Monster Beverage Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

There are 9 speakers on the call.

Operator

Good afternoon, and welcome to the Monster Beverage Corporation First Quarter 2023 Financial Results Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Mr.

Operator

Rodney Sacks and Mr. Hilton Schlosberg, Co CEOs of Monster Beverage, please go ahead.

Speaker 1

Thank you very much. Good afternoon, ladies and gentlemen. Thank you for attending this call. I'm Rodney Sacks. Hilton Flossberg, our Vice Chairman and Co Chief Executive Officer 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 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, 2023, Including the sections contained therein entitled Risk Factors and Forward Looking Statements for a discussion on specific risk 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 Peck.

Speaker 1

Thanks, Thanks, Tom. The company achieved record 1st quarter net sales of $1,700,000,000 in the 2023 1st quarter, 11.9 percent higher than net sales of $1,520,000,000 in the 2022 comparable period and 15.3 Higher on a foreign currency adjusted basis. Gross profit as a percentage of net sales for the 2023 Q1 was 52.8% compared with 51.1% in the comparative 2022 Q1. The increase in gross profit as a percentage net sales for the 2023 Q1 as compared to the 2022 Q1 was primarily the result of pricing actions, Decreased freighting costs and decreased aluminum can costs. Gross profit as a percentage of net sales Increased on a sequential quarterly basis to 52.8 percent in the 2023 Q1 from 51.8% in the 2022 Q4 and 51.3 percent in the 2022 Q3.

Speaker 1

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 53.6% in the 2020 1st quarter from 52.5 percent in the 2022 Q4 and 51.9% in the 2020 The depletion of our remaining higher cost imported can inventories will continue over the few quarters, which should be fully utilized during 2023. Operating expenses for the 2023 1st quarter were $412,800,000 compared to $377,200,000 in the 2022 Q1. As a percentage of net sales, operating expenses for the 2023 Q1 decreased to $76,300,000 or 4.5 percent of net sales compared to $81,400,000 or 5.4 percent of net sales in the 2022 Q1. The 5 point partially offset by higher warehouse expenses of $9,900,000 as a result of higher raw materials And finished product inventories in the United States and EMEA. The increase in other operating expenses was primarily due to increased payroll expenses.

Speaker 1

We're now purchasing aluminum cans from local sources globally. We have rebuilt finished product inventory levels globally To return to our orbit strategy of producing in closer proximity to our customers, the cost of repositioning in its supply chain as it navigates through the uncertainty of the current global supply chain environment. Operating income for the 2023 Q1 increased 21.4 percent to $485,100,000 from $399,500,000 in the 20 22 comparative quarter. The effective tax rate for the 2023 Q1 was 20.1% compared with 25% In the 2022 Q1, the decrease in the effective tax rate was primarily attributable to the increase in the stock compensation Deduction in the 2023 Q1. Net income increased 35.1 percent to 397,400,000 as compared to $294,200,000 in the 2022 comparable quarter.

Speaker 1

Diluted earnings per share For the 2023 Q1 increased 36.6 percent to $0.38 from $0.27 In the Q1 of 2022, due to continued cost pressures, the company implemented pricing 3. The company plans to implement additional price increases in a number of other international markets during the remainder of the 2023 year. In the United States, the company implemented an additional price increase on its 18.6 ounce and 24 ounce lines Effective April 1, 2023, we will continue to review further opportunities for pricing actions in order to mitigate inflationary pressures. According to the Nielsen reports, for the 13 weeks through April 22, 2023, all outlets combined, namely Sales in dollars in the energy drink category, including energy shots increased by 12.7% versus the same period a year ago. Sales of the company's energy brands, including Reign, were up 10.5% in the 13 week period, sales of Monster were up 9.5%, sales of Reign were up 24.1%, sales of NOS increased 14.1% and sales of Full Throttle increased 5.5%.

Speaker 1

Sales of Red Bull increased 10.6 Sales of Rockstar increased by 3.7% and sales of 5 Hour decreased 4.1%. BPX Bang sales decreased 55.5%. The company continues to have market share leadership in the energy According to Nielsen, for the 4 weeks ended April 22, 2023, dollars 1,000 in the energy drink category in the convenience and gas channel, Increased 11% in the 4 week period in the convenience and gas channel. Sales of Monster increased by 9.3% over the same period is the previous year. Reign sales increased 37.8%, NOS's was up 8.8 in full throttle was up 11.7%.

Speaker 1

Sales of Red Bull were up 9.8%. Rockstar was up 5.4% and 5 Hour was down 5 point VPX Bang sales decreased 59.5%. According to Nielsen, for the 4 weeks ended April 22, 2023, the company's market Share of the energy drink category in the convenience and gas channel, including energy shots in dollars decreased from 37.5% to 36.9 percent. Monster share decreased from 31.6 Percent. Reigns share increased 0.5 a share point to 2.9 percent, NOSA's share remained at 2.6% and Full Throttle share remained at 0.7 of 4.3%.

Speaker 1

BPX Bang's share decreased 4.2 points to 2.4%. 5 Hour's share was lower by 0.7 at 3.7%. Rockstar's share was down 0.2 of a point to 3.4%. Celsius' share is 5.4%, C4 share is 2.8% And Ghost's share is 2.9%. According to Nielsen, for the 4 weeks ended April 22, 2023, Sales in dollars of the coffee plus energy drink category, which includes our Java Monster line in the convenience and gas channel increased 0.8% Over the same period the previous year, sales of Java Monster, including Java Monster 300 and Java Monster Nitro Cold Brew were 0.6% higher in The same period versus the previous year, sales of Starbucks Energy were 4.7% higher.

Speaker 1

Java Monster's share of the coffee plus energy category for the 4 weeks ended April 22, 2023 was 55.1 percent, down 0.1 of a While Starbucks Energy share was 44.5%, up 1.6 points. According to Nielsen in all major channels in Canada, for the 12 weeks ended March 25, 2023, the energy drink category increased 14.7% in dollars. Sales of the to 38.6%. NOSA sales increased 4.2% and its market share decreased by 0.1 of a point to 1.3 Full throttle sales decreased 8.4% and its market share decreased 0.1 of a point to 0.4%. According to Nielsen, for all outlets combined in Mexico, the energy drink category increased 17.8% the month of March 2023, Monster's sales increased 24.8%.

Speaker 1

Monster's market share in value increased 1.7 points To 30% against the comparable period the previous year, sales of Predator increased 71.3% And its market share increased 1.7 share points to 5.4%. The Nielsen statistics for covers 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 For Mexico, according to Nielsen for the month of March 2023 compared to March 2022, Monster's retail market share in value increased In Argentina, to 53.5 percent and in Chile, from 36.4 percent to 42.7 In Brazil for the month end March 2023, our share increased from 42.1% to 43.9%. Monster Energy is the leading energy brand in value in Argentina, Brazil and Chile. I would like to point out that the Nielsen numbers In EMEA, it 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 month referred to from country to country.

Speaker 1

According to Nielsen, in the 13 week period until the end of March 2023, Monster's retail market Share in value as compared to the same period the previous year grew from 14.8% to 15.8% in Belgium, from 18.3% 20.9% in the Czech Republic from 32.4% to 33.4% in France from 15% 16.6% in Germany, from 29.3% to 30.9% in Great Britain, from 9% in Spain and from 15.9% to 18.1% in Sweden. Monster's retail market share in value as compared to the same period Previous year declined from 7.8 percent to 4.7 percent in the Netherlands from 21.2% to 19 February 2023, Monster's retail market share in value as compared to the same period the previous year increased from 27.7% 27.7% in Denmark, Monster's retail market share in value as compared to the same period the previous year Declined from 38.3 percent to 36.5 percent increase. According to Nielsen, in the 13 week period until the end of February 2020 3, Predator's retail market share in value as compared to the same period the previous year grew from 23% to 31% in Market share in value for the 4 weeks ending April 9, 2023 increased from 13.5% to 16.6% compared to the same period the previous year, Mother's market share in value increased from 10.3% to 10.7%.

Speaker 1

According to IRi in New Zealand, Monster's market share and value for the 4 weeks ended April 16, 2023 increased from 12.9% 14.6% compared to the same period the previous year. Lyft Plus's market share in value increased from 6.1% 6.2% and mother's market share in value decreased from 5.7% to 5.1%. According to Intaj in Japan, in the month ending March 2023 Monster's market sharing value in convenience store channel as compared to the same period the previous year grew from 52.5% to 52.7%. According to Nielsen, in South Korea, in the month of ending March 2023, Monster's market share in value in all outlets combined as compared The same period the previous year decreased from 59.4 percent to 56.8%. 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.

Speaker 1

Net sales to customers outside the U. S. Were $622,900,000 36.7 percent of total net sales in the 2023 Q1 compared to $553,400,000 or 36 a negative impact on net sales in U. S. Dollars by approximately $52,000,000 in the 2023 Q1.

Speaker 1

Included in reported geographic sales are our sales to the company's military customers, which are delivered in the U. S. And transfer to the military and their customers overseas. In EMEA, net sales in the 2023 Q1 increased 5.7 dollars and increased 14.8% in local currencies over the same period in 2022. Gross profit in this region as a percentage of net sales for the Q1 was 30.7% compared to 29.6% in the same quarter in 2022.

Speaker 1

We're also pleased that in the 2023 Q1 Monster gained market share in Belgium, the Czech Republic, Denmark, France, Germany, Great Britain, Italy, Norway, Republic of Ireland, Spain and Sweden. In Asia Pacific, net sales in the 2023 Q1 increased 11.6 percent in dollars and increased 22.8% in local currencies over the same period in 2022. Gross profit in this region as a percentage of net sales was 44.4% This is 40.9% over the same period in 2022. Net sales in Japan in the 2023 Q1 decreased 12% in dollars, but increased 1.8% in local currency. In South Korea, net sales increased 4.3% in dollars and increased 11.4% in local currency as compared to the same quarter in 68.3 percent in dollars and increased 81.7 percent in local currency as compared to the same quarter in 20 22.

Speaker 1

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 increased 46.9% in dollars And 53.8 percent in local currencies. In Latin America, including Mexico and the Caribbean, net sales in 2023 Q1 increased 30.8% in dollars and increased 40.4% in local currencies over the same period in 2022. Gross profit in this region as a percentage of net sales was 33% For the 2023 Q1 versus 35.4 percent in the 2022 Q1. We note that gross profit in the region was adversely We are implementing measures to improve gross profit in this region despite such challenges 31.9 percent in dollars and 21.4 percent in local currency in the 2023 Q1.

Speaker 1

Net sales in Chile increased 36.3 percent in dollars and increased 36% in local currency in the 2023 Q1, net sales in Argentina increased 13% in dollars and increased 98.8% We will now provide an update on our litigation With Viper Pharmaceuticals, which will be referred to as VPX, the maker of Bang Energy Drinks. We previously discussed trademark infringement arbitration in which an arbitrator found against VPX and awarded Monster Energy Company or MEC BPX has appealed the judgment. Additionally, on September 29, 2022, a jury in the United States District Court Central District of California returned a verdict awarding MEC approximately $293,000,000 in damages on its claims The games VPX for false advertising, misappropriation of trade secrets and interference with Monster's contract over shelf space with certain Key retailers. On April 12, 2023, the District Court granted MEC's motion for permanent injunction, Which amongst other things, enjoins VPX and former CEO, Jack O'Rourke from falsely or deceptively claiming that Bang or any other beverages The parties have completed briefing the remaining post trial issues. On October 10, 2020 2 VPX along with certain of its domestic subsidiaries and affiliates filed for protection under Chapter 11 of the bankruptcy code in the to potential clawback in certain circumstances.

Speaker 1

On February 14, 2023, BPX 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. As this litigation and the bankruptcy proceedings are sub judicate, we will not be answering Further questions on those matters on today's call. In the Q1, we initially launched the Beast Unleashed in 6 states Through a network of beer distributors, we are pleased with the early results and are continuing to expand distribution into additional markets with goal of being national by the end of the year. Net sales of the Vista and Leased during the Q1 were 20,500,000 We recently relaunched Wild Base and Hard Seltzer with new packaging and great new flavors and taste profiles. We are refreshing the Dale's beer brand and we'll be introducing Dale's American Light Lager as part of the refresh.

Speaker 1

We are planning to launch new flavored malt beverage line within the next few months. Our alcohol beverage innovation pipeline is robust. We look forward to sharing news of additional new products the near future. We launched a number of new products in the United States in the 2023 Q1. In January 2023, Monster Energy developed as an indistinguishable 0 sugar analog of our original unique Monster Energy green flavor.

Speaker 1

In February 2023, we launched new flavor within our highly successful Monster Ultra line with Monster Energy Ultra Strawberry Dreams available in 16 ounce cans. In March to address the compelling opportunity in the energy drink category. Rainstorm is available in 4 flavors Valencia Orange, Kiwi Blend, Peach Nectarine and Harvest Grape. Also in March, we launched Rehab Monster Wild Berry Tea in 16 ounce cans. We are continuing to expand the distribution of Monster Tour Water instill and sparkling variants into additional states.

Speaker 1

We launched several new SKUs in the Q1 in 2023 in Canada. In February 2023, we launched Monster Ultra Peachy Keen, Punch Monster Aussie Style Lemonade and Rain Rainbow Sherbet. In March 2023, we launched Monster 0 Sugar in Canada. We We launched several new SKUs in the 2023 Q1 in Latin America. In Brazil, we launched Monster Watermelon, additionally, we revamped our previous KAOS product into the new Monster Juice Chaotic.

Speaker 1

In Mexico, Predator Red Apple launched at In Paraguay and Bolivia, we launched our 1st juice SKU with Monster Juice Mango Loco. And It was chaotic in a number of countries. During the 2023 Q1, we also launched additional SKUs of Bern, Predator of our Monster Energy Lewis Hamilton 40 four-zero Sugar Energy Drink to an additional 22 EMEA markets in the Q1 of 2020 3 will be followed by another 8 markets in the Q2 of 2023. During the Q1 of 2023, we launched Monster Ultra Paradise in China, Taiwan and Hong Kong. In April 2023, we launched Monster Reserve Watermelon in Japan.

Speaker 1

We are planning to introduce the Predator brand in additional countries in APAC in the course of 2023. We estimate that on a foreign currency Adjusted basis including the alcohol brand segment, April 2023 sales were approximately 9.9% higher than the comparable April 22 sales and 7.9% higher than April 2022, excluding the Alcohol Brand segment. We estimate April In April 2022, excluding the Alcohol Brands segment, April 2023 had one less selling day compared to April 2020 2. In this regard, we caution again that sales over a short period are often disproportionately impacted And promotions in retail stores, distributor incentives, as well as shifts in the timing of production. In some instances, our bottlers are responsible for production and determine their own production schedules.

Speaker 1

This affects the dates on which we invoice such bottlers. Furthermore, our bottling 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 2 were regarded as indicative of results for a full quarter or any future period. In conclusion, I would like to summarize some recent positive points. 1, the energy category continues to grow globally. 2, We are pleased to report that our pricing actions, which have been implemented to partially mitigate inflationary pressures, have not significantly impacted 3, we are seeing improvements in our gross profit margins on a quarterly sequential basis.

Speaker 1

Paul, our AFF flavor facility in Ireland is now providing a large number of flavors to our EMEA region, Enabling better service levels and lower landed costs to our EMEA region. 5, we are enthusiastic for our 2020 Storm and Turwater in the United States and Monster Energy Lewis Hamilton 4040 Sugar in EMEA. We are We are excited by the additional alcohol opportunities that the Kanarki acquisition presents. We are pleased with the initial results of our launch of Rainstorm, our new line of total wellness energy drinks. Finally, we are pleased with the rollout of Predator and Fury, our affordable energy drink portfolio internationally.

Speaker 1

We are proceeding with plans to launch our affordable

Operator

We'll pause momentarily to assemble the roster. Our first question today comes from Peter Grom from UBS. Please go ahead with your question.

Speaker 3

Thanks, operator, and good evening, everyone. So maybe just two quick margin questions, if I may. So 1, I know you don't want to get into guidance, but you continue to comment on the sequential margin performance or improvement. So with pricing Coming in and cost moderating, should we expect to see sequential improvement in gross margin from payer as we move through the year? And then just somewhat related, as we look at selling expense as a percentage of sales today versus 2019, It's down quite a bit.

Speaker 3

So as we look ahead, is this high single digit rate that we've seen over the past couple of years sustainable? Or would you be looking to take that Higher over time, particularly as gross margin begins to improve. Thanks.

Speaker 4

So addressing your first Question on gross margin. As you know, we don't give guidance. But what we can say and What we have said in previous quarters and where we've spoken about the price increases, we have rolling price increases in EMEA during the whole year. So that will escalate as the year goes through. In the U.

Speaker 4

S, we had a price increase as you know late last year and we had a price increase April 1, in our larger sizes, the 19.2, 18.4 and the 24 ounce cans. So that's something that will be reflected Continually as the year goes through. In addition, we took up some pricing later on in the year in LatAm And that's and some in LatAm in 2023 as well. In Asia Pacific, We largely took up pricing in Q1 of this year. So there will be a benefit I believe from pricing as we go through 2023.

Speaker 4

With regard to costs, that's something that we continue to evaluate. We know that, For example, aluminum has kind of stabilized, which is positive for I think for us. And we've also had Situation where we're seeing freight rates reducing and we balance freight in 2 Sections in our P and L trade in for materials and for finished goods as they move to Distribution centers are regarded as part of cost of sales and freight out is obviously regarded as an operating expense. So we are seeing some improvements. We mentioned, I think, on previous calls and in the script today that There are some challenges in our cost of sales, including what we're seeing in certain ingredients And co packing fees.

Speaker 4

So overall, I think, I could see a situation where we have the price Benefits, they seem as if the they have been sensibly executed and that We haven't had major resistance from customers. So I think that gives you the background probably to make your own assessments. And then on your second question on selling expenses, we work towards a budget On selling expenses, which we believe are necessary to execute our play. And What those budgets are and where they end up is a factor that we Very seriously consider in dealing with the needs of our consumer and the needs of the market. So we don't really compare it to percentage sales.

Speaker 4

I know we at the end of the quarter, everybody else does, but we look at the needs, The needs of the marketing programs and what we need to do to keep our brands exciting and in the eyes of the consumers.

Operator

Our next question comes from Filippo Pilarini from Citi. Please go ahead with your question. Hey, good afternoon guys.

Speaker 4

You talked about the Energy drink category remaining solid. Can you talk about what you're expecting in the balance of the year for the category? You see any signs of potential weakness at the low end of the consumer base or you're seeing trends held up In the U. S. Particularly.

Speaker 4

Thank you. So, we don't give guidance. Rodney, You're going to respond

Speaker 1

to that? No, it's fine. You can go ahead.

Speaker 4

No, please. No, you go ahead. That's fine.

Speaker 1

As Hilton said, we don't give guidance and the category has in line with other consumer products A little bit of a slowing. I think there's been a lot of price increases across not only the energy category, but all beverage and consumer products. And so there has been a little bit of slowing. I think there's been a little bit of trimming of benefits under the SNAP and programs that were increased during COVID and those are sort of being pulled back a little bit generally now. So I think you would see a little bit of a sort of rationalization by buyers as they have slightly less But again, I think that will settle down.

Speaker 1

We are overall, though, if you look at the numbers we gave you, the Nielsen numbers, there is still Healthy growth in the energy drink category as a category. It's continuing to grow and expand. But other than The direction you're seeing from Nielsen, we really can't and won't give any further direction. But obviously, we think that Certainly, in dollar terms, the category will continue to grow. In actual volumes, there may be a little bit of a slowing, but I think that we all think that will be more than made up of by dollar increases in pricing.

Operator

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

Speaker 5

right. Thank you. Hi, Russ and Hilton. I guess I wanted

Speaker 3

to ask

Speaker 5

a little bit about some of the innovation. Just maybe a little more color on 0 Sugar, The Beast, Brainstorm and how they're performing and Whether they're meeting your expectations in terms of buy in from retailers and shelf space allocation, I guess I'm Hearing you got a fair amount of incremental space, so just wanted to verify that with you. And then wanted to understand And on Zero Sugar, in particular, Chip, most of that during Q1, are you still Expecting to kind of roll that out in certain markets in Q2? Thank you.

Speaker 4

Okay. So, if you look at 0 Sugar, we launched 0 Sugar, we rolled it out in Q1. So most markets by far the majority rolled out 0 Sugar in Q1. As regards 0 Sugar, we have actually been very pleased with the results. We had good expectations for the product and our expectations seem to have been realized.

Speaker 4

We're not seeing a big dip in green. So a lot of people have asked questions about cannibalization, But we're not seeing a big dip in green at all. I mean green seems very much to be holding its own. So, I think that, as we look at shelf space, obviously, we've negotiated Very actively this year for additional shelf space and we have achieved really commendable increases in shelf space, Not only in the convenience independence, but across the various channels.

Speaker 1

The only thing I would add is, Bonnie, is internationally, we do have plans to also Rolled out the 0 Sugar into a number of international markets, but that it's not going to go everywhere at same time, we have other things on the agenda that we need to roll out. So there'll be an orderly rollout of other innovation internationally, but in many markets, including In EMEA, we will be rolling out Zero Sugar as well.

Speaker 4

Yes. And we just launched it in Canada as well. So, Really exciting times I think for that particular product.

Speaker 1

Now with regard to the Expectations, Bonnie. Rainstorm really was launched right at the end of the Q1. So it's just too early But obviously, we are optimistic about it. Again, in with regard to the beast, We rolled it out slowly and we're trying to do that in a cautious way. And we so far the result Sales, some repeat sales have also been encouraging.

Speaker 1

But again, it's early on. We have a lot Additional innovation in alcohol that we are looking at and planning. So we're quite excited. It just it takes time and we are rolling it out through whole new distribution system, which we are continuing to build distributor by distributor. So it is taking time to get there.

Speaker 1

But As we said on the call, we hope to be national by the end of the year. We hope to have additional products. So the whole system, I think, is Working moving forward according to plan.

Operator

Our next question comes from Chris Carey from Wells Fargo Securities. Please go ahead with your question.

Speaker 6

Hi, everyone.

Speaker 4

Hey, Chris.

Speaker 6

Just one clarification or maybe if you could help. The 18.6 and the 24 ounce, what how meaningful are those as a percentage of your overall portfolio? Or is there just Any way to frame the size of that price increase as a contribution to total business? And Yes, just a bigger picture on out of left field a little bit, but I get questions pretty often just about Succession planning and long term succession planning on Monster and How strong is the bench and how much of that bench building is going on behind closed doors and It just it comes up and off that I thought maybe this could

Speaker 1

be an

Speaker 6

interesting place to just maybe offer some perspective on just how you think about Developing talent and developing talent for the long term. So thanks for the maybe a little bit of help on the scope of the pricing and just on and talent development. Thanks.

Speaker 4

Chris, I would refer you to the Nielsen numbers And you'll see that those larger sizes are less than 10%, probably in the 6% to 8% range. But if you look at Nielsen, you'll be able to get a good assessment of that percentage. Secondly, on Succession. Obviously, the Monster Board is and Rodney and myself are already concerned about succession. And it's something that we are addressing and we continue to address on an ongoing basis.

Speaker 4

We have a very, in our view, a deep strength In the bench of the team below us that are being developed and are growing and we are helping them develop. So, I think from that perspective, it's something that ourselves, the Board Very well aware of and we are continuing to address that issue. However, I don't think Rodney is going In the foreseeable future and frankly neither am I. So we hear and will help develop and Segue, when the time is right, a new management team.

Operator

Our next question comes from Andrea Teixeira from JPMorgan. Please go ahead with your question.

Speaker 7

Thank you, operator. And hi, Rodney, Houston and the team.

Operator

Hi. Hi.

Speaker 7

I just have a clarification. So Going back to Bonnie's question on how accretive Monster 0 has been against Ultra. In absolute In numbers in the U. S, it seems that has been a great launch based on the Nielsen data. But Obviously, as you look at Altra, it also has been coming at some deceleration, which obviously one would expect.

Speaker 7

Can you comment on who your first of all, how is it tracking against plan? And in terms of That you pointed out that you're gaining distribution and trying to make it obviously accretive. How is it number 1 tracking against plan? Number 2, how you're seeing that going above and beyond Ultra?

Speaker 4

Okay. So Remember that we had a product called Absolutely 0. And 0 Sugar is really The new variant of absolutely 0. So it's a product that was in the market that has been replaced by 0 Sugar. So when you compare the numbers for 0 Sugar, you could see that on an ACV basis, We moved from 42% from absolutely 0 to 72% for 0 Sugar.

Speaker 4

So, the distribution of 0 Sugar is increasing and it's Climbing. It's not that it's a new product. We had, as I The product called absolutely 0. And so when we look at 0 Sugar, we look at our plans and we look at our plans for Ultra, We have been very satisfied so far with the launch of 0 Sugar. You look at the ACV growth And the sales per point and it's something that we really as and I said this earlier, We really are very excited with Cirrusugar.

Speaker 1

Maybe if I would just add on the Ultra side, We have had a really successful launch of Ultra Strawberry Dreams. I think that some of the ACB, If you look at your Nielsen's, you'll see some of the ACV of some of the additional flavors of Ultra have in fact decreased a little. I think that's something We just need to look at and attend. I think as you get go through this change and introducing a new flavor sometimes, Some of these additional SKUs that are not the top 3 or 4 or 5 sometimes get a little bit lost in the wash. So that's where we've seen a little bit of a drop off in some of those additional flavors.

Speaker 1

But I think this we think that they're solid And Sound Products, and I think we just need to just make sure we focus on just reestablishing some of the distribution levels on those and we think those sales will To increase sales of Altra as a brand or sub brand have gone up in the United States and internationally. But I think that we've had, as I said, some of those flanker sort of flavors are we need to just put some focus behind, Which we are doing.

Operator

And our next question comes from Mark Asher Chan from Stifel, please go ahead with your question.

Speaker 8

Hey, guys. Good afternoon.

Speaker 4

Hey, Bob.

Speaker 8

I had Two housekeeping questions. 1, cash balance. It keeps growing. Any thoughts on how you'd like to implement Spending some of it, share repurchase. It was nice to see there was some interest income this quarter.

Speaker 8

I assume we should be thinking that that continues to grow. And then On the alcohol brands gross margin, the implied number this quarter was a little better sequentially than 4Q. Anything there kind of beneath the surface that we should consider in trying to model that business because it's clearly a lot harder to see what's going on there than sort of the legacy Thanks.

Speaker 4

Go ahead. Go ahead. That's fine.

Speaker 1

On the alcohol side, I think that what we did was we had quite a drop off in the Salsa business that we Which is part of the brands that we acquired. And that affected in an operating business where they're running their own production that affected They're overhead costs because you've got some fixed costs. So as you noted in the earlier last quarter, the last quarter of last year we reported on The margins were really very thin on the what we call the legacy business. Those margins are improving. We're busy sort of refitting the one line out to be able to increase the capacity for doing the beast products.

Speaker 1

And as we go forward, we will start seeing an improvement in the margin in the legacy business. The Margins on the Beef side are healthier quite a lot better than on the legacy craft business side. And as again, as we those are probably smaller, lower now than they'll be as we start getting some scale. We're doing We will be using our own facility and we'll obviously be maximizing that. And as we go forward, we will start working on Using additional co pack is where we will actually lower our costs.

Speaker 1

So we do think there will be additional margin going forward. But It is a thinner margin product than we obviously are traditionally used to seeing on the Monster side. Then maybe Hilton will take the question on the cash side and

Speaker 4

Yes. Mark, We continually are examining options To deal with our cash balances and it's something that again is a board issue that is receiving attention. So, I really don't want to comment more than we have that intention is to hopefully buy back shares, continue that program. But we are looking at some opportunities for further investments. And that's too premature to talk about them.

Speaker 4

But there are A number of possibilities that we're looking at. And in addition, it is our plan to continue buying back our shares.

Operator

And at this time, we'll be concluding today's question and answer session. I'd like to turn the floor back over to Mr. Rodney Stacks for any closing remarks.

Speaker 1

Thank you. On behalf of the company, I'd like you, everyone, for their continued interest. We continue to believe in the company and our growth strategy, and we remain committed to continuing to innovate, To 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 bottler system, We believe that we are well positioned in the beverage industry and continue to be optimistic about the future of our We hope that you remain safe and healthy and thank you for your attendance.

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Earnings Conference Call
Monster Beverage Q1 2023
00:00 / 00:00
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