MNST - NASDAQ

Good afternoon, everyone, and welcome to the Monster Beverage Corporation Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please also note, today's event is being recorded. At this time, I would like to turn the floor over to Hilton Schlosberg, Chief Executive Officer. Sir, 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 Carding, our President of EMEA and OSP; 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 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 28, 2025, and 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 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 we refer to as adjusted where applicable, 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 November 6, 2025. A copy of this information is also available on our website, www.monsterbevcorp.com, in the Financial Information section. Please note that like last quarter, scanner data, which was previously provided on earnings calls is 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're pleased to report yet another quarter of strong financial results and cash generation with record quarterly net sales, gross profit dollars, operating income and net income. 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 robust growth. We believe household penetration continues to increase in the energy drink category, driven by 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 13-week period through October 25, 2025, sales in dollars in the energy drink category, including energy shots for all outlets combined, namely convenience, grocery, drug, mass merchandisers, increased by 12.2% versus the same period a year ago. 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 13.3% versus the same period last year, ForEx neutral. In APAC, the energy drink category according to Nielsen, Circana and INTAGE for our tracked channels for the recently reported 13-week period, which differ from country to country, grew at approximately 20.0% versus the same period last year, FX neutral. In LatAm, the energy drink category according to Nielsen for our tracked markets for the 3 months ended September 30, 2025, grew at approximately 12.6% versus the same period last year, FX neutral. Our net sales to customers outside the United States rose to approximately 43% of total reported net sales in the 2025 third quarter, the highest percentage recorded by the company for a single 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, and we maintain a robust innovation pipeline. Turning to marketing. Our marketing messaging continues to resonate globally as we built strong momentum through the summer with marketing efforts focused on growing the core business and attracting new consumers. Highlights in the third quarter included the continued success of the Monster-sponsored McLaren Formula 1 team, a Monster Energy Lando Norris

[Operator Instructions] And our first question today comes from Dara Mohsenian from Morgan Stanley.

So I just wanted to touch on EMEA revenue growth, strong reported results in the last couple of quarters. We're also seeing really robust retail takeaway in Nielsen and Western Europe in what's countries that are more developed with higher per capita consumption. So just want to get your perspective on what's driving the strong category growth in Western Europe, perhaps compare and contrast that with the U.S. category acceleration we've seen over the last year? And the second part of that strength in EMEA is Monster's market share has accelerated in the last couple of quarters here. So I know Hilton touched on some of the factors in the prepared remarks, but perhaps just give us a bit more detail on what's also driving the Monster share acceleration in EMEA?

Sure, Dara. That's a long question, but I'll do my best to answer it. Category acceleration in Europe, fundamentally driven by strong value proposition that we have with energy products compared to other NARTDs, combined with brand image, image is really important in our industry and category functionality, which all combine to make energy drinks all-day multi-occasion beverages with a wide appeal across age groups. We've also had this ultra-wide viral social media growth through the Internet and following that a lot of endorsements. And for those of you who haven't followed that on social media, it's something really worth seeing. A large percentage of our category consumers, we've heard about 25%. We did some studies in Western Europe based on usage and attitude. And we basically have heard from these studies that 25% of consumers are actually new to the category in the last 12 months and come from a range of other categories, including water, juice, coffee and sparkling soft drinks. We have not done the study in the U.S., just in Europe to be precise. The energy category has a wide range of product offerings, both sugar, non-sugar SKUs with an extensive range of flavors and material product innovations and innovations. Similar to the U.S., value proposition, brand image, functionality, consumers new to the category come from a range of other categories, water, coffee, coffee house, coffees are becoming really expensive and energy drinks are seen as a more affordable alternative. We've got zero and we've got full sugar variants and as you know, a wide variety of innovation. And if we talk about share gains, that was another part of your question. Mark just sent me a note and said I didn't answer your question properly. I have to talk about share gains. So Monster outperformed the category, and you could see the share gains in the attachment to the release, which we're pretty excited about. The achievement in EMEA in market share was pretty phenomenal. So again, we outperformed the category with growth driven both from innovation and from existing SKUs, which are consumer favorites. And that's really important about our business is that growth is driven by innovation as well as from existing SKUs, whereas if you look at the rest of the category, they are mainly dependent on innovation for growth. Ultra, the Ultra brand platform has led the growth with Ultra White supported online, as I mentioned, and social media consumer endorsements together with really good Ultra innovation. Growth in the Monster SKUs has Monster Green. Juice Monster has added to the positioning in Europe and Lando Norris

Our next question comes from Peter Grom from UBS.

Hilton, I was hoping to just get your perspective on the top line trajectory from here, but more from a category standpoint. Obviously, this year has been solid, probably better than most of us would have expected if you asked us this time last year. So just -- as we look out to '26 and just given the various cross currents and tougher comps, how do you see category growth evolving as we look ahead? Would you expect some moderation? Or do you think the strong level of growth can continue? And then just quickly more of a housekeeping. The quarter-to-date number, sometimes there can be a shift in ordering patterns around pricing adjustments. So just curious if there was any sort of benefit from that in the October number?

Okay. So we did not see a benefit in this quarter from the price increase that -- we will talk about if anyone asked a question that is effective November 1 and including October. So we do not see any impact in the quarter and in October either. So just looking at the key drivers of growth, and then we can talk about your question for 2026. But again, we don't give guidance. But as I talk through what I believe are the key drivers for the category and for growth, we can get a feel -- or you can get a feel of what could happen in 2026. Number one, we spoke about the value proposition relative to other beverages, relative to coffee house coffees. So that's something that I believe is really important in the growth that we are seeing. We're seeing increasing household penetration. We're seeing new entrants into the category. Monster has always stood for image. Image is really important and image is really important in the energy drink category. We've spoken about innovation, the need state for energy. There's a huge -- everyone wants energy. They need energy, and we offer that. The fact that we are an affordable luxury, which we've spoken in the past and also this whole sort of move behind the Ultra brand family. And energy drinks are becoming more acceptable in society. At one time, they were kind of looked at and people were concerned about them. But now understanding the levels of caffeine, which are not exorbitant and less than half of equivalent size of a coffee house coffee, energy drinks are becoming more acceptable. And then when we look at 2026, we can make our own conclusions, but we are having a price increase that we'll talk about maybe. And innovation, we've got a lot of innovation planned for the remainder of this year that's happening. It's all in market, and we've got great innovation for 2026 as well. And we're excited about all the innovation, including these LTOs for America's 250th year anniversary.

Our next question comes from Matthew Smith from Stifel.

Since you mentioned pricing, I'll swap my question in here. You have pricing effective November 1. It sounds like you're taking a strategic approach versus a broad line increase. In the U.S., what level of pricing do you expect from the increases in promo reductions? And do you expect price realization to be significantly different by channel?

Okay. So let me start off by saying we've completed our discussions with our bottlers and our customers. And we will have revised pricing implemented effective November 1, which is already happening. As I also said on the call, we anticipate minimal impact on volumes, reflecting the energy drink category's favorable value proposition and relatively modest pace of price increases compared to other NARTD categories. And now I'm just going to hand this question over to Rob Gehring, who has been our Chief Growth Officer, as most of you will know, who's been intimately involved in implementing the price increasing and the -- it's better you hear it from him rather than from me. So Rob, please go ahead.

You bet. Matt, thanks for the question. I appreciate that. As you're aware, we believe RGM is a balance of art and science rooted in consumer insights where we sequentially strive to grow top line faster than units. And as Hilton mentioned, we remain focused on unit growth, and we're constantly evaluating elasticities because we believe that's a critical strategic consumption metric. So as we engage with our bottlers and our retailers, we strive to optimize the ideal balance of rate, trade spend, package mix and channel mix. And what we have implemented effective November 1, you will start to see in the coming weeks in scanner data, but our goal is to consistently achieve and deliver those objectives.

Our next question comes from Bonnie Herzog from Goldman Sachs.

All right. Actually, if I could, Rob, maybe just ask a quick follow-up question on pricing about the net price realization you're hoping to achieve with the actions you just talked about. How do we think about it versus, I guess, the 5% rate or price increase you took last year?

I think, Bonnie, thanks for the question, and thanks for the follow-up. We're going to go into a lot more detail about our strategy in December. But at this point, the complexity across channels and package mix and across our brand families, it's a little early to state an exact precise number as we watch this materialize. You're starting to see it in stores now. You'll see in scanner data in coming weeks. But again, our goal is always to manage that balance between delivering that top line ahead of unit growth. So you can see how effective it was for us in 2025, and our goal is to consistently deliver that moving forward.

Okay. And then if I could, Hilton, I'd love to ask you a question about your gross margins in the quarter, which were really strong. And I think they came in better than you expected since I believe you suggested to us last quarter that they would decline sequentially. So just would love to hear from your perspective, like, I guess, what came in better than you thought? I mean, was it stronger volume, you got more leverage, et cetera?

So what we said in the release, and I think that's quite important to look at that. So we had pricing actions, which were positive. Our supply chain optimization was again positive, and we had product sales mix. And that's -- as we move from more sugar beverages to lower -- to zero sugar alternatives, that benefits our margin. And then in the quarter, we also had higher promotional allowances, increased aluminum can costs, which we've discussed and geographical sales mix. So you put it all together, pricing was good, increase in pricing, supply chain optimization and product sales mix, and they were the major contributors to gross margin. Now gross margin was the same as last quarter, which was really pleasing to see. And we're really happy with where we are now. We spoke a little bit about tariffs in the script and that we will see an impact in tariffs. Tariffs, we spoke about another -- a modest impact in this quarter. We saw -- we spoke about a modest impact of tariffs in the fourth quarter and the first quarter of 2026. And then as we -- if things stay very much the same, we'll then be benefiting from what happened in 2025 because that's when the Midwest premium and the LME started moving on. And then, of course, we'll have the benefit of pricing, which Rob has just spoken about and which has been implemented effective November 1.

And our next question comes from Kaumil Gajrawala from Jefferies.

Well done this quarter. A question on the contribution of affordable energy around the world and its sort of impact on margins. The long history has been margins of international have been lower than the U.S. Now with the launch of affordable energy and given the margin profile, is that the sort of gap that -- is that the sort of product that can maybe narrow that gap in margins of international versus the U.S.? Or is it perhaps just not big enough at this stage to help bridge that?

Yes. One of the problems internationally, as I've spoken on many occasions is that the pricing internationally is not the same pricing that we're able to achieve in the U.S. and that we look at some of our competitors, and we have to -- as we compete in a market, we have to price ourselves competitively. And we found that if we stray more than a certain percentage from a large competitor, it does impact volumes. So we have to be very careful with pricing internationally. Plus in most countries, our costs are a lot higher because in the U.S., we have significant scale. So now turning to affordable energy. I think affordable energy, because it's a concentrate will actually benefit overall margins internationally, but not to a significant degree, I would believe, but it will be a positive contribution because it's a concentrate model. And as you know, concentrated models really generate higher margins than finished good models, which we run on with our Monster brands.

And ladies and gentlemen, with that, we will be concluding our question-and-answer session for this afternoon. I'd like to turn the floor back over to Hilton Schlosberg for any closing comments.

Thank you. On behalf of Monster, I would like to thank everyone for their interest in the company. We are confident in the strength of our brands and the talent of our entire Monster family throughout the world, and I'm excited to be working with them all and thank them for their contributions during the quarter. We believe in the company and our growth strategy and are committed to innovating, developing and differentiating our brands and expanding the company both at home and abroad. We are proud of our relationship with the Coca-Cola system and the opportunities this presents to us. We believe that we are well positioned in the beverage industry and are optimistic about the future of our company. Thank you so much for your attendance.