki on a foreign currency adjusted basis, Excluding Kentucky July 2022 sales.
<unk> would have been approximately 16, 6% higher than the comparable July 2021 sales July 2022 has had one less selling day compared to July 2021.
The company had sufficient can capacity in kokomo manufacturing facility capacity across all regions to address the demand for July .
In this regard we caution a guy in that sales over a short period are 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 <unk>.
<unk> 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 sounds over a short period, such as a single month should not necessarily be in future to 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 conclusion, I would like to summarize some recent positive points.
The company is increasing its raw material and finished product inventories to better service its customers and ensure availability of its products to our IFA 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 three.
We are pleased with the new additions to the Monster energy portfolio fall. We are planning to continue additional launches of outright total body fuel high performance energy drinks in additional international countries.
Five we are pleased with the rollout of credits 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.
Six we are enthusiastic for the planned launch of the Beast unleashed, our first flavored malt beverage alcohol product and for the opportunities that they cannot keep acquisition presents.
Seven we believe that we will be able to address many of the challenges we have experienced in our supply chain.
Hate to be considered that certain of the increased costs. We have experienced in the quarter. My will be drawn surgery. For example, the current cost of aluminum has reduced materially from its recent March highs and we all beginning to see a reduction in fuel and freight costs as well as reductions in the cost of shipping containers and ocean freight.
Yeah.
To now open the floor to questions about the quarter. Thank you.
Yeah.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
Our first question will come from the line of Bonnie Herzog with Goldman Sachs.
Alright. Thank you your line is now.
Okay. Thank you on I guess.
A question on gross margin I simply don't understand really why they were there.
In a corner I.
I guess I was under the impression that you were already buying a fair amount as you all know.
Hum.
The U S.
And therefore, I should've been less your line on the implication I can I guess at least then in the U S. Like I thought that was the plan. However, I do see your inventory levels in the quarter went even higher and our almost three times the level they were last year.
Sure.
Help us understand that and you know just trying to think through is really the right way to manage the business and then health can you imagine these pressures are transitory.
But I guess, we're not really feeling like it. So when you know do you guys expect to be hung up we can buying and the like in EMEA supply in and really no longer importing aluminum can.
Sure Bonnie. Thank you for that question I think a lot of people probably want mainland same question. So thanks for addressing it early on.
You know, we've always taken a stance that our objective is to support our customers and our consumers. We went through yeah. Its hard times in 2020, one when we did not have enough capacity.
To service, our customers and our consumers we had bought the screaming we had retained a screaming and at the time, we made a very conscious effort that we were going to employ cans at expensive.
Extensive costs not in terms of the actual cost of the can but the cost of importing of cans of container costs that marriage. They could you guys could emerge.
Everything relating to the importation of aluminum cans, so that was an absolute conscious decision.
No. It's Ken started arriving in 'twenty late 'twenty or 'twenty. One EMEA was the most affected I think we've had a number of discussions about.
EMEA was EMEA was affected and a substantial number of those cans went into EMEA and have been consumed over a period of time, you know it's difficult without business because we have promotions from time to time for example, we've got the apex legends promotions now.
And the Kansas come in are not promotional cat so they use and.
They're using production win.
This market and market demand so.
In EMEA, we stopped importing Kansas, which still have to import cans. During 2022, we stopped that and.
And theres no longer invitation of cans in into EMEA in 2022 in 2021.
We've had dribs and drabs coming in in the U S and we will soon be out of those cans.
And as soon as we get over this apex legends.
Promotion, but in the U S. The percentage of imported cans in our furniture is very low compared to what you know what.
What it was in the second quarter in EMEA.
So.
I hope that answers. Your question, we did it as a conscious effort to support and to supply customers. Because we are in this business for the long term you know we're not in this business for the second quarter of 2022, we are in this business for the long term and it's important to us to ensure that our customers and our consumers continue.
To have faith in the company supply of energy products.
Jordan there is there anything else that I that I didn't answer that I should have on seed money.
But I guess for me, it's still begs the question.
It's a conscious decision to keep you know have a bigger supplier.
Elevated inventory, how do we think about that as I assume youre going to work down that inventory now is that starting to happen or will happen in Q3, and Q4 and I assume that's very elevated.
Blackberry.
Sorry on your gross margin quite frankly, very much continuing in Q3 and Q4 is that no.
Yeah, Okay, great. Great question, you know as we look at when you look at the future.
In cost of sales fuel is coming down and we know that we know that freight is coming down we were in that every day of our lives.
No that ocean freight is coming down.
We know that we've been able now to really diminish the amount of.
Oh, the materials that we're having to air freight.
<unk> it.
Keep the wheels, moving with product Thats coming.
Out of the U S with concentrates we know that ASF is.
Producing.
And up and running.
We know that the percentage of aluminum cans is coming down.
Aluminum costs are coming down you know aluminum reached the peak.
See if I can find it just very quickly the maximum level of aluminium including the Midwest premium was 1873 in March on March 7th we buy are we not hedged.
The portion that's not hedged is bought at minus one so the March 10, so the April cans would be based on March pricing.
And we know that aluminum today, including <unk>.
We find that including the Midwest premium is a one 136, so it's come down from a peak of 181 to 136. So we know that that's a fact right.
We also know that we built up inventories, which we had to because as <unk> told you about in 'twenty. One we're just not sustainable it would just not sustainable. So we both have the inventories and we are now able to avoid a lot of the shipping.
Great. That's that's been out of all but so you add all of that together and we.
Give full costs.
Not giving forecast, but it's very clear that 2022, the second the second quarter as in fact, we had anticipated would probably be a worse quarter in terms of margin, but I just wanted to stress again that we are in business for the long term and supporting our customers and our business in the long.
Term.
Yeah.
Your next question comes from the line of Andrea <unk> with J P. Morgan.
Hi, good afternoon, Thank you Oh.
The same property can I try for that.
The phasing of the cost pressures on the pricing I would just say pricing both domestic international would be a nice single JJ and could probably won't hear about that.
$150 million that you quoted.
And then you.
Of course and I appreciate the breakdown that you gave you can phase out some of these higher cost by the Lumina also the.
Yeah.
That is sad to blank canvas imported.
So would you and up to about 50 to about half that 750 million.
The fourth quarter I wanted to check that and then on the monster. So congrats on that should we think like we obviously have seen coke zero sugar.
Crude new customer new consumers into the category are you thinking how incremental that could be against ultra I'm assuming.
As Rodney said it attracts you know that the need state for monster.
Monster consumer because of the taste profile and also because of the packaging I'm, assuming more masks cleaning and more intense.
Into the core consumer isn't that sad that you have on the shelf coming in how much support do you believe you can get.
So the so the launch thank you.
Okay. So those are the two questions I'll start with the first one.
[laughter]. So you know we don't give guidance and you know what I've tried to do on this call is give some direction you know.
That's what that's what we are seeing that's real scene is coming down it's not going to happen overnight.
Because there are costs in a system that will take the time to walk through so.
And in in principle as since we don't give guidance I've, given some general direction, which.
<unk>.
You will find helpful and the other analyst.
Find helpful in analyzing where we go from here, but I just wanted to repeat it again that we are in this business for the long term in this business to support our customers and yes, maybe we did take a hiccup in gross margin in 2002 in the second quarter of 2022, but there've been a lot of other costs.
<unk>, including imported cans imported cans being one of them, but at least we were able to bring our inventories back to a situation, where we able to service customers and we're able to service consumers look it will be a terrible situation when our price goes up in September one and we don't have to.
<unk> inventories to satisfy demand I mean that would just be that would just be the and so we've done our very best to stay on track.
And to work within a very very difficult supply chain environment.
Yeah.
Perhaps things so first of all I can address the second part.
On the <unk>.
Actual.
Zero sugar.
I think that we've had zero sugar products, we have the full ultra lawn.
We have low carb and absolutely zero, but none of them have been really.
An analog of our original Monster Green the original Monster Green flavor, which we've had now for over 20 years, he's still a leading product pretty much in every country around the world.
Consumers do wanted to choice and as consumers I think get a little older. They do start looking to for a sugar zero sugar or sugar free alternative, but obviously you'd like to stay in the same franchise with the same product with.
With the same person analogy, it's in a black can with the sort of green claw and so we feel there is a way to a.
Increase the franchise to brings additional consumers, who really want that original monster flavor body zero sugar and also to retire and broaden our existing consumer base as we bring younger consumers in.
They tend to not be as worried or concerned about the sugar content as you get a little older I think sugar content does become an issue. They're also in many countries around the world they've started to Tex products with sugar have label requirements. So we think that by having an offering our original grew.
Green Monster in.
Sugar free zero sugar version with a very similar cat, it's distinguishable, but very similar with as I've stated. It still has the same personality and image. We believe we will.
Further entrench, our consumer base and expanded for many years to come. So we think this is a very important developments are an important way, we can continue to solidify and make monster and keep it unique because the monster flavor is its own unique flavor that is so popular and we would like to continue to expand on it and bolt on.
On it.
So the plans at two obviously you roll this out.
After the U S very extensively.
Yeah.
This is the conference operator, we ask to please only ask one question in today's Q&A. Your next question comes from Mark Astro Chan.
Yeah, Hey afternoon guys.
I guess, then I'm going to ask one question in two parts, but I swear it's related to the.
The first one Hilton.
How do you say I get everybody get what you're saying about guidance once you get each thing about cost pressures.
I just think it would be immensely helpful based on the commentary that I've been getting from cloud to feedback from shareholders. If you could at least just directionally.
Confirm.
The gross margins.
Should get better from here and if you could give us a magnitude around I think it would be helpful. But the related and more serious question is.
You know you have a lot of volatility historically in gross margin.
I asked this question before but I'm curious given.
The current environment, how you think about whether you want to do more with the Coke system from a procurement standpoint, potentially manufacturing co Packers and you asked other bottlers in the U S.
Is there any has there been any sort of change in how you might be thinking about that given obviously, what's happened over the last call.
Call. It 12 months, where you would have less worry about I suppose if you were working with them more closely.
Yes so.
With regard to your first point I think already answer that I believe that our second quarter is probably we're probably going to see.
Lowest margin.
In the year.
And as.
As regards.
Better direction in that market.
We just don't.
We just don't give guidance.
So that's the first point and then on the second the second point is.
So we really not sure and we've had discussions with our distribution partner on a number of number of issues and we're not sure that.
A further.
Engagement with them on any of these topics.
Would be would be positive.
But positive in terms of lowering cost of sales, but we are continuing to have those discussions and if it makes sense then definitely loop.
It definitely will.
I don't want to disclose too much but one of our partners in.
In Europe that is actually part of the.
The Coca Cola system.
Not fare better.
Securing cans and we were able to so I just wanted to just put all of this in perspective.
It's not necessarily a panacea.
Your next question comes from Peter Grom with UBS.
Hey, good afternoon, everyone I hope you're doing well.
Asking about topline I guess, so Rodney Hilton I guess I just wanted to ask about Bang.
What are you seeing there in terms of shelf space and kind of what do you expect as that kind of transition distributors in.
And I guess do you see a potential opportunity for you to capture some of that incremental shelf space.
Yeah.
I think generally in transitions, there's always upheavals okay. It's.
Transitions never happen cleanly overnights.
Theres always upheavals and remember that Bang is in a lot of the Pepsi shelf space and a lot of the Pepsi coolers and despite that you you guys have seen the shares decrease over the last 24 months or so.
So I don't want to say anymore than that I'm not sure if Rodney wants to say anymore, but.
You know I would say that.
Obviously, we and we continue to grab as much shelf space as we can we contract for a lot of shelf space and we work with the Coke bottlers.
And then Bang on the other hand work in with the with the Pepsi space and with the Pepsi coolers.
Yeah, just to build a sloppy I mean the.
Bank transitions out of the Pepsi Kudos you have you're obviously, you're all aware of the announcement that Celsius.
You have been trying to secure and has been securing additional shelf space will go into the Pepsi system. So there will be a lot of forging going on does the the ghost brand wanting you to a lesser degree in seafood. So you've got all of the sort of.
Performance brands.
Basically you're watching for some more shelf space.
And you know obviously, we will do the same so it will be a lot of transition going on and we believe that you know, we're obviously focused on that as well and odd brands and increasing iron shelf space.
Your next question comes from.
Roswell from credit Suisse.
Okay.
Hi, guys one of the things that we think you know watching carefully.
Okay.
We've been watching carefully about the impact on inflation on the consumer.
And with gas prices and stuff it doesn't seem like we've seen.
The slowdown at all I'm curious, what you're observing and maybe if you've if you've done any testing in markets like maybe Midland, Texas or Phoenix or some of those markets where inflation is much higher than it has been.
Nationally, if you're perhaps seeing different trends.
So what would I like to comment on is <unk>.
One retailer and not kind of mentioned.
In terms of their own schematics and their own structures wins early on the price increase.
They rolled out early.
And northern.
Not only with us, but with the competition as well and they have seen no reduction in sales based on that action.
So you know what.
What we are seeing anecdotally is a continuation of the growth in the category.
Yes. It has slowed somewhat look in Europe , where the category is about older. The growth has been escalating their foster then.
In the U S. So we've seen that and now we've seen the other.
Concerned maybe abating.
Asking questions about gas prices and with gas prices affect the consumption of energy drinks and frankly, we said at the time that we've seen high gas prices in the past that hadn't affected.
Sales of energy drinks, and we've seen gas prices now coming down.
Slowly, but surely they are coming down so.
I think that that may be answers your question as well.
Yeah.
And our final question for today's Q&A will come from Charlie Higgs with Redburn.
Hi, Joseph let me thanks.
Thanks for the question Sean.
Got you.
I was wondering if you'd talk a bit about the price increases you've put through in your international markets.
And then maybe if you could just touch on scope pricing.
Price increases you're planning for in <unk>.
<unk> to 'twenty, two maybe just some information on what countries.
It would be very useful.
Yes. It is.
You know there is a range of countries that we took prices in the first half of 'twenty two are they direct in price increases or through a reduction in promotions.
And we.
We've seen an uplift.
In the quarter already of the impact of those price increases as regards the second six months.
Really a list of countries.
And then do we got the time to go through them now but.
There's a list of countries that we will be taking further price increases where we can for example in France, you cannot you're gone.
<unk> had one price increase in a year you cannot go with the second price increase so there's a range of different countries, we will be taking price increases in Brazil. We took price increases earlier. This year actually we took a price increase it is just so we've been doing this on a.
On a consistent basis not to profit tier from inflation, but really to mitigate some mitigate the whole cost in the system as you guys will appreciate.
Thank you.
On behalf of Monster I would like to thank everyone for their continued interest in the company. We continue to believe in the company and our growth strategy and.
And remain committed to continuing to innovate develop and differentiate our brands and to expand the company both at home and abroad and in particular expand distribution of our products through the Coca Cola bottling system internationally. We believe that we are well positioned in the beverage industry and continue to be optimistic about the future.
All of our company.
That you will stay safe and healthy. Thank you very much for your attendance.
Yeah.
This concludes monster beverage second quarter 2022 conference calls. Thank you for attending today's presentation you may now disconnect.
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