Monster Beverage Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 28, 2023

There are 9 speakers on the call.

Operator

Afternoon, and welcome to the Monster Beverage Corporation 4th Quarter and Full Year 2022 Financial Results Conference Call. All participants will be in listen only mode. After today's 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 Sachs and Hilton Schlossberg, co CEOs for Monster Beverage.

Operator

Please go ahead.

Speaker 1

Thank you. Good afternoon, ladies and gentlemen. Thank you for attending this call. I'm Rodney Sacks. Hilton Slosberg, our Vice Chairman and Co Chief Executive Officer is on the call as is Tom Kelly, our Chief Financial Officer.

Speaker 1

Tom Kelly 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, 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 February 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 Sacks.

Speaker 1

Thank you, Tom. The company achieved record 4th quarter net sales of 1,510,000,000 In the 2022 Q4, 6.2 percent higher than net sales of 1,430,000,000 The subsequent global supply chain challenges and disruptions, the company has prioritized product availability for its consumers and customers Despite adversely impacting gross margins and operating income, the company continues to stand by its strategy to ensure product availability and solidify the continued long term growth of the company's brands. Canopy was acquired in February 2022 to facilitate the company's entry into the alcohol beverage sector. During 2022, Kaneki sustained margin pressures, cost of acquisition and integration, as well as certain other costs in preparation for the launch of the company's new alcohol product lines. Gross profit as a percentage of net sales Comparative 2021 Q4.

Speaker 1

The decrease in gross profit as a percentage of net sales for the 2022 Q4 As compared to the 2021 Q4 was primarily the result of 1, increased ingredients and other import costs, Including secondary packaging materials and increased co packing fees 2, geographical and product sales mix and 3, increased logistical costs. The decrease in gross profit as a percentage of net sales for the 2022 Q4 was partially offset by pricing actions. Gross profit as a percentage of net sales increased on a sequential quarterly basis to 51.8% in the 2022 Q4 from 51.3% in the 2022 Q3. Gross profit as a percentage of net sales, excluding gross profit for the company's Alcohol Brands segment increased on a sequential quarterly basis to 52.5% in the 2022 Q4 from 51.9% in the 2022 Q3. We continue to believe that some of these increased costs We are experiencing are likely to be transitory.

Speaker 1

The depletion of our remaining higher cost imported can inventories We'll continue over the next few quarters and should be fully utilized during 2023. We note that our major promotion in the Q4 was executed with lower cost locally sourced cans in the United States and globally. We estimate that of the increasing costs of sales in the 2022 Q4, approximately $60,000,000 was comprised of $39,600,000 due to increased ingredient and other input costs, including primary and secondary packaging materials and increased co packing fees 2, approximately $12,500,000 due to geographical and product sales mix and 3 approximately $7,900,000 due to increased logistical costs. We continue to experience significant increases in distribution expenses, primarily the result of increased warehousing expenses as well as other logistical expenses, which adversely impacted operating expenses. The company continues to address the challenges in its supply chain as it navigates through the uncertainty of the current global supply chain environment.

Speaker 1

We are starting to see a reduction in freight rates in the United States. Operating expenses for the 2022 Q4 were $390,000,000 compared with $354,700,000 in the 2021 Q4. As a percentage of net sales, operating expenses For the 2022 Q4 were 25.8 percent compared with 24.9% in the 2021 Q4 and 28.9% in the 2019 Q4 pre COVID. Distribution expenses for the 2022 Q4 increased $76,100,000 which is an increase of 9% or 5% of net sales compared to 69,800,000 or 4.9% of net sales in the 2021 Q4 and 3.5% of net sales in the 2019 Q4 pre COVID. The $6,300,000 increase in distribution expenses was primarily due to higher warehouse expenses of $11,200,000 as a result of higher raw materials and finished product inventories in the United States and EMEA, partially offset by decreased freight out expenses of $4,400,000 The increase in other operating expenses Was primarily due to increased payroll expenses and increased general and administrative expenses.

Speaker 1

We are now able to purchase aluminum cans From local sources globally, we have seen a reduction in cost of sales through increased use of domestic cans As we continue to cycle through existing inventories of imported cans over the next few quarters, we have rebuilt finished product inventory levels Globally to return to our orbit strategy of producing in closer proximity to our customers. The costs of repositioning finished products to distribution centers are included in freight in costs. Operating income for the 2022 Q4 decreased 4.5 percent to $394,400,000 from $412,900,000 in the 2021 comparative quarter. Net income decreased 6.1 percent to $301,700,000 as compared to $321,300,000 In the 2021 comparable quarter, diluted earnings per share for the 2022 Q4 decreased 4.9% to $0.57 from $0.60 in the Q4 of 2021. Diluted earnings per share, exclusive of the Alcohol segment operating losses and the adverse impacts of foreign currency exchange rates, net of tax, was $0.64 in the 2022 Q4.

Speaker 1

Through pricing actions, the company was able to achieve positive pricing appreciation in the United States and EMEA. Due to continued cost pressures, the company implemented a net sales price increase in the range of 6% market wide in the United States effective September 1, 2022, and we'll be implementing a price increase on this 24 ounce line effective April 1, 2023. The company also implemented price increases in the second half of twenty twenty two in certain international markets and we'll be implementing additional price increases on a phased approach during the first half of twenty twenty three in the number of international markets. The company will continue to review further opportunities for price increases and pricing actions in order to mitigate inflationary pressures. According to the Nielsen reports for the 13 weeks through February 11, 2023 for all outlets combined, namely convenience, grocery, drug, mass merchandisers, Sales in dollars in the energy drink category, including energy shots increased by 13.1% versus the same period a year ago.

Speaker 1

Sales of the company's energy brands, including Reign, were up 12.1% in the 13 week period. Sales of Monster were up 11.3%, sales of Reign were up 15.6%, sales of NOS increased 20.6% and sales of Full Throttle increased 1.3%. Sales of Red Bull increased 11.5%, Sales of Rockstar increased by 3.4% and sales of 5 Hour decreased 2.4%. VPX Bang's sales decreased 47.1%. The company continues to have market share leadership in the energy According to Nielsen, for the 4 weeks ended February 11, 2023, sales in dollars in the energy drink category in the convenience and gas channel, Including energy shots in dollars increased 15.1% over the same period the previous year.

Speaker 1

Sales of the company's energy brands, which include Reign, increased 14.8% in the 4 week period in the convenience and gas channel. Sales of Monster increased by 13% over the same period versus This year, Reign sales increased 26.7%, NOSIS was up 23.7% And Full Throttle was up 14.9%. Sales of Red Bull were up 11.9%, Rockstar was up 7% and 5 hour was down 0.3 percent. VPX Bang sales decreased 48%. According to Nielsen, for the 4 weeks ended The company's market share of the energy drink category in the convenience and gas channel, including energy shots in dollars, Decreased from 37.1 percent to 37%.

Speaker 1

Monster's share decreased from 31.5 percent a year ago to 30 to 2.6% and Full Throttle share remained at 0.7 percent. Red Bull share decreased 1 point From 36.1 percent a year ago to 35.1 percent, VPX Bang share decreased 3.8 points to 3.1%. 5 Hour share was lower by 0.6 of a point at 3.9%. Rockstar share was down 0.3 of a point to 3.7 percent. Celsius' share is 4.3%, Alani's News share is 0.7% and Ghost's share is 2.5%.

Speaker 1

According to Nielsen, for the 4 weeks ended February 11, 2023, Sales in dollars of the coffee plus energy drink category, which includes our Java Monster line in the convenience and gas channel, increased 6 0.2% over the same period the previous year. Sales of Java Monster, including Java Monster 300 and Java Monster Nitro Cold Brew were 8.1% higher in the same period versus the previous year. Sales of Starbucks Energy were 8% higher. Java Monster's share including Java Monster 300, Java Monster Nitro Cold Brew of the Coffee Plus Energy category, which From Meridien includes Java Monster, Java Monster 300, Java Monster Nitri Coal Brew, Starbucks Double Shot and Triple Shot, Rockstar Roasted and Banquito Coffee for the 4 weeks ended February 11, 2023 was 54.7%, up 1 point, while Starbucks Energy's share was 44.9%, up 0.8 of a point. According to Nielsen, in all measured channels in Canada for the 12 weeks ended December 31, 2022, the Energy Drink category increased 13.3% in dollars.

Speaker 1

Sales of the company's Energy Drink brands increased 16.3% versus And its market share increased 1.6 points to 36.8%. NOS's sales decreased 7% And its market share decreased by 0.3 of a point to 1.4%. Full Throttle's sales increased 8.4% And its market share remained at 0.5 percent. According to Nielsen, for all outlets combined in Mexico, The energy drink category increased 26.6 percent for the month of January 2023. Monster sales increased 34.1%.

Speaker 1

Monster's market share in value increased 1.7 points to 29.4% against the comparable period the previous year. Sales of Predator increased 106.2% and its market share increased 2 share points to 5.1%. 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.

Speaker 1

According to Nielsen, for the month of December 2022 compared to December 2021, Monster's retail market share in value increased in Argentina From 43% to 53.5 percent in Chile, from 34.5 percent to 41.7 percent In Brazil for the month end January 2023, our share increased from 39.9% to 41.1%. Monster is the leading energy brand in value in Argentina, Brazil and Chile. I would like to point out that the Nielsen numbers in EMEA should only be used 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 until the end of January 2023, Monster's retail market share in value as compared to the same period the previous year Grew from 14.2% to 15.2% in Belgium, from 30.7% to 31.8% in France, From 29.5 percent to 31 percent in Great Britain, from 27.3% to 32.7% in Norway, From 27.7 percent to 27.8 percent in the Republic of Ireland, from 38.6 percent to 40 point 4% in Spain and from 15.1% to 16.5% in Sweden. Monster's retail market share in value as compared The same period the previous year declined from 8.1% to 4.7% in the Netherlands and from 20% to 19.2% in South According to Nielsen, in the 13 week period until the end of December 2022, Monster's retail market share in value as compared to Same period the previous year grew from 16.3 percent to 18.4% in the Czech Republic, from 26.5% to 27 Same period the previous year declined from 14.6 percent to 13.9% in Germany, from 38.1% to 36 22.

Speaker 1

Predators retail market share in value as compared to the same period the previous year grew from 20.4% to 31.1% in Kenya and from 14.2% to 19.2% in Nigeria. According to IRI in Australia, Monster's market Sharing value for the 4 weeks ending January 29, 2023 increased from 13.1% to 16.1% as compared to the same period the previous year. Mother's market share in value decreased from 11% to 10.7%. According to IRI in New Zealand, Monster's market share in value for the 4 weeks ended January 22, 2023 remained at 13% as compared to the same period the previous year. Live Plus' market share in value decreased from 6.7% to 6.1% And Mother's market share in value increased from 5.8% to 6%.

Speaker 1

According to Intaj in Japan, in the month of Ending December 2022, Monster's market share in value in the convenience store channel as compared to the same period the previous year grew from Monster's market share in value in all after its combined as compared to the same period the previous year increased from 60.2% to 64.2%. 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. Were $542,500,000 35.9 percent of total net sales in the 2022 4th quarter compared to $508,100,000 or 35.7 percent of total net sales in the corresponding quarter in 2021.

Speaker 1

Foreign currency exchange rates had a negative impact on net sales in U. S. Dollars by approximately $81,900,000 in which are delivered in the U. S. Transshipped to the military and their customers overseas.

Speaker 1

In EMEA, net sales in the 2022 4th quarter decreased 2.3% in dollars, but increased 14.7% in local currencies over the same period in 2021. Gross profit in this region as a percentage of net sales in the 4th quarter was 33.9% compared with 30 2.6% in the same quarter in 2021 and are compared to 34.7% in the Q3 of 2022. The company is continuing to address the controllable challenges in the supply chain in EMEA. We're also pleased that in the 2020 Q4 Monster gained market share in Belgium, Czech Republic, Denmark, France, Great Britain, Italy, Norway, the Republic of Ireland, In Asia Pacific, net sales in the 2022 Q4 increased 0.5 point in dollars and increased 20.6% in local currencies over the same period in 2021. Gross profit in this region as a percentage of net sales was 42.6% versus 41.4% over the same period in 2021, Due in part to a product supply issue with an ingredient that impacted a number of our products in Japan, but has now been resolved, net sales in the 2022 4th quarter decreased 14.4 percent in dollars, but increased 10% in local currency.

Speaker 1

Sales in the 2022 Q4 Monster remains in China. In China, sales volume in the 4th quarter increased 5.4% as compared to 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 increased 2.9% in dollars and 16.7% in local currencies. In Latin America, including Mexico and the Caribbean, net sales in the 2022 Q4 increased 45.2% in dollars And increased 57.7 percent in local currencies over the same period in 2021. Gross profit in this region as a percentage of net sales was 28.4 percent for the 2022 Q4 versus 38.6% in the 2021 Q4.

Speaker 1

In Brazil, net sales in the 2022 Q4 increased by 19.9% in dollars and 16.6% in local currency. Net sales in Mexico increased 64.8 percent in dollars and 60.6% in local currency in the 2022 Q4. Net sales in Chile increased 1% in dollars, but increased 16% in local currencies in the 2022 Q4. Net sales in Argentina increased 92% in dollars and increased 196.6% in local currency in the 2022 Q4. We'll now provide an update on our litigation with Vital Pharmaceuticals, Inc, which will be referred to as VPX, the maker of Bang Energy Drinks.

Speaker 1

We previously discussed the trademark infringement arbitration in which an arbitrator found against VPX and awarded Monster Energy Company or MEC And Orange Bank, dollars 175,000,000 in damages, attorney's fees and costs and an ongoing 5% royalty on future sales of certain Bang Energy products. VPX has appealed the judgment. Additionally, on September 29, 2022, a jury in the United States District Court for the Central District of California Return to Verdict awarding MEC approximately $293,000,000 in damages on its claims against VPX for false advertising, Misappropriation of trade secrets and interference with Monster's contracts over shelf space with certain key retailers, subsidiaries and affiliates filed for protection under Chapter 11 of the bankruptcy code in the Southern District of Florida. While those proceedings are moving forward, VPX has undertaken to make interim royalty payments subject to potential clawbacks in certain circumstances. On February 14, 2023, VPX made its first royalty payment in the amount of approximately 3,600,000 The company will not recognize either award or the royalty payments until such time as they are realized or realizable.

Speaker 1

As the litigation and bankruptcy proceedings are sub judicay, we will not be answering further questions on those matters on today's call. In the Q1 of 2023, we launched the Beast Unleashed in 6 states through a network of beer distributors. The The beast unleashed is a flavored malt beverage with 6% alcohol by volume based on Monster's well known and popular flavor profiles. We are pleased with early results and plan to expand into additional markets in the Q2 of 2023 with the goal of being national by the end of the year. We recently launched Wild Basin Hard Seltzer with new packaging and great new flavors and taste profiles.

Speaker 1

The Dales beer family will get a refresh in the Q2 of 2023, including the introduction of Dales American Light Lager, And easy drinking lager with 4.2 percent alcohol by volume, 95 calories and 2.5 carbohydrates per 12 ounce serving. Alcohol beverage innovation pipeline is robust. We look forward to sharing news of additional new products in the future. In the 2022 Q4 in the United States, Monster Reserve Orange Dreamsicle was launched at retail to expand our Monster Reserve line. Monster Energy 0 Sugar was launched and retrain the United States in January 2023.

Speaker 1

Monster Energy 0 Sugar was specifically developed as an indistinguishable 0 sugar analog of our original unique Monster Energy Green flavor. We are excited about the opportunities that this product will provide To our Monster consumers, we have come to enjoy the unique taste profile of our original Monster Green flavor, which remains our leading flavor. Earlier this month, we also launched Monster Energy Ultra Strawberry Dreams, Monster Reserve Kiwi Strawberry, Monster Nitro Cosmic Peach And Java Monster Cafe Latte. Initial response from consumers has been positive. In February 2023, we launched a Flavor of rain called tropical storm in the United States and also commenced with the launch of Monster Tour Water, a pure unflavored water line in Still in sparkling variants in 19.2 ounce cans.

Speaker 1

We are planning to launch Rainstorm, which is positioned as a total wellness energy drink in 12 ounce sleek cans at retail in March 2023 in 4 flavors to address a compelling opportunity in the energy We launched several new SKUs in October in Latin America. In Chile, we expanded our Ultra line by Launching Ultragold and Ultrawatermelon. In Mexico, we introduced Monster Energy Reserve Watermelon. In Puerto Rico, the Cayman Islands, Curacao and Bermuda, we expanded our Reign portfolio and launched Reign White Gummy Bear and Reign Rainbow Sherbet. In Trinidad and Tobago, we launched Monster Pipeline Punch.

Speaker 1

In Australia, we expanded our core portfolio and launched Monster Super Dry. In New Zealand, we expanded our juice portfolio and launched Monster Juice Papillon, which is Currently exceeding our expectations. In the EMEA, in the Q4 of 2022, we launched Monster Nitro, Monster Reserve Watermelon and White Pineapple in a number of countries. In certain countries, we also launched Juiced Aussie Lemonade, Ultra Ultragold, Ultra Rosa and Ultra Watermelon during the 2022 Q4. During the 2022 Q4, we also launched Additional SKUs of burn and rain in certain countries.

Speaker 1

In EMEA as part of an ongoing pan EMEA launch, we commenced distribution of our Monster Energy Lewis Hamilton 40 fourzerosugarenergy drink in select EMEA markets late in Q4 of 2022 to be followed by an additional 25 EMEA markets in the Q1 of 2023. During the Q4 of 2022, we launched Monster Rehab Lemon Tea in Japan, Monster Ultra Watermelon in Turkey, Monster Ultra Paradise in Vietnam, Predator in Malaysia and we continued the national rollout of In India, we are planning to introduce the Predator brand in additional countries in APAC during the course of 2023. We estimate that on a foreign currency adjusted basis, including Kanocchi, January 2023 sales were approximately 16.1% higher than the comparable January 2022 sales and 13.8% higher than January 2022, excluding Kanarki. We estimate January 2023 sales, including Kanarki, to be approximately 12.9% higher than in January 202210.6 percent higher than in January 2022, excluding Kanarki. January 2023 had the same number Selling days is January 2022.

Speaker 1

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 of price increases and promotions in retail stores, distributor incentives as well as shifts in the timing of production. In some instances, our bottlers are for production and determine their own production schedules. This affects the dates on which we invoice such bottlers. Furthermore, our bottling and distribution partners maintain inventory levels according to their own internal requirements, which they may alter from time to time For their own business reasons, we reiterate that sales over a short period such as a single month Should not necessarily be imputed to or regarded as indicative of the 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 could be delayed. On November 2, 2022, the Board of Directors authorized a new Share repurchase program for the repurchase of up to an additional $500,000,000 of the company's outstanding common stock.

Speaker 1

During the 2022 Q4, the company purchased approximately 2,300,000 shares of its common stock for a total amount of 201.6 $2,800,000 remaining available for repurchase under the previously authorized repurchase programs. The company today announced that its Board of Directors has approved and declared a 2 for 1 split of its common stock that will be affected in the form of a 100% stock Each stockholder of record on March 13, 2023, will receive a dividend of 1 additional share of common stock for each then held share to be distributed after the close of trading on March 27, 2023. The company anticipates common stock to begin trading at the split adjusted price on March 28, 2023. In conclusion, I'd like to summarize some recent positive points. 1, the energy category continues to grow globally.

Speaker 1

2, the company Has increased its raw material and finished product inventories to better service its customers and ensure availability of its products. 3, we are seeing improvement in our gross profit margins on a quarterly sequential basis due to supply chain normalization. 4, in Ireland is now providing a large number of flavors to our EMEA region, enabling better service levels and lower land cost to our EMEA region. 5, we are enthusiastic for our 2023 new product innovations, notably Monster Energy 0 Sugar, which launched in January 2023 in the United States and Monster Energy Lewis Hamilton 44zero Sugar Energy Drink in EMEA. We are also particularly enthusiastic for the planned launches of Rainstorm in March 2023 as well as Tour Water in the United States.

Speaker 1

We are pleased with the early results from the launch of the Beast Unleashed, our first flavored malt beverage alcohol product In 6 states and the planned rollout to additional states as well as the additional alcohol opportunities that the Kanarki acquisition presents. 7, we are planning to launch Reign Total Body Fuel High Performance Energy Drinks in additional international countries. And Finally, we are pleased with the rollout of Predator and Fury, our affordable energy drink portfolio internationally. We are proceeding with plans to launch our affordable energy brands in an additional number of international countries. I would now like to open the floor to questions About the year.

Speaker 1

Thank you.

Operator

We will now begin the question and answer session.

Speaker 1

To allow everyone

Operator

a chance to ask questions. And our first question will come from Peter Grom of UBS. Please go ahead.

Speaker 3

Thanks, operator, and good evening or good afternoon, everyone. So, Hilton, I guess I wanted to ask about gross margin. You mentioned in the release that you expect some of these cost pressures you've experienced to be transitory, Whereas others remain challenging. And I guess maybe just to start, is there any way to frame how much of the drag on gross margin is still a result of these imported cans? And then just looking ahead in the context of pricing, the cost backdrop you outlined and kind of the modest sequential improvement we saw sequentially, Yes.

Speaker 3

How would you frame the margin recapture opportunity looking out to next year? Thanks.

Speaker 4

Okay. Well, if you look back At what happened in the Q4, we had a price increase in September 1 in the U. S. We had some price increases internationally during 2022 and into the Q4 of 2022. We are increasing pricing in many international markets on a phased basis Starting in the early part of 2023.

Speaker 4

So, a lot of the increased costs that we have been absorbing should be accommodated by increased pricing. But looking forward, we all know what's happening with aluminum. It's coming down. Certain other commodities are coming down. In Europe, we see energy coming down.

Speaker 4

So overall, I think With regard to margin, we are actually in a good place. And as you saw in this quarter, we were able to move margin on a sequential We do, however, have certain costs that are not going away. For example, co packing fees have gone up. Sugar is in tight supply because of weather situations. So there are positives as well as negatives in the system.

Speaker 4

As regards to the international cans, we don't have that significant quantity left in terms of What the impact will be on gross margin. So, I think we've just got to work through those cans. They have green and ultrawhite. We'll work through them and we'll be good. The only issue is that we do have promotional cans from And as I've spoken on this call on a number of occasions, these cans are not promotional cans.

Speaker 4

They're just straight cans that we use in non promotional periods. And also it depends we have other obligations with Our can company. So it's a question of sourcing cans from the most optimal place to be able to co pack. So that may be too long an explanation, But I hope it gave you a sense of what we're seeing from the sand.

Operator

The next question comes from Chris Carey of Wells Fargo Securities. Please go ahead.

Speaker 5

Hi, everyone. So I just wanted to follow-up on that, but then ask a question. So, Hilton, would you expect sequential Gross margin improvement from here on a steady cliff, just given pricing and some improvement in commodities or overall cost I appreciate there are other inflationary factors, but would you expect to continue to sequentially improve from here? So that's just a follow-up. But then from a U.

Speaker 5

S. Perspective, I think one of the things that's coming up tonight is You had mid single digit pricing to high single digit pricing in the U. S. In September And yet U. S.

Speaker 5

Sales were 6%. So can you talk to any was there any pull forward of demand because of the pricing actions? Were there any promotions in the quarter behind the pricing? Maybe can you just help reconcile the revenue growth in the quarter in the Which is basically in line with the pricing that you're taking. So thanks for that follow-up on gross margins and the U.

Speaker 5

S. Comment.

Speaker 4

Okay. Chris, to answer your first question, we don't give guide. And I actually gave quite a robust explanation of what we see the runway for margin. So I just really don't want to estimate it because we really don't give guidance. But I think I gave you A good sense of where we are, probably too much, but that is where it is.

Speaker 4

In respect of The price increase in the U. S. In September, we actually limited the bottlers to the extent of how much they could buy in. So I didn't think that there was in fact, we don't think there was any much pull forward From Q3, I think it was just a question of the market stabilizing. As you know, with when price increases are put into effect, There's always a little bit of a bump as you go into more steady waters.

Speaker 4

And Everything we know and that we've heard is the price really the price increase is actually sticking. So we had a little bit more promotional allowances in the Q4 and you'll see that when the K is released. But that's really consistent with bleeding in a price increase to a market in the consumer goods industry.

Speaker 1

I think the only other thing I would like to just maybe just add on that is that towards the end of the Q4, I think We were not alone. I think there was a number of companies felt some softness in the consumer pool In primarily in December, but that was and that happened and then we think we've seen an uptick again in January As we've indicated from our January numbers and you can see from the Nielsen numbers. So it probably was a little bit of a combination of just an initial hesitancy from consumers to the price increase and then ultimately just some consumer softness, but that seems to have Remedies itself in the Q1 now.

Operator

The next question comes from Andrea Teixeira of JPMorgan. Please go ahead.

Speaker 3

Hi, thank you. This is Drew Levine on for Andrea. So, Rodney, I want to continue on that point on the sort of rebound in January. And it also seemed like there was an acceleration For both Monster and the category on a 3 year stack or 3 year CAGR basis. So just wondering what you're sort of attributing that underlying Do you think it's the new product launches, increased interest in the category, gas prices coming down?

Speaker 3

So any thoughts around that

Speaker 4

would be helpful. Thank you.

Speaker 1

I think it's a combination of those things. I think we have got gas prices coming down. I think we have seen Now sort of increase in convenience. If you remember last year convenience was always ahead of the grocery mass channels and last year it sort of reversed and Convenience was a little slow. That seems to be coming back a little bit.

Speaker 1

And we just think that again, pricing has sort of settled down a bit. But you can see across the whole category, there has been an increase in the Nielsen numbers across the category for most people, Competitors, we just are seeing just a little bit of resurgence of confidence again.

Speaker 4

Yes. The other thing I think you should do is have a look at the when we announced 3rd quarter results, We spoke about the October sales. And if you look at the October sales, it's not inconsistent with the quarter. And I'm talking about the Q4 of 2022, sorry.

Operator

The next question comes from Mark Astrin of Stifel. Please go ahead.

Speaker 6

Yes. Thanks and afternoon. Hey, guys.

Speaker 1

Hi, Mike. Hi, Mark.

Speaker 6

So Hopefully, you're doing all right there, Rodney.

Speaker 1

Yes, I'm fine. Just sort of remnants of a cough for the last couple of weeks.

Speaker 6

All right. That's good. Two questions for you. One sort of related to the recent line of questioning. So inventories were up again sequentially.

Speaker 6

How do we think about the improvement there? And does that kind of lead into flow through of improvement in gross margin through 2023? And maybe more bigger picture, How do you think about the relative affordability of Monster and Energy Drinks broadly in the U. S. After the price increase?

Speaker 6

It seems like you take a look at other beverage Categories pricing has been steady riser over the last decade plus, so the gap is sort of narrowed. You took a little bit of pricing, but not nearly as much a cumulative basis, is there opportunity here to become more price rational from an energy category standpoint as you kind of move forward?

Speaker 4

Well, let's talk about the first question, Mark, about inventories. As you know, when we When out of 2021, our inventories were just too low. We were unable to service our customers Without major upheavals and without major costs. So we there was no question that The inventories had to move and move significantly up because bearing in mind Where our sales are. But as we are, we believe that we have sufficient Inventories, which is important for us to be able to service our customers.

Speaker 4

Are we working on getting those inventories down? Yes. And the inventories will optimize themselves in due course. So I wouldn't be concerned. Our products have a 2 year shelf life and it's important that we maintain sufficient inventories to service our customers.

Speaker 4

And then on that second question you asked about pricing. If you go and look, for Sample at a Mountain Dew at Walmart, a 20 ounce Mountain Dew at Walmart, their price is $2.18 And Monster is $228,000,000 So, I think as you look at the energy category and You kind of balance the pricing of 20 ounce sodas and energy drinks. Remember that we now and just Twisting over to convenience. We sell more EnergyLink sell more at convenience than carbonated soft drinks. So there is a balance and I think we have struck a very good balance.

Speaker 4

With regard to going forward, We have a price increase planned for 24 ounce, which we believe has got opportunity And we're taking price in 24 ounces up beginning of April. So that'll happen. And we'll continue to monitor the opportunities For price increases in the U. S. As we see margins and as we see The carbonated soft drink category and it's a whole bundle of issues that lead us to move in the direction of whether to take

Operator

Nice. The next question comes from Filippo Filippo Filippo from Citi. Please go ahead.

Speaker 6

Hey, good afternoon guys.

Speaker 1

Hi.

Speaker 7

Can you talk about your expectations for your innovation pipeline in 2023, Particularly on a relative basis over the last couple of years, given it seems like you have a pretty substantial pipeline this year, both in I'll call it Baberjan and your core energy drinks. Thank you.

Speaker 1

The fact is that I think that we've actually got a really broad base of innovation. I think that It has sort of improved over the last few years. And I think we're sort of getting it right. I think that will be Positive for the brand. We also are being able to secure a little more shelf space across the different channels, Which is helping us with innovation because in some cases, we didn't get shelf space in some of the years past and it was sort of difficult To actually get the innovation to achieve the benefits that we had hoped for, we think that this We will be able to achieve those benefits.

Speaker 1

We have rationalized some of the SKUs, and we think that we'll be able to get a good selection of our innovation on shelf, Particularly the new Energy 0 Sugar and also the new Reign sub line, which will go up against other competitors in the 12 ounce Category. And there has been some additional shelf space not only in the energy category, but also in the sort of wellness category. So I think in some places, we'll also be able to place the rainstorm sort of line in that So overall, we think there will be a good contribution going forward from innovation, which is exciting. And So far, initial response to things like our Ultra Strawberry Dreams has been really positive from consumers and bottlers To the 0, sugar and others, so we are pretty optimistic and upbeat about innovation this year. Also, we're introducing a lot of multi packs to try and increase the take home, particularly in places like grocery.

Speaker 1

So again, we haven't You don't describe them that much on this call, but there's a whole SKU of multipack and variety packs that we're actually doing in a multipack, Which we think will be positive for the brand this year for sales.

Operator

Next question comes from Steve Powers of Deutsche Bank. Please go ahead.

Speaker 8

Hey, thanks and good evening. Just I guess a couple of cleanups on the gross margin topic. The first one is Rodney, I At the start of the call, you bridged to a $60,000,000 increase in COGS. I just wanted to clarify what that was. I think If I'm not mistaken, COGS is up like 70 plus.

Speaker 8

So just exactly what those numbers were and what they weren't, number 1. Number 2, I don't know if you can comment on the mix of cans in the 4th quarter, old higher cost cans versus current cost cans and If that was materially different than what you had seen in the Q3. And then 3, the Latin America gross margin you called out, Sales growth there is fantastic, but the gross margin has been progressively under pressure and was down, I think, 10 plus points in the 4th quarter. Just the drivers there and if you think you've got the ability to turn that gross margin progress around in Latin America.

Speaker 7

Thank

Speaker 4

you. I think, Steve, we spoke about that, about margins earlier on the call. Margins on a sequential basis were actually up. So I'm really not sure what you're referring to. And the first question that we answered spoke I So quite heavily about the progression of gross margins and the pluses and the minuses.

Speaker 4

So maybe I'm missing something, but I think we did discuss margin earlier on the call. And with regard The $60,000,000 that we spoke about in the release, that was only the $60,000,000 was comprised of €39,600,000 due to increased ingredients and other input costs and 12.5% due to geographical product sales mix and 7.9% due to increased logistical costs. And Of the increase in cost of sales was normal increases as you would expect To in a normal business environment. Those are the kind of exceptional ones that we called out.

Operator

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

Speaker 1

Thanks. On behalf of the company, I'd like to thank everyone for their continued interest. 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 capitalizing on our relationship with the Coca Cola bottling system. We believe that we are well positioned in the beverage industry and continue to be optimistic about the future of our company. We hope that you remain safe and healthy.

Operator

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

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Earnings Conference Call
Monster Beverage Q4 2022
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