Rodney Cyril Sacks
Chairman and Co-Chief Executive Officer at Monster Beverage
Thanks, Tom. The energy drink category continues to grow globally and has demonstrated resilience. In the United States, the energy drink category continued to experience slower growth rates. However, in all measured channels, excluding convenience, the energy drink category is growing at a faster rate. In the United States, the energy category in the convenience channel is beginning to show some improvement in October.
Although, we do not normally refer to one-week Nielsen statistics and do not intend to do so on an ongoing basis, I think that it is noteworthy to mention that according to Nielsen for the one week ended October 26, 2024, for all outlets combined, namely convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category including energy shots, increased by 3.7% versus the same period a year ago, while sales of the company's energy brands, including Bang, were up 2.9% and sales of Monster were up 2.2%.
A number of other consumer packaged goods companies have also seen a tighter consumer spending environment for certain income groups and weaker demand in the quarter. Hurricane Helene and Milton impacted sales at retail in certain states in September and October 2024. However, we cannot determine the impact on our business. The alcohol segment operates a brewery in Brevard, North Carolina, which was closed for a week due to flooding from Hurricane Helen. This brewery is partially operational and is expected to be fully operational by mid-November 2024.
We believe that many consumers view energy drinks as an affordable luxury. Growth opportunities in household penetration and per capita consumption, along with consumers' growing need for energy are positive trends for the category. In EMEA, the energy drink category according to Nielsen, for the recently reported 13-week periods for our tracked markets, which differ from country to country is growing at approximately 11.1% versus the same period last year on an FX-neutral basis.
In APAC, for our tracked markets, the energy drink category according to Nielsen and INTAGE for our tracked markets for the 13-week period ending September 2024 is growing at approximately 13.6% versus the same period last year also on an FX-neutral basis. In LatAm, for our tracked markets, the energy drink category according to Nielsen, for the recently reported 13-week period, which differ from country to country is growing at approximately 21.1% versus the same period last year, again, also on an FX-neutral basis.
Gross profit for the 2024 third quarter was adversely impacted by an increase in inventory reserves due to excess inventory levels in the alcohol brands segment of $10.6 million, which I will refer to later in this call as the alcohol brands inventory reserves. Operating expenses for the 2024 third quarter were adversely impacted by a $16.7 million provision and $1.2 million of company incurred legal expenses in connection with an intellectual property claim brought by the descendants of Hubert Hansen in to the company's use of the Hubert Hansen name, prior to the transaction with the Coca-Cola company, which closed in 2015, and I will also refer to this later in this call as the intellectual property claim.
Net of tax, these items adversely impacted net income for the 2024 third quarter by $21.5 million and net income per diluted share by $0.02 per share. Diluted earnings per share on a pro forma basis for the 2024 third quarter adjusted for these items was $0.40 per share. On July 31, 2023, the company completed its acquisition of substantially all of the assets of Vital Pharmaceuticals, Inc. and its debtor affiliates. Inventory purchased as part of the bank transaction was recorded at fair value, which I will refer to as the bank inventory step up.
Certain of the purchased inventory was subsequently sold in the 2023 third quarter and was recognized through cost of sales at fair value. Gross profit was negatively impacted by approximately $7.8 million during the 2023 third as a result.
During the 2023 third quarter, in connection with the bank transaction, the company recorded a gain of $45.4 million in interest and other income. During the 2023 third quarter, the company incurred approximately $8 million of acquisition costs related to the bank transaction.
Net tax, these items positively impacted net income for the 2023 third quarter by $22.7 million, and net income per diluted share by $0.02 per share. Diluted earnings per share on a pro forma basis for the 2023 third quarter adjusted for this item was $0.41 per share. In addition to our GAAP condensed consolidated statement of income and other information and our GAAP condensed consolidated balance sheet for the company for the quarter ended September 30, 2024, attached to our press release is a non-GAAP adjusted condensed consolidated statement of income and other information adjusting for the items impacting profitability and a reconciliation of GAAP and non-GAAP information.
We believe that these non-GAAP items are useful to shareholders on this call in evaluating our ongoing operating and financial results, these non-GAAP items should be considered in addition to and not the lieu of US GAAP financial measures. The company achieved record third quarter net sales of $1.88 billion in the 2024 third quarter or 1.3% higher than net sales of $1.86 billion in the comparable 2023 quarter. 4.7% higher on a foreign currency adjusted basis. Net sales on a foreign currency adjusted basis, excluding the alcohol brands segment increased 5% in the 2024 third quarter.
Gross profit as a percentage of net sales in the 2024 third quarter was 53.2%, compared with 53% in the 2023 third quarter. Gross profit for the 2024 third quarter was adversely impacted by the alcohol brands inventory reserves. Gross profit as a percentage of net sales for the 2024 third quarter, exclusive of the alcohol brands inventory reserves was 53.7%. The increase in gross profit as a percentage of net sales for the 2024 third quarter was primarily the result of lower input costs, pricing actions in certain international markets and the bank inventory step-up partially offset by higher promotional allowances as a percentage of net sales managed to drive trial and awareness of the Bang Energy brand in the United States as well as the alcohol brands inventory reserves.
On a sequential quarterly basis, adjusted gross margins were higher than the 2024 second quarter gross margins. Operating expenses for the 2024 third quarter were $519.9 million, compared with $473.2 million in the 2023 third quarter. The increase in operating expenses were primarily the result of increased payroll expenses, increased sponsorship and endorsement expenses, as well the intellectual property claims.
As a percentage of net sales, operating expenses for the 2024 third quarter were 27.6%, compared with 25.5% in the 2023 third quarter. Adjusted operating expenses after making the adjustments described earlier, increased 8% to $502 million as compared to $464.8 million in the 2023 comparable quarter. Distribution and warehouse expenses for the 2024 third quarter were $82.7 million or 4.4% of net sales compared to $85.7 million or 4.6% of net sales in the 2023 third quarter. Operating income for the 2024 third quarter decreased 6% to $479.9 million from $510.5 million in the 2023 comparative quarter.
Adjusted operating income after making the adjustments described earlier, decreased 3.5% to $508.4 million as compared to $526.8 million in the 2023 comparable quarter. The effective tax rate for the 2024 third quarter was 21.8% compared with 22.2% in 2023 third quarter.
Net income decreased 18.1% to $370.9 million as compared to $452.7 million in the 2023 comparable quarter. Adjusted net income after making the adjustments described earlier decreased 8.8% to $392.4 million as compared to $430 million in the 2023 comparable quarter.
Diluted earnings per share for the 2024 third quarter decreased 11.7% to $0.38 from $0.43 in the third quarter of 2023. Adjusted diluted earnings per share after making the adjustments described earlier, decreased 1.6% to $0.40 per share as compared to $0.41 per share in the 2023 comparable quarter.
Our third quarter financial results were again impacted by unfavorable foreign currency exchange rates in certain markets. Net changes in foreign currency exchange rates had an unfavorable impact on net sales for the 2024 third quarter of $62.8 million. We estimate that diluted earnings per share were adversely impacted by approximately $0.03 per share due to the unfavorable foreign currency exchange rates.
As previously reported, we have taken a 5% increase on our brands and packages, excluding Bang, Rain and RainStorm, effective November 1, 2024 in the United States. We are continuing to monitor opportunities for further pricing actions in our international markets.
The company continues to have market share leadership in the energy drink category for all outlets combined in the United States for the 13 week period ended October 26, 2024. According to the Nielsen reports for the 13 weeks through October 26, 2024, all outlets combined, excluding convenience sales in dollars in the energy category, including energy shots, increased by 4.9% versus the same period a year ago.
According to the Nielsen reports for the 13 weeks through October 26, 2024, for all outlets combined, namely convenience, grocery, drug, mass, merchandizes, sales in dollars in the energy drink category, including energy shots, increased by 1.9% versus the same period a year ago. Sales of the company's energy brands, including Bang were down 0.6% in the 13-week period. Sales of Monster declined 1.8% and sales of Rain were down 2.9%. Sales of NOS increased 2.9% and sales of Full Throttle decreased 5.4%. Sales of Red Bull increased 5%.
According to Nielsen, for the four weeks ended October 26, 2024 sales in dollars in the energy drink category in the convenience and gas channel including energy shots in dollars increased 1.5% over the same period the previous year. Sales of the company's energy brands, including Bang were flat in the in the latest four-week period convenience and gas channel. Sales of Monster decreased by 1.6% over the same period versus the previous year. Rain sales decreased 4.4%, NOS was up 3.9% and Full Throttle was down 4.4%. Sales of Red Bull were up 5.6%.
According to Nielsen, for the four weeks ended October 26, 2024, the company's market share of the energy drink category in the convenience and gas channel, including energy shots in dollars, decreased from 37.3% to 36.8% including Bang.
Monster share decreased from 29.7% a year ago to 28.7%, Rain share decreased 0.2% to 2.8%, NOS share increased 0.1 of a share point to 2.6% and Full Throttle share remained at 0.7%. Bang's share was 1.9%. Red Bull share increased 1.4 share points to 35.9%, market share of certain competitors were as follows; Celsius 7.7%, C4 3.4%, 5-hour 3.1%, Rockstar 2.8% and Guzz 3.1%.
According to Nielsen, for the four weeks ended October 26, 2024, sales in dollars in the coffee plus energy drink category, which includes our Java Monster line in the convenience and gas channel decreased 7.9% over the same period the previous year. Sales of Java Monster, including Java Monster 300 were 3% lower in the same period versus the previous year. Sales of Starbucks Energy were 14.8% lower. Java Monster share the coffee energy drink category in the four weeks ended October 26, 2024, was 58.6%, up three points, while Starbucks Energy share was 40.8%, down 3.3 points.
According to Nielsen, in all measured channels in Canada, for the 12 weeks ended October 5, 2024, the energy drink category increased 7.7% in dollars. Sales of the company's energy drink brands increased 8.3% versus a year ago. The market share of the company's energy drink brands increased 0.2 points to 40.7%. Monster sales increased 3.9% and its market share decreased 1.3 points to 35%. NOS's sales increased 16.2% and its market share increased 0.1 of a share point to 1.3%. Full Throttle sales decreased 3.5% and its market share decreased 0.1 point to 0.05%.
According to Nielsen, for all our sets combined in Mexico, the energy drink category increased 16.3% for the month of September 2024. Monster sales increased 11.3%, Monster's market share in value decreased 1.3 points to 27.6% against the comparable period the previous year. Sales of Predator increased 18.6% and its market share increased 0.1 of a share point to 6.2%.
The Nielsen statistics for Mexico cover single months, which is a short period that may often be materially influenced positively and/or negatively our sales in the OXXO convenience chain, which dominates the market. Sales in the OXXO convenience chain in turn can be materially influenced by promotions that may be undertaken in that chain by one or more energy drink brands during a particular month. Consequently, such activities could have a significant impact on the monthly Nielsen statistics for Mexico.
According to Nielsen, for all outlets combined in Brazil, the energy drink category increased 19.9% for the month of September 2024. Monster sales increased 28%. Monster's market share in value increased 3.1 points to 48.2%, compared September 2023.
In Argentina, due in part to the impact of inflation related to local currency price increases, the energy drink category increased 202.5% for the month of September 2024. Monster sales increased 182.5%. Monster's market share in value decreased 3.8 points to 53% compared to September 2023.
In Chile, the energy drink category increased 11.7% for the month of September 2024. Monster sales increased 12.9%. Monster's market share in value increased to 0.5 point to 40.3%, Monster Energy remains 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 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 6, 2024, Monster's retail market share in value as compared to the same period the previous year grew from 31% to 32.8% in Great Britain, from 5.6% to 7.9% in the Netherlands, and from 40.2% to 40.4% in Spain.
According to Nielsen, in the 13-week period ending October 6, 2024, Monster's retail market share in value as compared to the same period the previous year declined from 16.4% to 16.3% in Belgium, 30.2% to 27.1% in France and from 35.4% to 34.2% in Norway.
According to Nielsen, in the 13-week period ending September 30, 2024, Monster's retail market share in value as compared to the same period the previous year declined from 18.3% to 17.9% in Germany.
According to Nielsen, in the 13-week period ending September 8, 2024, Monster's retail market share in value as compared to the same period the previous year grew from 18.6% to 19.8% in Poland, and from 30% to 31.1% in the Republic of Ireland.
According to Nielsen, in the 13-week period ending September 8, 2024, Monster's retail market share in value as compared to the same period the previous year declined from 16% to 15.2% in Sweden.
According to Nielsen in 13-week ending August 31, 2024, Monster's retail market share in value as compared to the same period the previous year declined from 38.2% to 36% in Greece and from 31.8% to 30.9% in Italy.
According to Nielsen, in the in the 13-week period ending August 25, 2024, Monster's retail market share value as compared to the same period previous year grew from 18.3% to 18.8% in South Africa.
According to Nielsen, in the 13-week period ending August 11, 2024, Monster's retail market share value as compared to the same period of the previous year remained flat at 21.7% in the Czech Republic.
According to Nielsen, in the 13-week period ending August 11, 2024, Monster's retail market share in value as compared to the same period, previous year declined from 28% to 27.1% in Denmark.
According to Nielsen for the 13-week period ending August 23, 2024, the retail market share of Predator also branded Fury in certain markets in value as compared to the same period previous year grew from 4.3% to 8.5% in Egypt, from 32.8% to 38.8% in Kenya and from 20.3% to 22.6% in Nigeria.
Combining our markets in EMEA for the last 13 weeks, the energy category has grown 11.1%. Of note, for same period, the category in our Western European markets grew 6.2%. Our Eastern European markets grew 4.2%, and our Africa Middle East markets grew 27.5%.
According to IRI for all outlets combined in Australia, the energy drink category increased 8.7% in the four weeks ending October 20, 2024. Monster sales increased 19.9%. Monster's market share in value increased 1.8 points to 19.1% against the comparable period the previous year. Sales of Mother increased 4.5% and its market share decreased by 0.4 of a share point to 10.1%.
According to IRI for all outlets combined in New Zealand, the energy drink category increased 11.9% for the four weeks ending October 20, 2024. Monster sales increased 11.7%. Monster's market share in value remained at 13.2% against the comparable period the previous year. Sales of Mother decreased 12.2% and its market share decreased 1.4 share points to 4.9%. Sales of Live+ increased 1.5% and its market share decreased 0.5 of the share point to 4.6%.
According to INTAGE, in the convenience channel in Japan, the energy drink category increased 6.6% for the month of September 2024. Monster sales increased 5.6%. Monster's market share in value decreased 0.5 share point to 58.4% against the comparable period the previous year.
According to Nielsen, all outlets combined in South Korea, the energy drink category increased 28.3% for the month of September 2024. Monster sales increased 31.3% and Monster's market share in value increased 1.2 points to 53.1% against the comparable period the previous year. We're again for doubt that in market statistics that cover single months or four-week periods may often be materially influenced positively and/or negatively by promotions and other trading factors during those periods.
Net sales to customers outside the US were $706.1 million, 40.4% of total net sales in the 2024 third quarter, compared to $733.7 million or 39.5% of total net sales in the corresponding quarter in 2023. Foreign currency exchange rates had a negative impact on net sales in US dollars by approximately $62.8 million in the 2024 third quarter, of which $26.5 million related to Argentina. In EMEA, net sales in the 2024 third quarter increased 6.8% in dollars and increased 10.4% on a currency-neutral basis over the same period in 2023.
In EMEA, our sales were impacted by bottler retailer disruptions in certain key accounts in Western Europe as well as supply disruptions in South Africa. These disruptions reduced dollar sales by an estimated 2.9% in EMEA in the quarter. Gross profit in this region as a percentage of net sales for the 2024 third quarter was 35.4% compared to 31.1% in the same quarter in 2023.
We are pleased that in the 2024 third quarter, Monster gained market share in Great Britain, the Netherlands, Poland, Republic of Ireland, South Africa and Spain. In Asia Pacific, net sales in the 2024 third quarter increased 4% in dollars and increased 8.8% on a currency-neutral basis over the same period in 2023.
Gross profit in this region as a percentage of net sales for the 2024 third quarter was 40.2% versus 43.2% in the same period in 2023. Net sales in Japan in the 2024 third quarter decreased 7.6% in dollars and increased 0.2% on a currency-neutral basis. In South Korea, net sales in the 2024 third quarter decreased 8% in dollars and decreased 2.2% on a currency-neutral basis as compared to the same quarter in 2023, largely due to the timing of production schedules this year.
Monster remains the market leader in Japan and South Korea. In China, net sales in the 2024 third quarter increased 15.4% in dollars and increased 15.8% on a currency-neutral basis as compared to the same quarter in 2023. We remain optimistic about the long-term prospects for the Monster brand in China and are excited about the recent launch of Predator, which is being rolled out to additional markets in China later this year and during 2025.
In Oceania, which includes Australia, New Zealand, Tahiti, French Polynesia, New Caledonia, Papua New Guinea and Guam, net sales increased 13.5% in dollars and increased 13.8% on a currency neutral basis.
In Latin-America including Mexico and the Caribbean, net sales in the 2024 third quarter decreased 5% in dollars and increased 20.1% on a currency neutral basis over the same period in 2023, 4.1% exclusive of Argentina's impact. Gross profit in this region as a percentage of net sales was 42.2% for the 2024 third quarter versus 37.7% in the 2023 third quarter.
In Brazil, net sales in the 2024 third quarter increased 16.7% in dollars and increased 33.3% on a currency neutral basis. Net sales in Mexico decreased 1.9% in dollars and increased 6.1% on a currency neutral basis in the 2024 third quarter. Net sales in Chile decreased 4.4% in dollars and increased 8.8% on a currency neutral basis in the 2024 third quarter, due to challenging economic conditions in the country.
Our market share in the quarter increased 40.8%. Net Sales in Argentina decreased 56.5% in dollars and increased 48.5% on a currency-neutral basis in the 2024 third quarter. We remain the market share leader in Argentina, and our market share in the quarter is 55.1%.
Monster Brewing had a challenging third quarter. Net sales for the alcohol brands segment were $39.8 million in the 2024 third quarter, a decrease of approximately $2.5 million or 6% lower than the 2023 comparable quarter, mainly as a result of lower sales of craft beers. In addition, as mentioned earlier, due to excess inventories of certain Monster Brewing brands, which is necessary to increase inventory reserves in that segment by $10.6 million.
In addition to the appointment of a new President of Monster Brewing announced last quarter, we have now restructured the senior management team in the alcohol division and are continuing to consolidate production facilities to maximize efficiencies.
The Beast Unleashed was rebranded to The Beast. The brand is now available in all 50 states through a network of beer distributors. The Beast was launched in the state of Utah in July. We are currently launching our second variety pack of The beast in 12 packs, which includes Mean Green and three new flavors, Pink Poison, Gnarly Grape and Killer Sunrise. The Beast variety pack two is currently available in 48 states.
The Jai Alai IPA brand family's first major refresh since 2017 is now shipping to all available markets. Oskar Blues first nonalcoholic brew designated tails will be available next month in select markets.
We launched Monster Energy, Monster Energy Ultra Vice Guava in the United States in October 2024. Initial response from customers and consumers alike has been very positive on this innovation. In Latin America, during the third quarter of 2024, we launched Monster Ultra Peachy Keen in Mexico, Monster Ultra Paradise in Peru, Monster Zero Ultra and Juice, Monster Mango Loco in the Dominican Republic and Juice Monster Pipeline Punch in Costa Rica.
In Australia, during the third quarter of 2024, we launched Monster Ultra Violet. In EMEA, in the third quarter of 2024, we launched Monster Reserve Orange Dreamsicle, Juiced Aussie Lemonade, Juiced Bad Apple, Juiced Mango Loco, Ultra Black, Ultra Golden Pineapple, Ultra Peachy Keen, Ultra Rosa, Ultra Strawberry Dreams and Ultra White in a number of countries. Additional launches are planned across all brands throughout EMEA in 2024.
During the third quarter of 2024, we launched Papillon in a 500 ml aluminum bottle in Japan and Ultra Peachy Keen in Singapore. In China, we expanded the launch of Predator Gold Strike, which was launched in 11 provinces in China at the end of April in the noncarbonated 500 ml PET bottle. We launched in two additional provinces Jiangxi and Fujian in September. We are planning to launch Predator in a number of additional provinces in 2025.
In India, we extended the Pedator Gold Strike carbonated 250 ml PET bottle beyond the Delhi region to the Northeast states in July, and Madhya Pradesh in September. We will continue adding additional states in 2025. We remain optimistic about the long-term prospects for the Monster brand in China and India and are excited about the expansion of Predator in these two countries.
During the 2024 third quarter, the company purchased approximately 11.3 million shares of its common stock at an average purchase price of $47.32 per share for a total amount of $534.7 million. As of November 6, 2024, approximately $500 million remained available for repurchase under the previously authorized repurchase program.
We estimate that October 2024 sales were approximately 4.8% higher than the comparable October 2023 sales and 5% higher than October 2023, excluding the alcohol brand segment. We estimate that on a foreign currency adjusted basis, including the alcohol brand segment, October 2024 sales were approximately 5.8% higher than the comparable October sales and 6.1% higher than October 2023, excluding the alcohol brand segment. October 2024 had one more selling day compared to October 2023.
On our third quarter conference call, in November 2023, we reported that gross sales in the month of October 2023 including the alcohol segment were approximately 24.8% higher than October 2022 gross sales, which presented a high hurdle rate for the company this year. October 2023 had one more selling day than October 2022.
A portion of the increase in the October 2024 sales may be attributed to advanced purchases by our customers, in anticipation of the price increase in November in the United States. However, such amounts can't reasonably be determined.
Hurricanes, Helen and Milton impacted sales at retail in certain states in September and October 2024. Again, however, we cannot determine the impact on our business at this time. 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 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 responsible 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 results for a full quarter or any future period.
In conclusion, I would like to summarize some recent positive points. Firstly, the energy category continues to grow globally. We believe that household penetration continues to increase in the energy drink category. Growth opportunities in household penetration of capital consumption, along with consumers' need for energy are positive factors for the category.
We continue to expand ourselves in non-Nielsen-measured channels. As reported earlier, we have implemented a price increase in the United States on November 1, 2024. We continue to review opportunities for price increases internationally. 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.
The juice plant at our AFF facility in Ireland has now been completed. After trials, we expect the juice plant to be in production in early 2025. We're excited for the launch of Monster Ultra Vice Guava, The Call Duty on pack gaming promotion, which kicked off last month has received positive consumer response with the publishers reporting that it's biggest Call of Duty release in the franchise history.
We are currently exploring opportunities for our alcohol products in certain international jurisdictions. We are seeing some acceleration in the sales and market share of Bang Energy and remain excited for the future of this brand within our overall product portfolio. We are pleased with the rollout of Predator and Fury, our affordable energy drink portfolio in a number of markets internationally. We are proceeding with plans for further launches of our affordable energy brands.
I would like to now open the floor to questions about the quarter. Thank you.
