Nobility Homes Q3 2021 Earnings Call Transcript

Quartr
Provided by Quartr
November 3, 2021

There are 10 speakers on the call.

Operator

Good afternoon, and welcome to the Monster Beverage Company Third Quarter 2021 Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Rodney Sacks and Hilton Schlosberg, Co CEOs. Please go ahead.

Speaker 1

Thank you. Good afternoon, ladies and gentlemen. Thank you for attending this call. I'm Rodney Sacks, Kilton Schlossberg, our Vice Chairman and my Co Chief Executive Officer is on the call as is Tom Kelly, our Chief Financial Officer. Tom will now read our cautionary statement.

Speaker 2

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 27A of the Securities Act of 1933 as amended and Section 21E 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, Thank you, Mr. Chairman. Thank you, Mr. Chairman.

Speaker 3

Thank you, Mr. Chairman. Thank you, Mr. Chairman. Thank you, Mr.

Speaker 3

Chairman. Thank you, Mr. Chairman. Thank you, Mr. Chairman.

Speaker 3

Thank you, Mr. Chairman. Thank you, Mr. Chairman. Thank you, Mr.

Speaker 3

Chairman. Thank you, Mr. Chairman.

Speaker 2

Thank you, 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 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 ks filed on March 1, 2021, including the sections contained therein entitled Risk Factors and Forward Looking Statements for a discussion on specific 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 Sachs.

Speaker 1

Thank you, Tom. Despite the ongoing impact of the COVID-nineteen pandemic, the company achieved record 3rd quarter net sales. During the 2021 Q3, the company procured additional quantities of aluminum cans from suppliers in the United States, South America and Asia in response to increased consumer demand. However, the company continued to experience shortages in its aluminum can requirements in the United States and EMEA during the 2021 Q3. In addition, the company continued to Variance additional supply chain challenges, including freight inefficiencies, trucking availability, shortages of shipping containers, port of entry congestion, insufficient co packing capacity and delays in receiving certain ingredients in the United States and EMEA.

Speaker 1

As a result, the company was not able to fully satisfy increased demand in the United States and EMEA in the 2021 Q3. During the 2021 Q3, the company continued to experience increased aluminum can costs Attributable to higher aluminum commodity pricing and costs of importing aluminum cans. In addition, the company experienced increased ingredient And input costs, including shipping and freight, labor, trucking, fuel, co packing fees and secondary packaging materials and increased outbound freight costs, all of which resulted in increased costs of sales and increased operating costs in the 2021 Q3. The company continues to address the challenges in its supply chain and EMEA to mitigate such increased costs. In the Q3 of 2021, net sales were $1,410,000,000 compared with $1,250,000,000 in the Q3 of 2020, an increase of 13.2%.

Speaker 1

Adjusting for foreign currency movements, Net sales for the 2021 Q3 would have been up 11.9%. Gross profit as a percentage of net sales for the 2021 Q3 was 55.9% compared with 59.1% in the 2023rd quarter. The decrease in gross profit as a percentage of net sales for the 3 months ended September 30, 2021 was primarily the result of increased aluminum can costs attributable to higher aluminum commodity pricing as well as the cost of importing aluminum cans, logistical costs and geographical sales mix. Operating expenses for the 2021 Q3 was $344,700,000 compared with $277,900,000 in the As a percentage of net sales, operating expenses for the 2021 Q3 were 24.4% compared with 22.3% in the 2023rd quarter and 24.5% in the In particular, operating costs were adversely affected by increased logistical inefficiencies, and increased selling and marketing expenses, including the resumption of certain sponsorship and event activities as compared to the same quarter last year. A number of sponsorship activities were canceled in the comparable quarter last year due to the COVID-nineteen pandemic.

Speaker 1

Operating income increased 3.1 percent to $444,500,000 from $458,600,000 in the Q3 of 2020, primarily driven by increased input costs, increased transportation, increased selling expenses and a one time distributor termination fee of $5,300,000 Net income decreased 3 percent to $337,200,000 as compared to $347,700,000 In the 2020 comparable quarter, diluted earnings per share for the 2021 Q3 decreased 3.5% to $0.63 from $0.65 in the Q3 of 2020. According to Nielsen reports for the 13 weeks through October 23, 2021, For all outlets combined, namely convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category, including energy shots, Increased by 12.8% versus the same period a year ago. Sales of the company's energy brands, including Reign, were up 7 point 1 percent in the 13 week period. Sales of Monster were up 10.7%. Sales of Reign were down 7.6%.

Speaker 1

Sales of NOS decreased 18.3 percent and sales of Full Throttle increased 8.9%. It It is important to note that with regard to the decrease in sales of NOS, during the Q3, we experienced shortages in the supply of concentrate for NOS, which resulted in reduced production, reduced sales and lack of product availability at retail. The non supply issues are improving. Sales of Red Bull increased 15.6 percent, sales of Rockstar decreased by 12.5% and sales of 5 Hour increased 3%. VPX Bangor's sales increased 5.1%.

Speaker 1

According to Nielsen, for the 4 weeks ended October 23, 2021, sales in dollars in the energy drink category in the convenience and gas channel, including energy shots in dollars increased 8.8% over the same period the previous year. Sales of the company's energy brands, which include Reign, increased 4.3% in the 4 week period in the convenience and gas channel. Sales of Monster increased by 7.4% over the same period versus the previous year. Reign sales decreased 6.7%, NOSA sales were down 17.5 percent and Full Throttle was up 7.8%. Sales of Red Bull were up 13.1%.

Speaker 1

Rockstar was down 14.7% and 5 Hour was up 1.9%. BPX Bangs sales increased 3.4%. According to Nielsen, for the 4 weeks ended October 23, 2021, the company's market share of the energy drink category in the convenience and gas channel, Including energy shots, in dollars decreased 1.6 points to 36.4%. Monster share decreased 0.4 of a share point to 30.8%. Reigns decreased 0.4 of a share point to 2.4%.

Speaker 1

Nossa share decreased 0.8 Points to 2.4% and Full Throttle share remained at 0.8 percent. Red Bull share increased 1.4 points to 37.6%. Rockstar share was down 1 point to 3.8%. 5 Hour share was lower by 0.3 of a 0.2 at 4.5%. VPX Bang share decreased 0.4 of a point to 7.4%.

Speaker 1

As previously reported, Coca Cola Energy is being Continued in the United States and Canada by the end of 2021. According to Nielsen, for the 4 weeks ended October 23, 2021, Sales in dollars of the coffee plus energy drink category, which includes our Java Monster line in the convenience and gas channel Increased 1.3% over the same period the previous year. Sales of Java Monster, including Java Monster 300 was 7.1% higher in the same period versus the previous year. Sales of Starbucks Energy were 5% lower. Java Monster share, including Java Monster 300 of the coffee plus energy category, which primarily includes Java Monster, Java Monster 300, Starbucks Double Shot and Triple Shot, Rockstar Roasted and Bankito Coffee for the 4 weeks ended October 23, 2021 was 52.6%, up 2.9 points, while Starbucks Energy's share was 44.5%, down 3 points.

Speaker 1

According to Stackline, which tracks energy drink sales by Amazon in the United States, For the 4 week period ending October 2, 2021, sales in dollars in the energy category by Amazon, including energy shots increased 39.9 over the same period the previous year. Sales of Monster increased 18.9% and its share was 27.2%, down 4.8 share points versus the same period a year ago. Red Bull sales increased 41.4% And its share was 15.7%, up 0.2 points. Celsius' sales increased 95.2% and its share increased 5.5 points to 19.4%. 5 Hour sales increased 0.5% and its share declined 1.1 points to 2.9%.

Speaker 1

VPX Bangs sales increased 36.6% and its share decreased 0.1 of a share point to 5 According to Nielsen, in all measured channels in Canada for the 12 weeks ended October 9, 2021, the energy drink category increased 10.5 Sales of the company's energy drink brands increased 13.3% versus a year ago. The market share of the company's energy drink brands was 41.3%, up one point. Monster's sales increased 14.4% And its market share increased 1.2 points to 36.2%. NOSA sales increased 1% and its market share decreased 0.2 of a point to 1.7%. Full Throttle sales increased 5.9% and its market share remained at 0.7 percent.

Speaker 1

Red Bull's sales increased 11.9% and its market share increased 0.5 of a point to 39.3%. Rockstar sales decreased 1.2% and its market share decreased 1.4 points to 11.5%. Guru's sales increased 21.5 percent and its share increased 0.4 of a share point to 3.9%. According to Nielsen for all outlets combined in Mexico, the energy drink category increased 26.6% for the month of September 2021. Monster sales increased 15.7%.

Speaker 1

Monster's market share in value decreased 2.5 points to 26.2% against the comparable period the previous year. Sales of Predator, which was launched in March 2020, increased 95.1% and its market share increased 1 share point to 2.8%. Red Bull sales increased 17.6% And its market share decreased by 0.5 point to 6.1 percent. Vive 100 sales increased 7.6% and its market share decreased by 3.3 points to 19%. Vault's sales increased 34.2% and its market share increased 1.1 share points to 19.5%, while Boost's sales increased 12.8% And its market share decreased 0.7 points to 5.3%.

Speaker 1

AMPA sales increased 55 0.5% and its market share increased 3.4 points to 18.2%. The Nielsen statistics for Mexico cover single months, which is a short period That may often be materially influenced positively and or negatively by 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 1 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 September 2021 compared to September 2020, Monster's retail market share in value increased in Argentina From 44.2 percent to 47.6 percent, Monster Energy continues to be the leading energy brand in value in Argentina.

Speaker 1

Monster's retail market share in value increased in Brazil from 33% to 37.6% And now trails Red Bull by only 3.3 points. In Chile, although Monster's net sales in the 3rd quarter were 34% higher, Its retail market share for the month of September decreased from 46.6 percent to 42.2% Due to robust growth in the energy category in Chile, which has grown 65% for the month of September 2021. 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 October 10, 2021, Monster's retail market share in value as compared to the same period the previous year grew from 13.5% to 13.6% In Belgium, from 25.8 percent to 26.3 percent in France, from 25.4% to 29% in Great Britain, From 7.5 Percent to 7.7 percent in the Netherlands and from 35.8 percent to 36.7% in Spain. According to Nielsen, in the 13 week period until the end of September 2021, Monster's retail market Share in value as compared to the same period the previous year grew from 14.2% to 14.9% in Germany, From 37% to 38.6 percent in Greece and from 18.3% to 20.2% in South Africa.

Speaker 1

Monster's retail market share in value as compared to the same period the previous year declined from 20.1% to 19.5% in Poland. According to Nielsen, in the 13 week period ending September 12, 2021, Monster's retail market share in value as compared to Same period the previous year grew from 25.4 percent to 27.3 percent in Denmark, from 26.2% 27.5% in the Republic of Ireland and from 13.3% to 13.6% in Sweden. Monster's retail market share in value as compared to the same period the previous year declined from 27.1% to 22% in Norway. According to Nielsen, in the 13 week period ending August 31, 2021, Monster's retail market share in value as compared to the same period the previous year Grew from 13% to 14.6% in the Czech Republic and from 19.9% to 29.1% in Italy. In the 2021 Q3, sales in EMEA were adversely impacted by can and concentrate supply issues And manufacturing capacity constraints, which caused out of stocks in many markets.

Speaker 1

The United Kingdom and certain other countries in EMEA We're more adversely affected. Truck shortages also exacerbated our ability to supply and the ability of our bottlers to deliver products According to Nielsen, in the 13 week period until the end of August 2021, Predators retail market Share in value as compared to the same period the previous year grew from 9.8% to 18.6% in Kenya And from 0% to 12.2% in Nigeria. We launched our new Predator malt flavored energy drink in Nigeria during the Q3. 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. According to IRI in Australia, Monster's market share in value for the month ending October 2021 increased from 12.7% to 13.9% As compared to the same period the previous year, Mother's market share in value decreased from 11.9% to 11.3% during the same period.

Speaker 1

The market share of the company's brands in Australia for the month ended October 2021 increased from 24.6% to 25.2%. According to IRI, in New Zealand, Monster's market share in value for the 4 weeks ended October 17, 2021 increased from 10.6% to 12.6% as compared to the same period the previous year. Lyft Plus market share in value decreased from 6.7% to 6.3% and mother's market share and value increased from 5.6% to 6.1%. The market share of the company's brands in New Zealand for the 4 weeks ended October 17, 2021 increased from 23% to 25%. According to Intaj in Japan, for the month ended September 2021, Monster's market share in value in the convenience store channel as compared to the same period the previous year grew from 49.9% to 53.9%.

Speaker 1

According to Nielsen in South Korea for the month ended September 21, 2021, Monster's market share in value in all outlets combined As compared to the same period the previous year grew from 54.4 percent to 60.4%. Monster continues to be the leading energy brand in Pan and South Korea. We again point out that certain market statistics that cover single months or 4 week periods May often be materially influenced positively and or negatively by promotions or other trading factors during those periods. Net sales to customers outside the U. S.

Speaker 1

Were $527,400,000 37.4 percent of total net sales in the 2021 Q3 compared to $444,500,000 or 35.7 percent of total net sales in the corresponding quarter in 2020. Foreign currency exchange rates had a positive impact on net sales in the U. In U. S. Dollars by approximately $16,400,000 in the 2021 Q3.

Speaker 1

Included in reported geographic sales are our sales to the company's Military customers, which are delivered in the U. S. And trans shipped to the military and their customers overseas. In EMEA, net sales in the 2021 Q3 increased 22.9 percent in dollars and increased 17.2% in local currencies over the same period in 2020. Gross profit in this region as a percentage of net sales for the 3rd quarter was 37.7% compared to 39.5% in the same quarter in 2020, primarily due to an unfavorable country product mix and canned freight and raw material air freight costs.

Speaker 1

In local currencies, gross profit as a percentage of net sales for the quarter was 38.4%. Can supply shortages exacerbated by production disruptions at a major supplier in EMEA, Lack of ingredient availability, insufficient canning capacity and a shortage of trucking availability together had an adverse impact on sales In the Q3 in EMEA, in some cases impacting the availability of our products on shelf at retailers. The company has addressed and continues to address the controllable challenges in its supply chain. We are also pleased that in the 2021 Q3 Monster Gain market share in Belgium, Czech Republic, Denmark, France, Germany, Great Britain, Greece, Italy, the Netherlands, the Republic of Ireland, South Africa, Spain and Sweden. In Asia Pacific, net sales in the 2021 Q3 Increased 1.6% in dollars and decreased 2.2% in local currencies over the same period in 2020, largely due to sales in Japan and China.

Speaker 1

Gross profit in this region as a percentage of net sales was 43.5% versus 43.2% over the same period in 2020. In Japan, net sales in the 2021 Q3 decreased 0.7% In dollars and 1.7 percent in local currency, largely due to COVID-nineteen restrictions in Japan and distributor inventory adjustments. In South Korea, net sales increased 21.1% in dollars and 15.6% in local currency as compared to the same quarter in 2020. Monster remains the market leader in Japan and South Korea. In China, net sales decreased 13.5% in dollars and 20.4% in local currency as compared to the same quarter in 2020.

Speaker 1

We are reevaluating the optimal product range for China going forward. We remain optimistic about the prospects for the Monster brand in China. In Oceania, which includes Australia, New Zealand, Tahiti, French Polynesia, New Caledonia, Papua New Guinea and Guam, Net sales decreased 8.6% in dollars and 13.6% in local currencies due to timing of sales into bottlers. In Latin America, including Mexico and the Caribbean, net sales in the 2021 Q3 increased 57.6% in dollars and increased 57.7% in local currencies over the same period in 2020. Gross profit in this region as a percentage of net sales was 41% compared to 42.9% over the same period in 2020.

Speaker 1

In Brazil, net sales in the 2021 Q3 increased by 56.6 percent in dollars and 54.1 percent in local currency. Net sales in Chile increased 34.5 percent in dollars and 27.4 percent in local currency in the 2021 Q3. Net sales in Argentina increased 41.6 percent in dollars and 93.1 percent in local currency in the 2021 Q3. There are a number of pending proceedings with VPX, but as they are sub judica, we will not be answering any questions on this matter on today's call. In the United States, we successfully launched our new True North Pure Energy Salsa line in e commerce And selected channels and we'll launch nationally into mainstream channels with our Coca Cola bottlers in the Q1 of 2022.

Speaker 1

In October 2021, we commenced the launch of our new reserve line of Monster Energy Drinks in 2 flavors, Watermelon and White Pineapple. In Canada, during July 2021, we successfully launched our Monster Energy Rehab line in 3 flavors, We have tea plus lemonade, peach tea and strawberry lemonade. We successfully launched several new products across Latin America in the Q3 of 2021, including Monster Zero Ultra in Paraguay, Monster Energy Zero Sugar in Peru, Monster Ultra Fiesta Mango in Puerto Rico And Monster Ultra Watermelon in the Caribbean. In the 2021 Q3, we expanded our Predator Goldstrike footprint In Mexico, by launching in a 355 ml slim can. In Brazil, we also launched Monster Pacific Punch, Monster Dragon Tea Peach, Rain Orange Dreamsicle and Rain Mango Matic within a limited territory.

Speaker 1

We are planning a national launch of all of these products in the first In the 2021 Q3 in Australia, we launched 2 new products in Mother Sugar, Free Razzleberry and Monster Ultra Fiesta Mango. In the Q3 of 2021, we launched Monster Mule, Monster Nitro and Monster Assault in a number of countries in EMEA. We also launched Ultra Fiesta and Juiced Monster Monarch In a number of countries during the 2021 Q3. During the quarter, we also launched our strategic brands innovation and Predator in additional countries. In particular, we launched our Predator malt flavored energy drink in Nigeria.

Speaker 1

During the Q3 of 2021, we launched Monster Super Fuel, Blue Streak and Red Dog in July in Japan. Additionally, in October 2021, we relaunched Monster Rossi in Japan. As a result of the COVID-nineteen pandemic Still impacting the region, certain of our planned launches of new products in a number of Asia Pacific markets have been deferred until 2022. However, Predator is anticipated to launch later this month in Vietnam. We are planning to launch a number of additional products and or product lines in our domestic and international markets later this year.

Speaker 1

We estimate October 2021 sales to be approximately 8.3% higher than in October 2020. On a foreign currency adjusted basis, October 2021 sales would have been approximately 7 9% higher than the comparable October 2020 sales. October 2021 had one less selling day than October 2020. Additionally, the company continued to experience multiple supply chain challenges in October, which adversely impacted sales. In this regard, we caution again 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 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.

Speaker 1

We reiterate that sales over a short period such as a single month Should not necessarily be imputed to or regarded as indicative of results for a full quarter or any future period. If the COVID-nineteen pandemic and related unfavorable economic conditions continue in certain regions, our new product innovation launches in those regions In conclusion, I would like to summarize some recent positive points. Currently, the company's flavor manufacturing facilities, Its co packers, warehouses and shipment facilities and bottlers and distributors are all operating. The company continues to address the challenges in its supply chain As it navigates through the uncertainty of the current global supply chain environment. We are experiencing increased costs in our operations, Some of which are likely to be transitory and we have and are in the process of implementing reductions in promotions and other pricing actions in the United States and EMEA to mitigate such increased costs.

Speaker 1

Our AFF flavor facility in Ireland is operational and is providing flavors to our EMEA region, which will improve service levels in EMEA. 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 and Fury, our affordable energy drink portfolio internationally. We are Seating with plans to launch our affordable energy brands in a number of international countries.

Speaker 1

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

Operator

We will now begin the question and answer session. Our first question comes from Wendy Nicholson with Citi. Please go ahead.

Speaker 4

Hi. My Question has to do with how you're thinking about pricing and promotion because on the one hand, you've got strong market shares, seems like strong demand, Yes, you've got capacity constraints and supply chain constraints. So on the one hand, you want to keep promotion up to keep people coming to your brand, but if you can't Service demand, how do you balance those 2? If you could talk about what you're thinking about just in the short term over the next few months, how you scale up Supply and get more bottles on the shelf, more cans on the shelf.

Speaker 5

Okay. Wendy, this is Hilton. That's Excellent question. So we have a department called Revenue Growth Management that balances Pricing and balances promotions in line with the expectations that we set for the business and for our brands. So we've been working very closely and started in this quarter, in fact slightly before this last quarter In cutting back promotions and using them very judiciously.

Speaker 5

So we look at this on an ongoing basis. We have plans for 2022, which involve changing retail pricing on shelves, which leads to obviously A reduction in promotions and we don't rule out the possibility of a full price increase later on In 2022, but we keep our options open. We prefer to accomplish the objective to reductions in promotions, but We have to see what the cost environment looks like going into 2022. Obviously, if you haven't got product and you're short of product, it doesn't make sense to promote extensively, but we still have to promote in order to fulfill the contracts that we've had this year With our customers and our retailers, which was set at the beginning of the year and so some cannot be changed. And as we move into 2022, adjust pricing through promotions and or price increases.

Operator

The next question is from Bonnie Herzog with Goldman Sachs. Please go ahead.

Speaker 6

All right. Thank you. Hi, Rodney and Hilton. I guess Hi, I wanted to ask a little bit further on the points you're making about this outsized demand and that You weren't able to satisfy this increased demand in the quarter and given the shortages. So is there any way you guys could help quantify The impact that this had on your top line in both the U.

Speaker 6

S. And EMEA. I mean, I'm just trying to understand, is it was it a low single digit impact Growth, could it have been more like mid single digit improvement on your top line? And then

Speaker 5

No. One question or 2.

Speaker 6

Okay. Well, that's it. I just want to also understand if the situation's improved in Q3 versus Q2.

Speaker 5

Okay. So the situation did not improve in Q3 relative to Q2. Q3 really presented More challenges in supply chain as we anticipated, although cans have come, We've achieved cans from overseas partners as we expected. So we have cans in the system. We have opened up a number of coke packers in the which we'll be supplying in the 4th quarter.

Speaker 5

So, if we look at Q3 and Rodney will probably kill me, but I'll give you an estimate. My estimate Is that we shorted in the high single digits. That's my estimate in terms of millions of cases.

Operator

The next question is from Peter Galbo with Bank of America. Please go ahead.

Speaker 7

Hey guys, good afternoon. Thank you for taking the question. I was just wondering, Hilton, the comments on other pricing actions, Retail pricing on shelves, potential for a full list price increase. Just can you give us a sense on maybe when you would Consider that more thoroughly, is there a reason why it's not now? Is there a shelf reset period that you need to wait for?

Speaker 7

Just listening to some of the commentary from some of the bottlers, it seems like they're taking pricing now. Just why wait?

Speaker 5

So we're not waiting. I mean, we already implemented promotional adjustments in this quarter. So we're not waiting. There are certain customers that we have that we contractually obligated to maintain Pricing and promotions, we've entered into agreements with them that We have new contracts starting in 2022 and those new contracts will address The pricing issues that you're talking about. So it's we're not waiting.

Speaker 5

It's already being implemented and Some of it in the Q3 as I mentioned, more will follow in the Q4 and more will follow Q1 of 2022. I think we've got a very interesting position in the market, and we've got to be careful that whatever we do, we don't disturb The velocity of what our brand is doing at retail.

Operator

The next question is from Mark Astrachan with Stifel. Please go ahead.

Speaker 8

Yes. Hey, afternoon guys. Hope all is well. Wanted to ask about the Coke relationship. So the can supply shortages, some of the manufacturing Challenges that you've laid out in recent quarters, the seeming distribution disadvantage versus Red Bull self distribution, At least in the U.

Speaker 8

S, how do you think about your relationship with Coke? And importantly, how does it get better And what makes it better from here?

Speaker 1

Mark, perhaps I'll take that one. I mean, they're 2 different relationships. There's Coke There's a corporate partner and there's also the individual Coke bottlers. I think that our relationship with Coke is fine. I think there's no issue.

Speaker 1

It's a good relationship. I think that With the bottlers, our relationships again are also good. But I think the bottlers have been struggling a little bit as you know with labor issues and cost issues as well. And that has sort of affected, I think, the level of service to smaller accounts and in field And that's where that has perhaps disproportionately hurt our brand over this whole pandemic period. And that's something that we are addressing, Particularly when you compare that to not against other similarly similar systems, but as against Red Bull, which has its own dedicated system out there.

Speaker 1

And so we are taking steps to address that. We are we have our own fields force that we've implemented To supplement and assist the bottlers, but even that our own field force is suffering from labor issues and Trying to hire people, it's not been easy. We have a number of open positions. But we are actually, we've seen good success from What we've implemented and we actually are expanding our own field team and we're going to do that in conjunction with the bottlers. But that's part of the challenges we've had our supply chain and part of the challenges we've had which have affected ourselves have been just Inefficiencies getting products on shelf and it's and there are different and in different parts of the country and different parts of the world even, It varies.

Speaker 1

And in some cases, you see empty shelves or you see shelves that haven't been refilled, which is obviously heartbreaking for us. And We're trying to address it, but that is something we are facing and that's been a labor issue that many of our bottlers are going through at the moment. But Hopefully, we're trying to work out ways of improving and hopefully that will start improving going forward. But despite that, we've been able to continue to manage Pretty healthy increase in sales and it's the it's just meeting the increased demand that has been our big challenge. And again, we're working with our bottlers to try and achieve what we can.

Speaker 1

So it's a tough environment for our bottlers when also we can't supply All of their orders and fulfill them in full. And that's been difficult for us to juggle deliveries around the country and resulted in In increased costs out of orbit and in delivering products out of our normal ranges in order to make sure we're trying to maximize Deliveries to bottlers.

Operator

The next question is from Andrea Teixeira with JPMorgan. Please go ahead.

Speaker 9

Thank you. Good afternoon there. I wanted to just go back to the magnitude of pricing and your comments in the last earnings call that you expect the cost pressures and supply to abate in the Q4. Are you still expecting that to be the case or sequentially worse and we should Braced for something similar in the 4th quarter against the 3rd quarter. And just a clarification, you said High single digit, million cases impact?

Speaker 9

Or you said or high single digit percentage impact that would have to be

Speaker 5

No, no, no, 1,000,000 cases.

Speaker 9

Okay. That's a mid single digit impact, okay, in percentage.

Speaker 5

No, well, in cases that's a high just to be clear, it's a high Number of cases in millions in high single digits.

Speaker 9

And on the pricing, Hilton, Can you let us know the magnitude that you're trying to put through and how we should think about COGS into the Q4?

Speaker 5

Right. So if you look at where we are with COGS, it's really a difficult situation right now Because I don't know where, for example, aluminum is going. I think those of you who are checking aluminum We'll know that the aluminum price is significantly the LME and the Midwest premium is significantly higher than last year. In fact, it's up by almost 70% from the similar quarter in the previous year. So and then I turn to what's happened in aluminum.

Speaker 5

So in the middle of October, We ended up with the highest price we've ever seen for aluminum in the Midwest premium and that's now fallen 15% from its high end now it's like the end of October. So we don't know what's happening with aluminum. What we do know is that we have substantial quantities of cans. We have 2 new manufacturers that have opened in the U. S.

Speaker 5

And are beginning to supply us. So that's a fact. And we have also opened a number of additional co packing facilities Both in the U. S. And in Europe.

Speaker 5

So, the cans are coming in. We have new co packing capacity. And what I'm hoping is that this inefficient freight that we've been experienced, we spoke on previous calls about operating within orbits to Minimize cost of distribution and cost of freight in. So now we've broken those orbits because we haven't had Capacity and we've been anxiously trying to service every case we can. So I'm hoping that in the Q4 and It's October already that with these new co packers opening up with the can capacity that we have that we will start mitigating These inefficient freight costs that we are experiencing.

Speaker 5

But I can't talk about aluminum because I don't know what's happening with aluminum and we were very careful not to buy forward on aluminum, which we normally do at our can Companies because we were nervous about what was going to happen. So that's where we are in the 4th quarter. Certainly, things are improving, but I cannot say that they are totally solved. And in Europe, we've opened up Also a number of new co packers we're getting cans in Europe from India and from China. So even the European situation is being alleviated.

Speaker 5

I would say, if you compare it to the 3rd quarter, I suspect we will have less issues in the 4th quarter than we had in the Q3, if that answers your question.

Operator

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

Speaker 1

Thank you. On behalf of the company, 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 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 bottler system internationally. We believe that we are well positioned in the energy drink category and

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
Nobility Homes Q3 2021
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