MNST - NASDAQ

Good day, and welcome to the Monster Beverage Company's Second Quarter 2025 Conference Call. [Operator Instructions] Please also note today's event is being recorded. I would now like to turn the conference over to Hilton Schlosberg, Chief Executive Officer. Please go ahead.

Good afternoon, ladies and gentlemen. Thank you for attending this call. I'm Hilton Schlosberg, Vice Chairman and Chief Executive Officer. Also on the call are Tom Kelly, our Chief Financial Officer; Emelie Tirre, our Chief Commercial Officer; Rob Gehring, our Chief Growth Officer; Guy Carling our President of EMEA and Oceania, South Pacific; and Mark Astrachan, our Senior VP of Investor Relations and Corporate Development. Mark 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 preference 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 28, 2025, and quarterly report 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 obligation 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 August 7, 2025. A copy of this information is also available on our website, www.monsterbevcorp.com in the Financial Information section. Please also note that scanner data, which was previously provided on earnings calls is now included in an exhibit filed with our 8-K. We point out that certain market statistics that cover single months or 4-week periods may often be materially influenced positively or negatively by promotions or other trading factors during those periods. I would now like to hand the call over to Hilton Schlosberg.

Good afternoon, and thank you for joining us. We are pleased to report yet another quarter of strong financial results and cash generation. In fact, our second quarter net sales of $2.11 billion are a quarterly record that crossed the $2 billion threshold for the first time in the company's history, with net sales increasing 11.1% compared with the 2024 second quarter. In addition, the percentage growth rates in reported gross profit, operating income, net income, and earnings per share all outpaced our growth rate in net sales. Overall, the global energy drink category remains healthy with accelerating growth. Household penetration continues to increase in the energy drink category, driven by product functionality and lifestyle positioning, diverse offerings that appeal to an increasingly broad and loyal consumer base and affordable value offerings in addition to premium offerings. In the United States, according to Nielsen, for the recently reported 30-week period through July 26, 2025 sales in dollars in the energy drink category, including energy shots, for all outlets combined, namely convenience, grocery, drug, mass merchandisers, increased by 13.2% versus the same period a year ago. Trends in our U.S. business remains solid with continued acceleration from early 2025. In EMEA, the energy drink category according to Nielsen for our tracked markets for the recently reported 30-week period, which differ from country to country, grew at approximately 15.4% versus the same period last year, FX neutral. In APAC, the energy drink category according to Nielsen, Circana and INTAGE for our tracked channels for the recently reported 30- week period which differ from country to country, grew at approximately 20.9% versus the same period last year, FX neutral. In LATAM, the energy game category according to Nielsen for our track markets for the 3 months ended June 30, 2025, grew at approximately 13.9% versus the same period last year. Growth remains healthy in local currencies across EMEA, Asia Pacific and Latin America. Our net sales to customers outside the United States rose to approximately 41% of total reported net sales in the 2025 second quarter. We believe our portfolio of energy drink offerings are well positioned to participate in the growing global energy drink category, appealing to a broad range of consumers across geographies, price points and need states. Innovation continues to be an important contributor to category growth but we maintain a robust innovation pipeline. Our marketing messaging continues to resonate globally. Highlights from the second quarter include the continued successes of our sponsorship and endorsement activities, including our McLaren Formula 1 team sponsorship, UFC and MMA Summer X Games, Supercross and Motocross and Stagecoach music festival, among others. Relatedly, we successfully introduced Monster Energy Lando Norris

[Operator Instructions] Today's first question comes from Dara Mohsenian with Morgan Stanley.

The gross margin performance was particularly strong in Q2. Can you just talk about how sustainable some of those drivers might be going forward? You mentioned some modest tariff pressure going forward. So just any thoughts around higher aluminum costs and the impact going forward? And if you could just clarify, you mentioned some U.S. pricing in Q4. Is that more selective tactical adjustments? Or are you looking more to a broad type of price increase?

Well, I think we mentioned that the price increase that is currently being explored will depend on packaging channel, so it's still a little premature to say exactly where it will fall out, but we are in discussions with our bottlers and customers. So turning to gross margins. I'm always been very passionate about gross margins and where the gross margins can end up in the company. But as we look at where we are in Q2 and we look forward into Q3 and we don't give guidance. So I've got to be careful what I say otherwise. I might get into trouble here with the lawyers. But we do see some modest pressures coming from tariffs in Q3. And in Q4, if the price increase has not materialized, but we think it will. We will see some reduction in -- through tariffs. But we do believe that the price increase will go some way towards overcoming that. And as I mentioned previously on many calls that we have a hedging strategy in place, so we are not totally exposed to the vicissitudes and changes in pricing in the LME but we are hedged to a limited extent in the Midwest premium which is where we'll see the impact of the tariffs.

And our next question today comes from Bonnie Herzog with Goldman Sachs.

Maybe a quick follow-up. Question on that just in terms of your supply chain optimization efforts because Hilton, I know you've been working on that. So if you have any color that you can share with us and sort of where you're at in that process? And then I'd love to hear some color on the category because it's been very strong recently, especially in the U.S., up double digits. So if you could touch on some of the drivers of the recent strength and how sustainable this might be for the rest of the year and maybe into next?

Okay. So let's talk first about supply chain optimization. What we've been able to achieve is a good balance between our own production which now accounts for probably just around 10% of our sales in the U.S. and a very well-balanced co-packing model. Our objective always has been to get the lowest delivered price to our customers. And that's been an objective and it's one of the reasons why we are not producing more in our Phoenix facility because we've got such a great balance of co-packers that are able to achieve that objective of the lowest landed cost price to our customers. So that's supply chain. Let's talk a little bit about the category. As we said earlier, when we spoke about July sales, sales trends in the category remains strong. Per scanner data, the category is up 13.2% in the last 4 weeks. Monster is up 12%, and our MC share, unfortunately has been impacted by the other brands, not Monster. And really, we've seen strong increases across all regions. We look at where we are in July and all of our regions are increasing nicely. So why has the market changed? At the end of the day, what we look at is that the pricing of our products at retail are very much competitive with comparable CSDs. And traditionally, there was a gap -- historically, there was a gap but now that gap is starting to close. And there's a strong appetite from consumers for functionality and a move towards our products and our competitors' products. So overall, innovation has driven the growth in the category and in our own sales. And also, there's this whole move that alcohol is not as appealing as historically it's been, and we believe that's creating more opportunities for energy and certainly more space for energy in the -- in customers' coolers. So there's nothing really more than I can add other than we're excited to be part of this category. And everyone was like kind of concerned last year, and I think at the time, we said that our belief was that there's a strong motivation, strong acceleration in the category and you're now seeing it. So I'm not sure I can add any more color, Bonnie.

And our next question today comes from Chris Carey at Wells Fargo Securities.

I wanted to follow up just on the quarter-to-date number, exceptionally strong. Hilton you just said that all regions are growing. Is there any pull forward that you're seeing ahead of those pricing discussions? Any timing dynamics that we should be thinking about that's driving some of that strength? And then if I could just follow up on this broader topic of the energy drink category. It's been a really strong year. And certainly, we're already looking forward to next year and the sustainability of the category clearly, you're going to potentially have this pricing in Q4. But can you just talk about maybe what happened last year why you think the category slowed, whether it was a lack of innovation, lack of pricing and how you're starting to think about the next 12 months between strength of innovation. Obviously, you're going to have pricing. And any other tidbits that you might give us to lessen some of the anxiety as we start lapping the really strong performance. So thanks for the clarification on the quarter-to-date and sorry for the longer-winded question going into next year.

Yes. Let's start with the longer question for next year. So there's an easy answer. We don't give guidance. So it's really hard for us to talk about 2026 other than to say that we've got a very strong innovation pipeline. And we're really excited about what will happen in the fall with our innovation, what's happening internationally with our innovation and what could happen in 2026 with our innovation program. Talking about what happened last year, it's -- it's kind of difficult because I don't think anyone knows. We surmised at the time that there were lots of issues. It was pre-election, consumers, there was high inflation. There's high gas prices. Consumers were holding back but we've always said -- and this -- we passionately believe that energy offers a need state it's a functional beverage. And we continue to see increased household penetration. We regard energy drinks as an affordable luxury. We're seeing a lot of growth of diets versus full sugar. I mentioned the NARTD price comparison. And there's been a big opportunity with the trend in coffee and the pricing trends in coffee. And also the impact on the coffee industry of the cold brews, which didn't do as successful as people expected. So there's a whole move towards why we believe this category is a good category and why we think it will continue to grow.

And our next question today comes from Steve Powers of Deutsche Bank.

Hilton, case growth this quarter notably outpaced realized revenue growth, which obviously resulted in a lower all-in price per case in the quarter. I was hoping you could maybe break that apart a bit. You mentioned higher promotional investments this quarter. But obviously, we've also got mix factors both geographic and within the segments, strategic brands outpaced Monster. So just a little bit of if you could just dissect the different drivers of the lower price per case and just call anything that may be anomalous or unique to this quarter versus something that is more extrapolatable.

I think you answered your own question, to be honest, because as we look at the quarter, 41% of sales internationally is kind of a first, and you know the impact of gross margin of international versus domestic. Secondly, we are internationally setting a significant amount now of affordable brands. And you correctly spoke about the Strategic Brands segment growing faster than the energy drink, the Monster Energy Drink segment in the quarter. So all of those factors, geographic mix, product mix, sales mix all contributed to the results that you're talking about.

And our next question today comes from Rob Ottenstein with Evercore.

Hilton, early on in the call, you mentioned -- I couldn't quite follow. You mentioned something about I thought changing the visual identity on the Ultra line. And then there was something about Unleashed and I somehow it came in and out, and I didn't quite follow exactly what you're saying, but if maybe you could talk in a little bit more detail on what you are doing and why you're doing it, given that the Ultra line has been so successful?

The Ultra line has been very successful, and it's -- of late, it's becoming even more successful. And all it is, is an objective to establish the Ultra line given a separate identity with a silver claw very similar to what we have today but have separate coolers to be able to better merchandise the product. So it will have a new visual identity, it will have better space through increased cooler capacity and its own coolers and again, commercial stacks on stores, cases on the floor and we are great believers in that part of the business. And I think you probably noticed as probably a lot of our investors have noticed, a lot of our analysts is there's a whole kind of viral campaign on

Thank you. This concludes our question-and-answer session. I'd like to turn the conference back over to Hilton Schlosberg for closing remarks.

Thank you. On behalf of Monster, I'd like to thank everyone for their continued interest in the company. I remain confident in the strength of our brands and the talent of not only our executive management team but also our entire family -- Monster family throughout the world, and I'm excited to be working with them all. We continue to believe in the company and our growth strategy and remain committed to continuing to innovate, develop and differentiate our brands and to expand the company both at home and abroad and in particular, capitalizing on our relationship with the Coca-Cola bottler system we believe that we are well positioned in the beverage industry and continue to be optimistic about the future of our company. Thank you for your attendance.