Rodney Cyril Sacks - Monster Beverage Corp. Hilton H. Schlosberg - Monster Beverage Corp..
William B. Chappell - SunTrust Robinson Humphrey, Inc. Vivien Azer - Cowen and Company, LLC Amit Sharma - BMO Capital Markets (United States) Judy E. Hong - Goldman Sachs & Co. Mark Stiefel Astrachan - Stifel, Nicolaus & Co., Inc. Kevin Grundy - Jefferies LLC.
Good day, ladies and gentlemen. Welcome to Monster Beverage Corporation Second Quarter 2017 Financial Results. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session with instructions following at that time. And as a reminder, this conference is being recorded.
Now, I'll turn the conference over to your host, Rodney Sacks, Chairman and CEO. Please begin..
Good afternoon, ladies and gentlemen. Thank you for attending this call. I'm Rodney Sacks. Hilton Schlosberg, our Vice Chairman and President, is with me today; as is Tom Kelly, our Senior Vice President of Finance.
Before we begin, I'd 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 which 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 March 1, 2017, and our Form 10-Q, filed on May 8, 2017, including the sections contained therein entitled risk factors and forward-looking statements for 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.
An explanation of the non-GAAP measure of gross sales and certain expenditures which may be mentioned during the course of this call is provided in the notes and designated with asterisks in the consolidated statements of income and other information attached to the earnings release, dated August 8, 2017.
A copy of this information is also available on our website at monsterbevcorp.com in the Financial Information section. Sales continued to be challenging in the beverage industry in the second quarter and remained weak. In the second quarter, net sales were $907.1 million, up 9.6% from $827.5 million in the second quarter of 2016.
The company achieved record second quarter gross sales of $1.04 billion, up 9.8% from $945.8 million in the second quarter of 2016. Unfavorable currency exchange rates reduced net sales by approximately $8.2 million in the 2017 second quarter.
The comparable 2016 second quarter net and gross sales included $5 million of accelerated deferred revenue related to distributor terminations. Excluding such accelerated recognition of deferred revenue from a comparable 2016 second quarter, net and gross sales for the 2017 second quarter increased 10.3% and 10.4%, respectively.
Gross profit as a percentage of net sales for the second quarter was 64.3% as compared to 62.6% for the comparable 2016 second quarter.
The increase in gross profit as a percentage of net sales was primarily attributable to cost of goods savings as a result of the AFF transaction and product mix in the U.S., which was partially offset by geographic mix and certain increases in other costs.
Distribution costs as a percentage of net sales was 3% for the 2017 second quarter, as compared to 3.2% in the 2016 second quarter. Selling expenses as a percentage of net sales were 12.6% compared to 11.2% in the same quarter a year-ago. The increase is primarily due to increased sponsorship and endorsement costs and commissions.
General and administrative costs as a percentage of net sales were 10.1%, as compared to 13.3% in the same quarter last year. Included in general and administrative costs were distributor termination expenses of $0.2 million and $25.3 million for the 2017 and 2016 second quarters, respectively.
Included in general and administrative expenses for the 2016 second quarter were AFF transaction-related expenses of $3.6 million and modified Dutch auction tender offer expenses of $1.5 million.
General and administrative expenses, excluding distributor terminations, AFF transaction expenses, and stock repurchase expenses, were 10.1% of net sales for the 2017 second quarter, compared to 9.6% of net sales for the comparable 2016 second quarter, largely due to an increase in payroll costs.
Payroll expenses were up $10.1 million, primarily due to head count growth internationally, including to support the launches in China and other countries as stock-based compensation, a non-cash item, was $1.3 million higher.
Legal expenses relating to regulatory methods and litigation concerning the advertising, marketing, promotion ingredients, usage, safety and sale of the company's products were $2.4 million in the 2017 second quarter, as compared to $3.8 million in the 2016 second quarter.
Our effective tax rate decreased slightly from 36.1% in the 2016 second quarter to 35.9% in the 2017 second quarter, primarily due to an increase in equity compensation deductions. Net income was $222.6 million in the 2017 second quarter, compared to net income of $184.2 million in the 2016 second quarter, an increase of 20.9%.
The weighted average number of diluted shares outstanding decreased from 614.9 million for the second quarter of 2016 to 578 million for the second quarter of 2017 as a result of share buybacks, including the modified Dutch auction tender offer, which was completed in June 2016.
Diluted earnings per share for the 2017 second quarter increased 28.6% to $0.39 from $0.30 in the second quarter of 2016. We continue to make good progress in the implementation of our strategic alignment with Coca-Cola bottlers globally.
Domestically, we transitioned distribution of Monster Energy Drinks to Coca-Cola bottlers in a part of North Dakota, including Florida in April 2017. So, we're also making good progress in the U.S. in non-traditional channels, including food service accounts and e-commerce.
In EMEA, in the second quarter of 2017, we commenced distribution of Monster with Coca-Cola bottlers in Kazakhstan, Jordan and Pakistan. Additional launches are planned in the third quarter of 2017 in certain countries in Africa, the Middle East and Eastern Europe.
In the second quarter of 2017, we launched distribution of Monster with Coca-Cola bottlers in certain countries in the Caribbean. In the second half of 2017, we anticipate launching Monster with Coca-Cola bottlers in certain additional countries in Central and South America and in the Caribbean.
In China, during the second quarter of 2017, we continued with launches in 14 new operating units. The two remaining operating units in China were launched during July 2017. We also transitioned distribution in Hong Kong and Macau to Coca-Cola bottlers. We continue to make progress towards our planned relaunch in India later this year.
We are planning to commence distribution of Monster with Coca-Cola bottlers in Vietnam and Taiwan in the third quarter. Raw material cost savings from the AFF transaction were approximately $28.6 million in the second quarter of 2017 as compared with $1.1 million in the second quarter of 2016.
Raw material cost savings from the AFF transaction were minimally realized in the comparable 2016 second quarter as the company's inventory on hand prior to the AFF transaction, as well as the inventory acquired in the AFF transaction which were recorded at fair value, were not fully recognized through cost of goods sold until the end of the second quarter of 2016.
According to Nielsen reports for the 13 weeks through July 22, 2017 for all outlets combined, that will be convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category including energy shots increased by 0.8% versus the same period a year ago.
Sales of Monster grew 2.2% in the 13-week period while sales of NOS increased 11.8% and sales for Full Throttle increased 1.1%. Sales of Red Bull increased 2%. Sales of Rockstar decreased by 1%. Sales of 5-Hour decreased 8.7% and sales of AMP decreased 25.8%.
According to Nielsen, for the four weeks ended July 22, 2017, sales in the convenience and gas channel including energy shots, in dollars increased 1.7% over the same period last year. Sales of Monster increased by 6% over the same period last year while NOS was up 9.5% and Full Throttle sales increased 1.7%. Sales of Red Bull increased by 2%.
Rockstar was down 2.6%. 5-Hour was down 11.3%, and AMP was down 23.4%.
We point out that the energy shot category has been slow for some time and if we exclude the energy shots, as well as the energy coffee and energy protein drinks, where we have experienced production capacity shortages, for the four-weeks ended July, 22, 2017, sales in the convenience and gas channels in dollars in fact increased by 4.3% over the same period last year with sales of Monster increasing by 10%.
According to Nielsen, in the four weeks ended July 22, 2017, Monster's market share of the energy drink category in the convenience and gas channel, including energy shots in dollars, increased by 1.5 points over the same period last year to 36.7%. NOS' share increased 0.3 points to 4% and Full Throttle's share remained the same at 0.9%.
Red Bull share increased 0.1 point to 35.5%. Rockstar share was down 0.3 points to 7.6%. 5-Hour's share was lower by 1.2 points at 7.1% and AMP's share decreased 0.4 points to 1.1%.
According to Nielsen, for the four weeks ended July 22, 2017, sales of energy plus coffee drinks in dollars in the convenience and gas channel decreased 11% over the same period last year. Sales of Java Monster were 21.2% lower than in the same period last year while sales of Starbucks Doubleshot Energy were 0.4% lower.
We continued to experience production capacity shortages for Java Monster, which I will address later in the call. According to Nielsen, in the convenience and gas channel in Canada, for the 12-weeks ended June 24, 2017, the energy drink category remained flat in dollars. Monster sales increased 11% versus a year ago.
Our market share increased 3.1 share points to 31.3%. Red Bull sales decreased 1% and its market share decreased 1.3 points to 37.3%. Rockstar sales decreased 14% and its market share decreased 1.8 points to 16.8%. According to Nielsen, for all outlets combined in Mexico, the energy drink category grew 7.6% during the month of June 2017.
Monster sales increased 22.6%. Our market share in value increased 3.3 points to 27.1%, against the comparable period last year. Sales of Burn decreased 37.8%. Burn's market share decreased 2.1 points to 2.9%. Red Bull sales decreased 6.8% and its market share decreased by 1.7 points to 11.1%.
Vive 100's market share decreased 0.7 points to 42.3%, while Boost's market share decreased 1.7 points to 8%. 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 their 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.
I'd like to point out that the Nielsen and IRI numbers for EMEA should only be used as a guide because the channels read by Nielsen and IRI for EMEA vary from country to country.
According to Nielsen, in the 13-week period ending July 2017 – the actual 13-week periods vary by a few days between different markets – Monster's retail market share in value as compared to the same period last year grew from 13.9% to 17.3% in Great Britain and from 22.3% to 23.1% in France.
According to Nielsen, for the period-ending June 2017 – the actual 13-week periods vary by a few days between different markets – Monster's retail market share in value as compared to the same period last year grew from 13.9% to 14.7% in Germany, from 10.5% to 13.7% in Norway, from 24.9% to 26.5% in Spain, from 10.3% to 11.4% in Belgium, from 11.7% to 12.4% in Czech Republic, from 7.6% to 11.1% in Italy, from 7.9% to 10.3% in Ireland and from 13% to 16.2% in South Africa.
According to Nielsen, in the latest 13-week period ended June 2017, Monster's retail market share in value as compared to the same period last year declined from 10.7% to 9.6% in Sweden, although the retail value of sales grew 18.1% in the same comparative period, and declined from 7.4% to 5.6% in the Netherlands, which is being addressed.
According to IRI, Monster has increased its market share from 27.4% to 34.5% in Greece in the 13 weeks ended June 2017.
According to Nielsen, for the month of June 2017 in Chile, Monster's retail market share in value increased from 21% to 29.8% compared to the same period last year, and Monster's market share in value in Brazil for the month of June 2017 increased from 2.5% to 11.5% as compared to the same period last year.
According to Nielsen, in South Korea, Monster's retail market share in value increased from 18.6% to 28.9% in May 2017 compared to the same period last year. According to INTAGE, Monster's market share in value in the convenience store channel in Japan grew from 39.2% to 43.8% in June 2017.
According to IRI, in Australia, Monster's market share in value grew from 3.4% to 7.8% in June 2017 as compared to the same period last year. And according to IRI in New Zealand, Monster's market share in value for the last four weeks ended June 11, 2017, grew from 4.2% to 6.7% as compared to the same period last year.
Net sales for the Monster Energy Drinks segment for the second quarter of 2017 increased 9.7% from $743.5 million to $815.3 million from the comparable period last year. Net sales for the Monster Energy Drinks segment in the second quarter were negatively impacted by approximately $8.3 million of foreign currency movements.
Net sales for the Strategic Brands segment were $85.6 million for the second quarter as compared to $77.4 million in the same quarter last year. Net sales for the company's Strategic Brands segment were positively impacted by approximately $0.1 million of foreign currency movements in the quarter.
Net sales for the Other segment, which includes third-party sales made by AFF, was $6.2 million in the 2017 second quarter as compared to $6.6 million in the same quarter last year. We continued to experience production capacity shortages for our retooled products, Java Monster and Muscle Monster.
To reduce the shortfall, we are manufacturing certain flavors of Java Monster in Europe which are now available to our customers in the U.S.
We've also procured additional production in the U.S., which will be coming on stream in the third quarter of 2017 and will result in additional Java Monster and Muscle Monster volumes being available for distribution to retailers thereafter.
As a result, we anticipate that it will still be a few months before production availability allows us to restore normal supply patterns and fully meet consumer demand that exists for these products.
We estimate that net sales were negatively impacted as a result of such production capacity shortages by approximately $13 million in the second quarter and year-to-date by approximately $25 million. Net sales to customers outside the U.S. were $247.9 million in the 2017 second quarter compared to $200.2 million in the corresponding quarter in 2016.
In local currencies, net sales to customers outside the U.S. were approximately $8.2 million higher. Included in reported geographic sales are our sales to the company's military customers, which are delivered in the U.S. and transshipped to the military and their customers overseas.
In Europe, the Middle East and Africa, net sales in the second quarter increased 18.6% in dollars, and 24.8% in local currencies over the same period last year. Gross profit in this region as a percentage of net sales decreased from 50.8% in the same period last year, to 49% during the quarter.
We are pleased with the rollout of certain SKUs in the Ultra range in EMEA markets. In 2017, we have added certain SKUs of Ultra across EMEA, with the introduction of Ultra Citron, which will be available in 10 additional EMEA markets in 2017. Various SKUs in the Ultra range are now sold in 33 EMEA markets.
We are also pleased that Monster continued to perform well and gained market share in Great Britain, Germany, France, Spain, Norway, Denmark, Poland, Ireland, Italy, Czech Republic and South Africa. In Asia-Pacific, net sales in the second quarter increased 64.6% in dollars, and 66.6% in local currencies over the same period last year.
Gross profit in this region as a percentage of net sales increased from 46.1% in the same period last year to 50.7% during the 2017 second quarter. In Japan, net sales in the quarter increased 53% or 55% in local currency, as compared to the same quarter last year. We continued to experience strong performance in Japan.
In South Korea, net sales increased 84.7% or 78.7% in local currency, as compared to the same quarter last year. In Oceania, which includes Australia, New Zealand, Tahiti, French Polynesia, New Caledonia and Guam, net sales decreased 3.1%, or minus 4.3% in local currencies as compared to the same quarter last year.
As previously mentioned, we are moving ahead with plans for local production in India with a view to re-entering the market in 2017. In Latin America, including Mexico and the Caribbean, gross sales in the second quarter increased 28.6% in dollars and 28.8% in local currencies.
Net sales in the second quarter increased 25% in dollars and 24.8% in local currencies over the same period last year. Gross profit in this region as a percentage of net sales decreased from 50% in the same period last year to 46.7% during the 2017 second quarter.
Net sales increased in Brazil 849.6% in dollars, or 728.8% in local currency, largely due to the transition of Monster to Coca-Cola bottlers, which took place on November 1, 2016. Net sales in Chile increased 35.4% in dollars and 33.4% in local currency.
Turning to the balance sheet, cash and cash equivalents amounted to $777.7 million, compared to $377.6 million at December 31, 2016. Short-term investments were $323.9 million, compared to $220.6 million at December 31, 2016. Long-term investments increased to $48.6 million from $2.4 million at December 31, 2016.
Accounts receivable increased to $537.1 million at June 30, 2017, from $448.1 million at December 31, 2016. Days outstanding for accounts receivables were 47 days compared to 48.2 days at December 31, 2016. Inventories increased to $190.6 million from $162 million at December 31, 2016.
Average days of inventory was 53 days at June 30, 2017, compared to 57 days at December 31, 2016. We launched a line extension of our Mutant brand family, namely White Lightning, a zero-sugar offering to limited customers in the second quarter, with the general market launch in July. We remain confident about the potential of this brand.
We launched our Monster Hydro energy drinks during the quarter in three flavors. Monster Hydro is a non-carbonated, lightly-sweetened energy drink that is packaged in a unique 16.9 ounce PET can, the size of which is exclusive to us in the U.S. at this time.
We launched Monster Energy Ultra Violet nationally during the quarter after limited sales with a club store customer the previous quarter. We launched Mango Loco, a new flavor in the Monster Energy juice family exclusively with a convenience store customer in June and we'll launch to the general market nationally in September 2017.
We also launched Monster Hydro in a 550 mL PET bottle in the United Kingdom and Ireland during the second quarter of 2017. At the end of April 2017, we launched a new Lewis Hamilton Monster Energy drink in Great Britain, which was followed by launches in 21 European markets in the second quarter of 2017 and in South Africa in July.
We have a robust innovation pipeline including a new espresso Monster Energy drink in eight-ounce slim cans in two flavors and Nitrous Mango planned for launch before the year-end in the United States. We estimate 2017 July gross sales to be approximately 13.8% higher than in July 2016.
On a foreign exchange adjusted basis, we estimate July 2017 gross sales to be approximately 14.7% higher than in July 2016.
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 the timing of price increases and promotions in retail stores, distributor incentives, as well as shifts in the timing of production in some instances where our bottlers are responsible for production and unilaterally determine their production schedules, which affect the dates on which we invoice such bottlers.
We also 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.
On February 28, the company's board of directors authorized a new share repurchase program for the repurchase of up to $500 million of the company's outstanding common stock. No shares were repurchased under this repurchase program during the first and second quarters. In conclusion, I'd like to summarize some recent positive points.
One, we recognized the reduction in raw material costs of $28.6 million in the second quarter as a result of our acquisition of AFF. Two, North American and international gross margins remain healthy. Three, while the U.S., Nielsen and market statistics show that the energy category slowed in the U.S.
towards the end of the 2016 fourth quarter, it appears to have picked up steam this year, as well as in July. Equivalent market statistics from many countries around the world show that the energy category is continuing to grow and that Monster is generally growing ahead of the category. Currency exchange rates continued to affect our results.
The new additions to the Monster family continue to gain momentum and add to the company's sales. Five, we are excited about the prospects for our company's new product launches. Six, we are pleased with our performance in our international markets and reiterate the growth potential for us in China, one of the largest energy drink markets globally.
Seven, according to Nielsen, in the last 12 months ended July 1, 2017, Monster is in the top ten beverage brands in Great Britain on a value basis.
Eight, we have successfully launched or transitioned Monster Energy Drinks to Coca-Cola bottlers in a number of markets in the first half of 2017 and anticipate further transitions and launches in the second half of the year. I'd like to open the floor to questions about the quarter and the year. Thank you..
Thank you. Our first question is from Bill Chappell of SunTrust. Your line is open..
Thanks. Good afternoon..
Afternoon. Hi, Bill..
Hey Bill..
Can you just talk a little bit about – we've been hearing as the transition of Coke in the U.S. goes from Coke corporate to the bottlers, there have been some benefit in terms of sales.
Are you seeing that? Are you seeing any kind of change in where they go to market with your products? And is that a net benefit? I remember I guess a year ago there was – as you had the transition from ABI to Coke, it was a actually a slowdown, but I didn't know if you were seeing some net benefit as you move to market this year..
We think that it is – there's not a general rule across the board. In certain markets, the transition has been less noticeable. In some markets, it has taken some of the newer bottlers, has taken them some time to get up to speed and we are seeing some sort of disruption in delivery schedules and et cetera.
But overall, we are seeing improvements and benefits. So we are positive about the transition. It's a question of just, there is some sort of noise during the transitional periods as they've had to get up to speed. I think Hilton's got some....
I think the only thing I wanted to make was that anecdotally, as we looked at the independent bottlers over the years, their performance relative to the company bottlers has actually been better. So I think we're looking for better performance from these bottlers as refranchising takes place..
Yeah. I agree..
Thank you. Our next question is from Vivien Azer of Cowen & Company. Your line is open..
Hi. Thank you. Good afternoon..
Hi..
And thank you for the question. So my one question just has to do with the supply constraints on coffee that you're going to remedy by exporting out of Europe. Can you please give us a sense of the potential implications to your gross margin as you work through those supply issues? Thank you..
We had a price increase in Java Monster effective January 1. And what we have seen is that the increase in finding the price increase has actually been kind of equivalent to the increased costs that we're sustaining by bringing product from Europe. So it's basically been a wash..
Yeah. And I think that as we continue to secure increased production in the U.S., which is what we're now doing, those costs will come down.
So really, it's been a temporary increase just to the extent that we have been importing, obviously, to supplement our products, yeah, we're still at all times have been getting the vast majority of our production in the U.S.
And so, we obviously do have a shipping charge, but as Hilton has indicated, that's been negated by the increase, and going forward, we think that will become less relevant and we will increase those margins again..
Our next question is from Mark Astrachan of Stifel. Your line is open..
Hi.
Mark, what happened to you?.
Pardon me, Mark. Your phone is on mute..
Perhaps we can come back to Mark..
We'll move to the next person. Our next person is from Amit Sharma of BMO Capital. Your line is open..
Hi. Good afternoon, everyone..
Hi..
At least you're there, Amit..
Rodney, a quick question on the trends in the CMD (32:19) channel, definite acceleration versus where we were last quarter. Can you talk about that; what's happening? In the past you've talked about innovation, maybe a reason for the category slowdown.
Are we getting past that hump at this point?.
We still haven't got a really accurate handle on the reason for the slowdown in convenience. We've all been puzzled in the beverage industry, generally. There are a number of speculative reasons that have come out over the period of time. We were talking to the Coke bottlers, and everybody's got theories.
But it has been a slowdown which has been sort of unusual for us in these times. It is starting to pick up. We are seeing some positive signs, both in the CMD (33:13) category and sector and generally..
I think one of the other things is that our convenience store customers have also been concerned about foot traffic. And while no one could put their hands on it, there's lots of speculation, as Rodney said.
One of the points that was raised by the bottlers at the recent meeting that we attended was that the SNAP program and the reduction in benefits under the SNAP program could have an impact on lower convenience store traffic. So I just put that out as an additional possibility..
Yeah, I agree. And then the other one that has been, again, more anecdotal is the Trump effect just on Hispanic foot traffic into the convenience stores seems to have also dropped off a little bit..
Thank you. Our next question is from Judy Hong of Goldman Sachs. Your line is open..
Thank you. Hi, everyone..
Hi, Judy..
Rodney, I had one clarification on Java and then a Hydro question. So on Java, when you said getting to the normal supply is going to take a few months.
Are you commenting that maybe in third quarter we still see a drag of something like a $10 million to $15 million that we saw in the first and the second quarter, or basically that drag dissipates as you're kind of lapping the decline that you started to see last year? And then on Hydro, can you just update us on maybe what you're seeing from a distribution ramp perspective? Because if you look at the ACV, I think it's still below 40%, even though it's come up pretty nicely, and that's still below the number that you're seeing for the Green and the Ultra.
Do you think that you can get to that level pretty quickly from a Hydro perspective?.
Just going back to the coffee question. We think that there still will be a drag from July, but we're seeing every month, we are seeing improved deliveries, and we think that we will be fully up to speed towards the end of the quarter.
So we think that there will be – still be some drag, some reduction, shortages going forward, but we think it will be reduced, but to the extent we're not sure. And obviously, we're right in the phase now of getting production, and that means getting back our shelf space and that will take a bit of time.
With regard to Hydro, your point is noted, and that is correct that the ACV at the moment is at about 40%. So we've obviously still got some work to do to get Hydro out and get it – again, it was sort of launched a little bit off cycle. And so we are getting it into the chains and into the stores, but it is taking some time.
But again, there are all sort of supplier constrictions on the number of packages we're able to put out. This obviously is of concern to us, but unfortunately, we do believe in the package. We feel that the package is important for the product to create the right image and the right personality around the brand and the product.
So we are continuing to address the supply issues, and literally, we're selling all we can supply. So we will continue to, I think, improve the supply situation and as that goes, so we will continue to supply – to increase and improve our distribution.
But that's really a positive side of the brand, that it is pulling and it has received good consumer response. We are looking at addressing the brand with an additional package, which won't have the same supply constraints, a slightly larger-sized bottle.
And we believe we'll be able to launch that and get that on the shelves at the same time as the can. And that will supplement we believe the can and consumer demand. The consumer will have a choice, but we do not want to replace the can with a similar-sized bottle.
This will be a larger bottle where at the moment we haven't finalized the exact size, but it's probably likely to be about a 750 mL size, resealable. So we're looking to have both products. We're also looking to have different flavors in the bottle.
So there will be a choice of additional flavors and hopefully we'll be able to get to that and solidify our shelf space and therefore satisfy consumers and retailers so that there will always be a supply of Hydro on the shelves, even though there may at times be some shortages in the can size, until we get those supply issues rectified..
Thank you. Now we have a question from Mark Astrachan of Stifel. Your line is open..
Hey, guys. Let's try that again.
Can you hear me?.
Yes, this time we can..
Perfect. Hilton muted my line. That was the problem..
Yeah. We thought we got off lightly this quarter..
So I was curious if you could comment on the number of SKUs you're selling in international markets, just sort of broadly. I mean I know there are more in EMEA versus some other markets. But you see, call it 10, 15 SKUs in a typical shelf placement in the U.S.
Where are you in other international markets? And sort of how do you think about that as an opportunity longer term? And how do you ultimately get incremental shelf space?.
Well, if you look at mass markets, it really is very varied. It depends on the maturity of the market. As you say, you've got most of the European markets with a lot more SKUs, but even within the European markets there is a tremendous disparity between what you've got on shelves in the UK and Germany and Spain versus other markets.
And it varies pretty dramatically. You also have a lot of the, what I call the sub lines, the strategic lines that we've got, the families that haven't yet even been launched. We've launched Ultra, but you really have no coffee and you have very little Rehab in Europe. And we've just sort of going up with Punch and repositioning the juice line.
But again, we've launched Hydro pretty much in the United Kingdom and Ireland, but we are looking to launch Hydro quite quickly not everywhere but in a number of selected markets in Europe, including South Africa. We think there is a good potential for the brand. So out of that you go to South America and Asia, the SKUs are much, much more limited.
And so we've got just a lot of potential. Even if you go down to places like Chile where we're doing a lot of business there, there still is a pretty much a handful or so of SKUs. So there is a lot of potential.
But if you looked at it sort of on average, I would say you're looking at probably 30% to 40% of the SKUs on average in overseas markets versus the U.S., just as a very, very broad thumb suck (40:55) across a number of – but that's not on a weighted or on any sort of statistical analysis. That's just pretty much anecdotally our gut feel..
Thank you. Our next question is from Kevin Grundy of Jefferies. Your line is open..
Thank you. Good afternoon, guys..
Hi..
First question is on the U.S. market. So strong July growth sales update, 14.7%, FX neutral. Doesn't look like there's any adjustment needed for trading days, so that's great. Hilton, do you have the breakdown between U.S.
and international? I guess as we're looking at the Nielsen data, the most recent data that we got for the last couple of weeks in July was up 8%, and you had spoken to some of the acceleration you're seeing. Is that sort of representative of the acceleration you're seeing? That's question number one. And then, Rodney, for you, question number two.
With respect to Java and Muscle Monster, as that supply comes back on, how are you ensuring that's all incremental? You called out the $13 million and $25 million year-to-date drag for the quarter and year-to-date, respectively, if I'm not mistaken, so that's a couple points to U.S. sales growth.
So any comments there with respect to how incremental that could potentially be for the U.S. would be helpful. Thank you for both of those..
Okay. So as we look at our increase in July, and we always give a lot of caveats because it's very early in the month, that 14.7% that we spoke about that was internationally, that wasn't in the U.S. So I'm not sure, your reference to that being in the U.S., that's a group consolidated number.
Also, we don't traditionally break down our increase in gross sales by market area, and I don't think we want to start that because I don't think we've done that in the past. So I'm not going to give that number, but the 14.7% is a consolidated number. As we said, it's 13.8% and 14.7% on a foreign exchange adjusted basis..
All we can really say is that if you look at the Nielsen numbers, as you said, you are seeing that increase. We're seeing it as well. So we seem to be ahead of the Nielsen, generally, continuing to get share both internationally and in the U.S.
So there's nothing that's inconsistent with our previous growth in the quarter that we're seeing in the month of July. It just is doing better generally across the board. With regard to Java and Muscle Monster, where we sat incremental, I mean, we've lost shelf space, but even if you look at Java, I was looking at the numbers on all major channels.
Even for our two main Java products which we've basically been in stock most of the time this year, our distribution is down at about 71%, whereas in our other top brands we're in the high 80%s and low 90%s. So they've clearly lost some distribution even for the two main SKUs.
The others, if we look at salted caramel, which we introduced quite a bit of time ago, that's at 40%. So we've got a lot of opportunity. We've just got to get supplies back and that is one of the reasons that we hesitated a bit earlier.
Because it's one thing getting back supplies in line, it's another thing making sure that we have those supplies on a consistent basis before we go back out and reestablish shelf space and get back shelf space because we obviously don't want another hiccup with retailers.
So we really do have quite a bit of upside potential in just improving our supply channels, having products on shelf, getting back our listings for not only the line extensions, (44:50) and salted caramel and Irish, but even just getting back our distribution levels and consistency with Mean Bean and Loca Moca.
So we look at that as being, positive and it is going to start basically taking place during this quarter. But it's going to be on an increased rolling basis and we think that by the fourth quarter, we will very much be back into where we were and we look at the coffee category growing pretty well.
And that's been slowed down, I think even with the issues we've had and with our competitors. But we think that's going to continue to grow and move back into growth. With regard to Muscle Monster, it's the same issue, which is supply.
We are also looking and evaluating and going to relaunch and reposition the Muscle Monster in an aseptic plastic bottle, which will be a resealable bottle. So Muscle Monster is going move into a plastic bottle, we think hopefully still later this year.
We've done some testing with the bottle and the labeling and hopefully that's going to be a position to start in the next few months.
And so that transition we think will be a positive transition for Muscle Monster to also get it back and give it a kickstart again because we are positive about that sector, which we think we are under-represented in at the moment. So that's another source of, we think, some potential upside..
Yeah, just to be clear, we utilized the production capacity that was available to us with Java Monster for our top-selling SKUs. So we decided we were not going to bring those SKUs from Europe because we didn't want to disturb the flavor profile. We wanted to maintain the flavor profile.
So those two products, the main two products in the Java Monster line, we kept with production here..
Thank you. Ladies and gentlemen, this ends the Q&A portion of today's conference. I'd like to turn the call over to Rodney Sacks for any closing remarks..
Thank you. 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 and remain committed to continuing to develop and differentiate our brands and to expand the company both at home and abroad.
And in particular to expand distribution of our products through the Coca-Cola bottling system internationally.
We're also particularly excited by the new opportunities that we have going forward with the portfolio of energy drink products throughout the world comprised of our Monster Energy Brand, together with the strategic brands, as well as Mutant. Thank you very much for your attendance..
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day..