MNST - NASDAQ

Good day, and welcome to the Monster Beverages Company Fourth Quarter and Full Year 2024 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Co-CEOs, Rodney Sachs and Hilton Schlosberg. Please go ahead.

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

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, future business, future events, financial performance and trends. 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-K filed on February 29, 2024 and are subsequently filed quarterly reports on Form 10-Q, including the sections contained therein entitled Risk Factors and Forward-Looking Statements, for a discussion on specific risks and uncertainties that may affect our performance. The company assumes no obligations to update any forward-looking statements whether as a result of new information, future events or otherwise. I would also like to note that an explanation of the non-GAAP measures, which may be mentioned during the course of this call is provided in the notes in the condensed consolidated statements of income and other information attached to the earnings release dated February 27, 2025. A copy of this information is also available on our website, www.monsterbevcorp.com in the Financial Information section. I would now like to hand the call over to Rodney Sacks.

Thanks, Tom. We continue to see sustained growth in the global energy drink category. In the United States, we are seeing a resurgence of growth in the energy drink category in the convenience, as well as in all measured channels reported by Nielsen. Our non-Nielsen channels continue to grow as well. Growth opportunities in household penetration and per capita consumption along with consumers' growing need for energy are positive trends for the category. Hurricanes Helene and Milton impacted sales at retail in certain states in October 2024. However, we have not determined 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 Helene. This brewery was partially operational for a period and was fully operational by mid-November 2024. In the United States, the energy category according to Nielsen for the recently reported 13 weeks through February 15, 2025 grew at 6.2% versus the same period last year. In EMEA, the energy drink category according to Nielsen for our tracked markets for the recently reported 13 week period, which differ from country-to-country grew at approximately 14.4% versus the same period last year. In APAC, the energy drink category according to Nielsen and INTAGE for our tracked markets for the recently reported 13 week period, which differ from country-to-country grew at approximately 11.8% versus the same period last year. And in LatAm, the energy drink category according to Nielsen for our tracked markets for the recently reported 13 week period, which differ from country-to-country grew at approximately 20.2% versus the same period last year. In each case, these are done on a FX neutral basis. Certain items should be separately considered in evaluating the results for the quarter. These specific items are as follows: gross profit for the 2024 fourth quarter was adversely impacted by an increase in inventory reserves due to excess inventory levels in the Alcohol Brands segment of $4.1 million, in which I will now refer to as the Alcohol Brands Inventory Reserves. Operating expenses for the 2024 fourth quarter were adversely impacted by $130.7 million of impairment charges related to the Alcohol Brands segment. The impairment charges were primarily the result of operating and financial performance not meeting projections due in part to challenges in the category, as well as the decrease in projected ongoing operating and financial performance. In addition, operating expenses for the 2024 fourth quarter were adversely impacted by $1.8 million of company incurred legal expenses in connection with an intellectual property claim brought by the descendants of Hubert Hansen, in relation to the company's use of the Hubert Hansen name prior to the transaction with the Coca-Cola Company, which closed in 2015, and which we will now refer to as the Hansen Litigation. Operating income adjusting for these items rose 7.9% to $517.9 million in the 2024 fourth quarter. Net of tax, these items adversely impacted net income for the 2024 fourth quarter by $105 million and net income per diluted share by $0.10 per share. Diluted earnings per share for the 2024 fourth quarter adjusted for these items was $0.38 per share. As a reminder, the bank inventory step up and impairment in the Alcohol Brands segment were previously disclosed as items impacting profitability for the comparative 2023 fourth quarter. In addition to our GAAP condensed consolidated statement of income and other information and our GAAP consolidated balance sheet for the company for the quarter ended December 31, 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 in lieu of U.S. GAAP financial measures. The company achieved record fourth quarter net sales of $1.81 billion, in the 2024 fourth quarter. $1.81 billion, sorry, sorry, 4.7% higher than net sales of $1.73 billion in the comparable 2023 quarter, 4.8% excluding the Alcohol segment. On a foreign currency adjusted basis, net sales for the 2024 fourth quarter increased 7.8% or 7.9%, excluding the Alcohol segment. Gross profit as a percentage of net sales for the 2024 fourth quarter was 55.3% compared with 54.2% in the 2023 fourth quarter. Gross profit for the 2024 fourth quarter was adversely impacted by the Alcohol Brands inventory reserves, gross profit as a percentage of net sales for the 2024 fourth quarter, exclusive of the alcohol brands inventory reserves was 55.5%. The increase in gross profit as a percentage of net sales for the 2024 fourth quarter was primarily the result of reduced input costs partially offset by geographical sales mix. On a sequential quarterly basis, gross margins were higher than the 2024 third quarter gross margins. Operating expenses for the 2024 fourth quarter was $621.2 million compared with $504.4 million in the 2023 fourth quarter. The increase in operating expenses were primarily the result of increased impairment charges within the Alcohol Brands segment, increased payroll expenses and increased sponsorship and endorsement expenses. As a percentage of net sales, operating expenses for the 2024 fourth quarter were 34.3% compared with 29.2% in the 2023 fourth quarter. Adjusted operating expenses after making the adjustments described earlier, increased 5.5% to $488.7 million as compared to $463.2 million in the 2023 comparable quarter. Adjusted operating expenses as a percentage of net sales for the 2024 fourth quarter were 27% compared with 26.8% in the 2023 fourth quarter. Distribution and warehouse expenses for the 2024 fourth quarter was $77.6 million or 4.3% of net sales compared to $79.6 million or 4.6% of net sales in the 2023 fourth quarter. Operating income in the 2024 fourth quarter decreased 12.2% to $381.2 million from $434 million in the 2023 comparative quarter. Adjusted operating income after making the adjustments described earlier increased 7.9% to $517.9 million as compared to $480.1 million in the 2023 comparable quarter. The effective tax rate for the 2024 fourth quarter was 29.9% compared with 18.5% in the 2023 fourth quarter. The increase in the effective tax rate for the 2024 fourth quarter was primarily attributable to a decrease in the stock-based compensation deduction for the 2024 fourth quarter and adjustment to the 2024 full year effective tax rate higher 2024 state income taxes and the establishment of a state valuation allowance relating to certain net operating losses of the Alcohol Brands segment. Net income for the 2024 fourth quarter was $270.7 million as compared to $367 million in the 2023 comparable quarter. Adjusted net income in the 2024 fourth quarter after making the adjustments described earlier were $375.7 million as compared to adjusted net income of $402.4 million in the 2023 comparable quarter. Diluted earnings per share for the 2024 fourth quarter decreased 20.8% to $0.28 from $0.35 in the fourth quarter of 2023. Adjusted diluted earnings per share after making the adjustments described earlier remained consistent at $0.38 per share for both the 2024 and 2023 fourth quarters. Net sales on a foreign currency adjusted basis increased 8.4% for the 2024 full year. Adjusted net income per diluted share was $1.62 per share for the 2024 full year compared with adjusted net income per share of $1.56 per share for the 2023 full year. Our fourth 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 fourth quarter of $52.3 million. As previously reported, we implemented a 5% increase on our brands and packages, excluding bank, rain and rainstorm effective November 1, 2024 in the United States. We are continuing to monitor opportunities for further pricing actions, both domestically and internationally. According to the Nielsen reports, for the 13 weeks ended February 15, 2025, for all outlets combined, excluding convenience and gas, sales in dollars in the energy drink category, including energy shots, increased by 9% versus the same period a year ago. According to the Nielsen report for the 13 weeks ended February 15, 2025, for all outlets combined, namely convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category, including energy shots increased by 6.2% versus the same period a year ago. Sales of the company's energy drink brands including Bang were up 4.4% in the 13-week period. Sales of Monster increased 4.8%. Sales of Reign were down 6.3%. Sales of NOS increased 2% and sales of Full Throttle decreased 0.8%. Sales of Red Bull increased 10%. According to Nielsen, for the four weeks ended February 15, 2025, and sales in dollars in the energy drink category in the convenience and gas channel, including energy shots, increased 2.8%. And for the four weeks ended February 8, 2025 were 5.4% over the same period the previous year. Sales of the company's energy drink brands including Bang, were up 2.9% in the latest four-week period in the convenience and gas channel. Sales of Monster increased by 3.1% over the same period versus the previous year. Reign sales decreased 5.2%, NOS was down 1.1% and Full Throttle was down 2.2%. Sales of Red Bull were up 8.3%. According to Nielsen, for the four weeks ended February 15, 2025, the company's market share in the energy drink category in the convenience and gas channel, including energy shots in dollars increased from 36.8% to 36.9%, including Bang. Monster share increased from 29.1% a year ago to 29.2%. Reign’s share decreased 0.2 of a share point to 2.7%. NOS share decreased 0.1% of a share point to 2.5% and Full Throttle share remained at 0.7 of a point. Bang's share was 1.8%. Red Bull's share increased 1.9 share points to 36.9%. Market shares of certain competitors were as follows: CELSIUS, 7.3%; C4, 43.5%; GHOST, 2.9%; Five Hour, 2.9%; Rockstar 2.7%, and Alani Nu 2.2%. According to Nielsen, for the four weeks ended February 15, 2025, sales in dollars in the coffee plus energy drink category, which included our Java Monster line, in the convenience and gas channel decreased 9.1% over the same period the previous year. Sales of Monster including Java Monster 300 was 7.9% lower in the same period versus the previous year. Sales of Starbucks Energy coffee were 16.6% lower. Java Monster share of the coffee plus energy drink category in the four weeks ended February 15, 2025, was 58.9%, up 0.8 point, while Starbucks Energy coffee share was 38.2%, down 3.4 points. According to Nielsen, in all measured channels in Canada, for the 12 weeks ended January 25, 2025, the energy drink category increased 10.3% in dollars. Sales of the company’s energy drink brands increased 10.5% versus a year ago. The market share of the company's energy drink brands increased 0.1 point to 41.4%. Monster's sales increased 7.1% and its market share decreased 1.1 points to $36.1 million. NOS sales increased 13.7% and its market share remained at 1.2%. Full Throttle sales decreased 5%, and its market share decreased 0.1 point to 0.5%. According to Nielsen for all outlets combined in Mexico, the energy drink category increased 11.1% for the month of January 2025. Monster sales increased 13.7%. Monster's market share in value increased 0.7 of a point to 30% against the comparable period the previous year. Sales of Predator increased 27.9% and its market share increased 0.8 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 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 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, all outlets combined in Brazil, the energy drink category increased 13.4% for the month of December 2024. Monster sales increased 15.7%/ Monster's market share in value increased 0.9 of a point to 47.7% compared to December 2023. In Argentina, due in part to the impact of inflation, related to local currency price increases, the energy drink category increased 98.7% for the month of January 2025. Monster sales increased 82.5%. Monster's market share in value decreased 4.5 points to 51.2% compared to January 2024. In Chile, the energy drink category increased 16.2% for the month of January 2025. Monster's sales increased 13%. Monster's market share in value decreased 1.1 points to 39.5%. Monster Energy remains a 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 January 26, 2025, Monster's retail market share in value as compared to the same period the previous year, grew from 16.3% to 17.2% in Belgium from 32% to 32.6% in Great Britain, back on our new Great Britain, Nielsen data base from 6% to 9.4% in the Netherlands and from 34.3% to 36% in Norway. According to Nielsen, in the 13-week period ending January 26, 2025, Monster's retail market share in value as compared to the same period for the previous year declined from 30.9% to 27.5% in France. According to Nielsen, in the 13-week period ending December 29, 2024, Monster's retail market share in value as compared to the same period the previous year grew from 22.6% to 23.4% in the Czech Republic, from 17.1% to 17.7% in Germany, from 18.9% to 20.8% in Poland, from 30.3% to 32% in the Republic of Ireland and from 40.8% to 41.4% in Spain. According to Nielsen, in the 13-week period ending December 29, 2024, Monster's retail market share in value as compared to the same period the previous year declined from 27% to 26.1% in Denmark, from 36.1% to 35.6% in Greece, from 31.7% to 31% in Italy, and from 20.1% to 18.4% in South Africa, and from 15.5% to 14.8% in Sweden. According to Nielsen, in the 13-week period ending December 29, 2024, the retail market share in value of Predator was also branded as Fury in certain markets as compared to the same period the previous year, grew from 8.2% to 11.8% in Egypt, from 34% to 41.5% in Kenya, and from 21% to 23.4% in Nigeria. We are pleased that in the 2024 fourth quarter, Monster gained market share in Belgium, Czech Republic, Great Britain, Germany, the Netherlands, Norway, Poland, Republic of Ireland and Spain. According to IRI, all outlets combined in Australia, the energy drink category increased 10.5% for the four weeks ending February 2, 2025. Monster sales increased 22%. Monster's market share in value increased 1.9 points to 20.4% against the comparable period the previous year. Sales of Mother decreased 3.6% and its market share decreased 1.4 share points to 9.4%. According to IRI for all outlets combined in New

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Bonnie Herzog with Goldman Sachs. Please go ahead.

All right. Thank you. Hi, everyone.

Hi, Bonnie.

Hi. I wanted to ask a question on your gross margins in the quarter. Could you give us a little more color on the drivers behind the expansion? I guess I'm curious how much did the price increase on November 1 help, what about production of some of your feed drink volume in-house. I just wanted to confirm that you did in fact or you are in fact doing that. And then how big of a risk do you see from aluminum and tariffs? Are you still hedged on aluminum? And will this protect you some -- and I know you guys don't guide, but how are you feeling about further gross margin expansion this year in the context of the pricing you took and everything I just asked about? Thanks.

Yeah. So Bonnie, thank you for that long question. I think it was more than one question. We'll try and answer them. The major drivers of gross margin in the quarter were reduced input costs, partially offset by geographical sales mix. Now there are a lot of other factors that influence gross margin, as you all know. For example, yes, the price increase did impact gross margin positively. But against that, we had other costs that are set off against gross sales, including increased commissions to the Coca-Cola company based on increased sales and increased profitability in EMEA as well as a tranche of other issues. Promotional allowances yes, were higher. Mainly driven by the fact that when one does entertain a price increase, we do ensure that commercial allowances are in place, so that consumers don’t get the sticker shock day one from the price increase. As regards tariffs, I think you all guess is good as mine. Things keep on changing day by day. And I think it would be – I discussed it with some of my colleagues prior to this call, and we think it would be really premature to even talk about tariffs because no one really knows what’s going to happen. However, we are hedged to quite a nice extent in 2025 with aluminum, and we have some hedges on the Midwest premium.

The next question comes from Dara Mohsenian with Morgan Stanley. Please go ahead.

Hi, guys. So clearly, you're enthusiastic about the energy category recovery we're seeing in the U.S. Can you also just give us some color or any thoughts on Monster's potential U.S. market share performance as we look going forward? I know you're not going to be specific, but just relative to a period of compression we've seen in recent periods. And also within that, maybe you can touch specifically on the U.S. innovation pipeline in 2025 versus 2024 and shelf space and how that might play into Monster's U.S. market share performance with that category recovery? Thanks.

Okay. Rodney and I are going to split this question. So with regard -- let me start with shelf space. We have negotiated for increased shelf space this year and it's in the low-single digits. And we're really excited with the additions to our portfolio that we've been able to attract and increase shelf space. As regards the total category, we spoke at -- in New York about the global energy drink category growing substantially over the next few years to 2019. And I must just remind you that the U.S. category is now $21.2 billion. So it's hard to swing a dial on growth in a $21.2 billion category that we've seen historically. I think we will continue to see increases in the category, and you've seen that in the past few weeks, both the category in all measured channels has grown, the convenience we see as coming back. Trips are still down, but the shopping baskets in convenience are higher. So all-in-all, it all goes well for the category as a whole and for the category in the U.S. As regards market share, and I'll give you my take, we will always see competition. We've seen competition historically and we'll continue to see competition. And that will continue to obviously lean in to both ourselves and to rebuild market share, but there still is a very strong category and it's driven by two players, two major players, which is us and Red Bull.

Agreed. And I think the category, we're also seeing growth internationally as well coming back. I mean everybody seems to have had a sort of a flattening of growth in that third quarter, whether it's U.S. or internationally for different reasons, none of us have really can explain it fully, but it certainly is growing, which is really pretty positive. We see this on a week-to-week basis. With regard to 2025 with innovation, we have got off to an early start. I think we've taken measures to try and sort of maximize the impact of our innovation and execution to step that up and we have strategies for that, which we started with Vice Guava. We have followed that up with Ultra Blue Hawaiian, and I'm just looking at the latest week numbers in Ultra Blue Hawaiian is one of the top 10 selling products and it's still gaining distribution. Our juice product, Viking Barry is also on a sales per point has got off to a good start. We've got the coffee category, we've got some good products. So we are actually very positive about innovation for this year. We think it will be positive for us. And we've got off to an early start on them with the bottlers. So, we also have some more innovation that we have planned down in the fall. Particularly, we are quite excited with the Bang relationship with Any Means Possible. We have a single SKU, which we launched with Bang, a new one. But the Any Means possible relationship combined with the flavor and combined with their social media, we think is going to be quite positive. And as you -- Bang is still growing. We are covering nicely and growing. So we are quite positive for that. We're also going to focus on Reign, which, as you know, is really one of two real performance brands at the moment, everybody has moved to different wellness in different areas. So we think that Reign is still a solid brand, and we're also obviously going to put focus and effort behind it. Thanks.

The next question comes from Filippo Falorni with Citi. Please go ahead.

Hi. Good afternoon, everyone. I wanted to ask about the U.S. energy drink category. Obviously, we've seen the reacceleration in track channel data, your reported results in the U.S. seem to be tracking a little bit below what we see in the tracked channel data. So maybe can you comment a bit on the untracked portion of your business, if you've seen any slowdown, particularly in the Smaller Bodegas, Gas and Convenience stores that are not picked up. And any comment on the Hispanic population that we've heard from other companies seeing a little bit of pressure more recently? Thank you.

I think that's what you said about the spending consumers probably really accurate. And I don't want to say anything more about that. As regards to January, and we reported the January numbers, I believe that they were affected significantly by weather. We never really -- we have a saying in this company that we avoid any discussion on whether and when we sell our products come rain and rain and shine. But December was a difficult month. It was a difficult month in terms of the wildfires and it was a difficult month in terms of everything that you saw on the East Coast relating to weather conditions. So January for me was -- I think it was an aberration. Other people may feel otherwise, but that's a personal view. And we've always got to appreciate that we sell to the bottlers and the distributors. They sell to the retailers and Nielsen is a factor of what the consumer buys at retail. So there's never really a -- there should be a correlation some people say, sometimes there is a correlation, often there isn't. But please remember that Nielsen is what the consumers take off at retail and not would we sell, we sell to the boxes.

I think that just to reinforce that, I think that if you look at the Nielsens I know they're short periods, we don't like to often refer to them. But if you look at the last couple of weeks on a week-by-week basis, all measured channels, you can see Monster is pretty much got back into a close to an 8% growth rate in the measure, which is are the main areas. So we're seeing some good shoots coming out of after January, there clearly was some effect on the weather and again, as we pointed out previously, I think everybody's got to be cautious about looking at single months. There are other factors that affected. Thanks.

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

Thank you for the question, and good afternoon. I just wanted to go back to the -- your comment right on the innovation for Bang and using both Bang and Reign, as you had before for the functional portion of your portfolio. So I was wondering, if you can elaborate a little bit more on your plans for 2025 in terms of innovation in that specific segment, knowing that you called out like the player that was acquired by another -- by the third largest being more niche. So I wonder, how you see that transaction and how could that impact your plans or anything you're seeing from your customers and any feedback that you can share? Thank you.

I think everybody knows Alani Nu (ph) had some good growth, and it's doing nicely. But it is very focused on younger female and that it is what it is. The fact of the matter is it is growing. I think that when we talk about Bang, I think it's not directly comparable to aligning new. And I think that in the case of Reign, it's very much more focused on performance category. So I think there are different positionings for these different brands. They're all able to find their own positions. And they will -- we'll continue to compete and see how they grow, but we think that we can distinguish the positioning for Reign from Bang and from NOS even, for example, in our portfolio in Reign Storm. And so we have a portfolio, and we're going to continue to manage them appropriately. We think that the other factors will not really feature. We'll see how the acquisition goes. They'll have to manage two brands, but that's a challenge they will obviously take on, but it's not for us to really comment on that.

Yeah. And we have our own strategies as you can expect. And Alani Nu will probably continue to grow until they hit their ceiling on points of distribution. A lot of their growth is coming out of new distribution and they'll hit their ceiling on points of distribution. In fact, just like Celsius did. So we carry on, we run our business and we run our play, and we're very confident with the team here at Monster and with the products and the portfolio that we have in the innovation for this year and further innovation that we're working on, and that's coming.

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

Hey, guys. Hope you're doing well. So there was a comment earlier in the call around potential to take additional pricing or that you're looking at incremental pricing or your always considering incremental pricing, I can't remember exactly how it was said. But can you just talk about the sorts of things that you're looking at in order to make that decision about new pricing. Is that incremental aluminum inflation? Is that tariffs? Are those sorts of decisions already made? New innovation conscious that you made some positive statements around being hedged on aluminum and a bit of Midwest premium, but just trying to contextualize what the -- how that decision process go? And when you would make that sort of decision and how that could all play out? Thanks so much for any context there.

Sure. We always are looking for opportunities to increase pricing. We've had significant cost increases as everyone appreciates, that's why Bonnie asked the question on gross margin every quarter. And so please remember, we didn't take price on Reign Storm and Bang when we took pricing on the rest of the portfolio in November, there are opportunities there. And internationally, we continue to review pricing as we do with Monster in the U.S. And I think a lot will depend on where these tariffs and duties end up. And frankly, what our competitors do. But we have a very strong focus on trying to improve stockholder wealth, and that includes increasing pricing where there are opportunities to do so. However, we're not going to disadvantage our brands by increasing prices unnecessarily.

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

Thanks. On behalf of Monster, I'd like to thank everyone for their continued interest in the company. We continue to believe in the company and our growth strategy 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. Thanks very much for your attendance.