Good afternoon, and welcome to the Monster Beverage Company's Fourth Quarter and Full Year 2021 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Rodney Sacks and Hilton Schlosberg, Co-CEOs. Please go ahead..

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

Now 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 as well as the future impact of the COVID-19 pandemic on the company's business and operations.

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, 2021, including the sections contained therein 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. I would now like to hand the call over to Rodney Sacks..

Thanks, Tom. The company achieved record fourth quarter and full year net sales with annual net sales topping the $5.5 billion mark for the first time in the company's history. Despite certain challenges in the 2021 fourth quarter, the company achieved solid results overall.

We note that the comparative 2020 fourth quarter included a nonrecurring tax benefit of $165.1 million as well as reduced marketing, sponsorships and certain other operating expenses, largely as a consequence of the COVID-19 pandemic.

These items should be taken into consideration when evaluating comparative performance over the 2020 fourth year and full year, -- fourth quarter and full year.

During the 2021 fourth quarter, the company continued to procure additional quantities of aluminum cans from suppliers in the United States and abroad in response to increased consumer demand.

In addition, the company continued to experience additional global supply chain challenges, including freight inefficiencies, shortages of shipping containers, port of entry congestion and delays in the receipt of certain ingredients.

In the United States, the company lacked sufficient co-packing capacity to meet increased demand for certain of its products. As a result, the company was not able to fully satisfy increased demand for its products in a number of markets in the 2021 fourth quarter.

During the 2021 fourth quarter, the company experienced increased aluminum can costs attributable to higher aluminum commodity pricing as well as the cost of importing aluminum cans.

In addition, the company experienced increased ingredient and other input costs, including shipping and freight, labor, trucking, fuel, co-packing fees, secondary packaging materials, increased outbound freight costs and production and efficiencies, which resulted in increased costs of sales and increased operating costs in the 2021 fourth quarter.

The company continues to address the challenges in its supply chain as it navigates through the uncertainty of the current global supply chain environment. In the fourth quarter of 2021, net sales were $1.43 billion compared with $1.20 billion in the fourth quarter of 2020, an increase of 19.1%.

Adjusting for foreign currency movements, net sales for the 2021 fourth quarter would have been up 19.3%.

The comparative net sales for the 2020 fourth quarter were negatively impacted by $15.2 million related to prior returns from our customers as a result of a European formulation issue with a limited number of products in Europe and labeling issue concerning 1 product in Japan, which we will refer to as the 2020 product returns.

Gross profit as a percentage of net sales for the 2021 fourth quarter was 53.9% compared with 57.7% in the 2020 fourth quarter.

The decrease in gross profit as a percentage of net sales for the 2021 fourth quarter was primarily the result of increased freighting costs, increased aluminum can costs attributable to higher aluminum commodity pricing, geographical and product sales mix and production inefficiencies.

Operating expenses for the 2021 fourth quarter were $334.7 million compared with $288.4 million in the 2020 fourth quarter. As a percentage of net sales, operating expenses for the 2021 fourth quarter were 24.9% compared with 24.1% in the 2020 fourth quarter and 28.9% in the 2019 fourth quarter pre-COVID.

The increase in operating expenses was primarily due to increased outbound freight and warehouse costs, increased expenditures for sponsorships and endorsements and increased expenditures for other marketing activities including social media and digital marketing and increased payroll costs.

During the comparative 2020 fourth quarter, the company decreased expenditures for sponsorship and endorsements and decreased expenditures for travel and entertainment, each largely as a consequence of the COVID-19 pandemic. The impact of the COVID-19 pandemic was less pronounced on our sales and marketing programs during the 2021 fourth quarter.

Distribution costs for the 2021 fourth quarter increased to $69.8 million, which is an increase of 48.4% or 4.9% of net sales compared to $47 million or 3.9% of net sales in the 2020 fourth quarter and 3.5% of net sales in the 2019 fourth quarter. Operating income increased 2.6% to $412.9 million from $402.3 million in the fourth quarter of 2020.

We believe that a portion of the increase in costs that we experienced in the quarter and the 2021 full year are likely to be transitory.

With our 2 new suppliers of aluminum cans in the United States operational, we will begin to decrease our reliance on the use of imported aluminum cans in the United States, although we will continue to import aluminum cans into the United States, although at a reduced level in the first half of 2022.

In 2022, we expect to continue to import aluminum cans into EMEA reducing such imports in the second half of 2022. The supply chain challenges we are experiencing are significantly increasing and the logistic costs of importing and shipping raw materials and ingredients as well as other freighting costs, which are included in cost of sales.

The cost of repositioning finished products to distribution centers are included in freight-in costs. We are rebuilding and increasing inventories in an effort to reduce the excessive cost of trucking long distances to satisfy demand and to return to our Orbitz strategy of producing in proximity to our customers.

Increased freight in costs, including the shipment cost of importing cans amounted to approximately $38 million in the 2021 fourth quarter and approximately $100 million for the 2021 full year.

Our out-of-orbit freight costs, which are included in distribution expenses amounted to approximately $15 million in the 2021 fourth quarter and $54 million for the 2021 full year. Net income decreased 31.9% to $321.3 million as compared to $471.7 million in the 2020 comparable quarter.

Net income for the 2020 fourth quarter was positively impacted by the recognition of a nonrecurring tax benefit of approximately $165.1 million.

Net income for the comparative 2020 fourth quarter, excluding the nonrecurring tax benefits, the impact of the 2020 product returns, associated inventory provisions and other related costs was $328.6 million. Diluted earnings per share for the 2021 fourth quarter decreased 32.1% to $0.60 from $0.88 in the fourth quarter of 2020.

Diluted earnings per share for the comparative 2020 fourth quarter excluding the nonrecurring tax benefit, the impact of the 2020 product returns, associated inventory provisions and other related costs was $0.62.

According to the Nielsen reports, for the 13 weeks through February 12, 2022, for all outlets combined, namely convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category, including energy shots, increased by 13.3% versus the same period a year ago.

Sales of the company's energy brands, including Reign, were up 8.1% in the 13-week period. Sales of Monster were up 10.5%. Sales of Reign were down 1.7%. Sales of NOS decreased 12.5% and sales of Full Throttle increased 12.4%. The decrease in sales of NOS retail during the fourth quarter was as a result of shortages in the supply of concentrate for NOS.

The NOS supply issues are improving. Sales of Red Bull increased 13.8%. Sales of Rockstar decreased by 1.3% and sales of 5-Hour increased 2.1%. Sales of VPX Bang increased 0.4%.

According to Nielsen, for the 4 weeks ended February 1, 2022, and sales in dollars in the energy drink category in the convenience and gas channel, including energy shots in dollars, increased 7.4% over the same period the previous year.

Sales of the company's energy brands, which include Reign increased 4% in the 4-week period in the convenience and gas channel. Sales of Monster increased by 5.7% over the same period versus the previous year. Reign sales decreased 0.9% and NOS sales was down 10.8% and Full Throttle was up 6.3%.

Sales of Red Bull were up 8.3%, Rockstar was down 4.5% and 5-Hour was down 1.3%. VPX Bang's sales decreased 4%. According to Nielsen, in the 4 weeks ended February 12, 2022, the company's market share of the energy drink category in the convenience and gas channel, including energy shots in dollars, decreased 1.2 points to 37.2%.

Monster share decreased 0.5 a share point to 31.6%. Reign's share decreased 0.2 of a share point to 2.4%. NOS' share decreased a 0.5 of a point 2.5% and Full Throttle share remained at 0.8%. Red Bull's share increased 0.3 points to 36.2%. Rockstar's share was down 0.5 a point to 4%. 5-Hour share was lower by 0.4 of 4.5%.

And VPX Bang share decreased 0.8 of a points to 7%. According to Nielsen, for the 4 weeks ended February 12, 2022, sales in dollars in the coffee plus energy drink category, which includes our Java Monster line in the convenience and gas channel increased 2.3% over the same period the previous year.

Sales of Java Monster including Java Monster 300 were 4.2% higher in the same period versus the previous year. Sales of Starbucks Energy were 0.7 of a percent higher.

Java Monster's share including Java Monster 300 of the coffee -- plus energy category, which primarily includes Java Monster, Java Monster 300, Starbucks Doubleshot and Tripleshot, Rockstar Roasted and Bang Keto Coffee, for the 4 weeks ended February 12, 2021, was 53.7%, up 1 point, while Starbucks Energy share was 44.1%, down 0.7 of a point.

According to Nielsen, in all measured channels in Canada, for the 12 weeks ended January 29, 2022, the energy drink category increased 12.3% in dollars. Sales of the company's energy drink brands increased 10.8% versus a year ago. The market share of the company's energy drink brands was 40.8%, down 0.6 of a point.

Monster sales increased 13.9% and its market share increased to 0.5 points to 36.3%. NOS sales decreased 7.2% and its market share decreased 0.3 point to 1.6%. Full truffle sales decreased 25.4% and its market share decreased 0.3 of 0.25%.

According to Nielsen, for all outlets combined in Mexico, the energy drink category increased 25.9% for the month of January 2022. Monster sales increased 24.5%. Monster's market share in value decreased 0.3 points to 27.8% against the comparable period the previous year.

Sales of Predator increased 38.3% and its market share increased 0.3 of a share point to 3.1%. 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 1 or more energy drink brands during a particular month. Consequently, such activities could have a significant impact on the monthly Nielsen statistics for Mexico.

According to Nielsen for the month of January 2022 compared to January 2021, Monster's retail market share in value increased in Argentina from 41.3% to 43.8%. Monster Energy continues to be the leading energy brand in value in Argentina.

According to Nielsen, for the month of January 2022 compared to January 2021, Monster's retail market share in value increased in Brazil from 32.2% to 37.8%. In Chile, Monster's retail share for the month of January 2022 decreased from 47.2% to 33.1% due to a shortage of shipping containers.

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.

In addition, the company experienced supply issues in EMEA during 2021, which impacted the Nielsen statistics in different countries.

According to Nielsen, in the 13-week period ending January 29, 2022, Monster's retail market share in value as compared to the same period the previous year grew from 27.3% to 29.5% in Great Britain, from 7.9% to 8.1% in the Netherlands and from 36.8% to 38.4% in Spain.

Monster's retail market share in value as compared to the same period the previous year declined from 15.3% to 14.2% in Belgium and from 31.1% to 30.3% in France, and from 20.1% to 19.3% in Poland.

According to Nielsen, in the 13-week period ending January 2, 2022, Monster's retail market share in value as compared to the same period the previous year grew from 26.4% to 26.5% in Denmark from 15.1% to 15.8% in Germany and from 14.5% to 14.6% in Sweden.

Whilst the retail market share in value as compared to the same period the previous year declined from 27.9% to 27% in Italy from 29.3% to 25.3% in Norway, and from 28.3% to 27.6% in the Republic of Ireland.

According to Nielsen for the 13-week period ending December 31, 2021, Monster's retail market share in value as compared to the same period the previous year grew from 15.2% to 15.6% in the Czech Republic, from 37.4% to 38% in Greece and from 20.4% to 20.5% in South Africa.

According to Nielsen, in the 13-week period until the end of December 2021, Predators retail market share in value as compared to the same period the previous year grew from 12.9% to 20.8% in Kenya and from 1.9% to 14.4% in Nigeria.

According to IRI in Australia, Monster's market share in value for the month ending February 6, 2022, increased from 12.2% to 12.8% as compared to the same period the previous year. Mother's market share in value decreased from 11.8% to 11% during the same period.

The market share of the company's brands in Australia for the month ended February 6, 2022, decreased from 24% to 23.8%. According to IRI in New Zealand, Monster's market share in value for the 4 weeks ended February 6, 2022, increased from 11.6% to 13.3% as compared to the same period the previous year.

Live+ market share in value remained the same at 7.1% and Mother's market share in value decreased from 6.3% to 6%. The market share of the company's brands in New Zealand for the 4 weeks ended February 6, 2022, increased from 25% to 26.4%.

According to INTAGE in Japan, for the month ended January 2022, Monster's market share in value in the convenience store channel as compared to the same period the previous year grew from 50.8% to 56.3%.

According to Nielsen, in South Korea for the month of December ended December 2021, Monster's market share in value in all outlets combined as compared to the same period the previous year, grew from 56.5% to 60.2%. Monster continues to be the leading energy brand in Japan and South Korea.

We again point out that certain market statistics that cover single months or 4-week periods may often be materially influenced positively and/or negatively by promotions or other trading factors during those periods. Net sales to customers outside the U.S.

were $508.1 million, which is 35.7% of total net sales in the 2021 fourth quarter compared to $384.8 million or 32.2% of total net sales in the corresponding quarter in 2020. Foreign currency exchange rates had a negative impact on net sales in U.S. dollars by approximately $2.4 million in the 2021 fourth quarter.

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 EMEA, net sales in the 2021 fourth quarter increased 47.5% in dollars and increased 46.1% in local currencies over the same period in 2020.

Net sales adjusted for the 2020 product returns in this region increased 41.2% in dollars and increased 39.9% in local currencies. Gross profit in this region as a percentage of net sales for the fourth quarter was 32.6% compared to 30.2% in the same quarter in 2020.

Gross profit in the fourth quarter was impacted by can freight and raw material airfreight costs. In local currencies, gross profit as a percentage of net sales for the quarter was 32.2%.

Gross profit as a percentage of net sales, excluding the impact of the 2020 product returns in this region associated inventory provisions and other related costs was 40.1% for the 2020 fourth quarter.

In 2021 fourth quarter, can supply shortages, lack of ingredient availability, it's sufficient canning capacity and a shortage of trucking availability together had an adverse impact on sales in EMEA. In some cases, impacting the availability of our products on shelf at retailers.

However, the shortages of trucking availability will largely resolve in the latter part of the quarter. The company is continuing to address the controllable challenges in its supply chain in EMEA by continuing to import cans and expanding its co-packing capacity.

We are also pleased that in the 2021 fourth quarter, Monster gained market share in the Czech Republic, Denmark, Germany, Great Britain, Greece, the Netherlands, South Africa, Spain and Sweden. In Asia Pacific, net sales in the 2021 fourth quarter increased 19.2% in dollars and increased 22.8% in local currencies over the same period in 2020.

In Asia Pacific, excluding the impact of the 2020 product returns and the labeling issue in this region in the 2020 fourth quarter, net sales in the 2021 fourth quarter increased 10.7% in dollars and 14.1% in local currency over the same period in 2020.

Gross profit in this region as a percentage of net sales was 41.4% versus 34.8% over the same period in 2020. Excluding the impact of the 2020 product returns in this region, associated inventory provisions and related costs, gross profit as a percentage of net sales would have been 40.3% in 2020.

In Japan, net sales in the 2021 fourth quarter increased 12.7% in dollars and 20% in local currency. Without the impact of the 2020, product returns in Japan net sales decreased 1.2% in dollars and increased 5.2% in local currency over the same period in 2020, largely due to COVID-19 restrictions in Japan.

In South Korea, net sales increased 31.3% in dollars and 35.5% in local currency as compared to the same quarter in 2020. Monster remains the market leader in Japan and South Korea. In China, net sales increased 22.6% in dollars and 17.6% in local currency as compared to the same quarter in 2020.

We are reevaluating the optimal product range for China going forward. We remain optimistic about the prospects for the Monster brand in China.

In Oceania, which includes Australia, New Zealand, Tahiti, French Polynesia, New Caledonia, Papua New Guinea and Guam, net sales increased 7.5% in dollars and 4.8% in local currencies due to timing of sales into bottlers.

In Latin America, which includes Mexico and the Caribbean, net sales in the 2021 fourth quarter increased 17% in dollars and increased 21% -- 21.6% in local currencies over the same period in 2020. Gross profit in this region as a percentage of net sales was 38.6% for both the 2021 and 2020 fourth quarters.

In Brazil, net sales in the 2021 fourth quarter increased by 36.9% in dollars and 39.6% in local currency. Net sales in Chile increased 6% in dollars and 9% in local currency in the 2021 fourth quarter. Net sales in Argentina increased 30.7% in dollars and 66.7% in local currency in the 2021 fourth quarter.

There are a number of pending proceedings with VPX but as they are subjudicate, we will not be answering any questions on this matter on today's call. In the United States, we launched our new True North Pure Energy Seltzer line in e-commerce and selected natural channels in the third quarter.

In early 2022, we launched this said line nationally into mainstream channels with our Coca-Cola bottlers. In October 2021, we commenced the launch of our new reserve line of Monster Energy drinks in 2 flavors, Watermelon and White Pineapple.

We have launched multiple innovation SKUs, 2 new 12-ounce flavors as well as new package configurations in the 2022 first quarter. This month, we launched 4 new flavor extensions in 16-ounce cans to the retail trade, namely Ultra Peachy Keen, Juice Monster Aussie Star Lemonade, Rehab Watermelon and Reign Rainbow Sherbet.

In January 2022, we launched additional multipack options, such as 4-pack, Ultra Watermelon, a 4-pack Reign White Gummy Bear, 2 Ultra Variety packages in a 12-pack format.

Additionally, we have launched 12-ounce 6 packs of Monster Energy, Zero Ultra, our new Peachy Keen Ultra, Java Monster Mean Bean and Java Monster Loca Mocha, Ultra Peachy Keen also launching in a 12-ounce option along with our Ultra Watermelon.

In addition, Java Monster Nitro Cold Brew is scheduled to launch in the 2022 second quarter with 2 lower-calorie SKUs, Sweet Black and Latte. In the 2022 first quarter in Canada, we are planning to launch 9 new innovations, including the transition into a 355 ml 8-pack for Monster Energy, Zero Ultra and Ultra Paradise.

In January 2022, we launched Ultra Gold in a 473 ml single can and 4-pack. We also launched Ultra Watermelon in a 4-pack and Ultra Paradise in a 710 ml can. We are in the process of launching a 4-pack Reign of Raspberry as well as introducing Reign White Gummy Bear in a 473 ml can.

In the 2021 fourth quarter, we launched Monster Energy Mango Loco in Uruguay and Ecuador as well as Monster Ultra Watermelon and Predator Gold Strike in Trinidad. In Honduras, we expanded our Fury package offerings with the 355 mL returnable glass bottle.

We are planning a national launch of Monster Pacific Punch, Monster Dragon Tea Peach, Reign, Orange Dreamsicle and Reign Mango Magic in Brazil in the first half of 2022.

Additional 2022 first quarter LatAm innovations include Monster Zero Sugar in Ecuador, Pipeline Punch in Central America and Trinidad Monster Mango Loco in Peru and Colombia and VR46, the doctor in Argentina. In Chile, we are launching Reign Melon Mania, Reign Lemon Heads and Reign Orange Dreamsicle.

In Mexico, we will introduce our second predator flavor with Predator Mean Green. In the 2021 fourth quarter in New Zealand, we launched Monster Ultra Fiesta Mango. In the 2022 first quarter, we launched Monster Ultra Gold and Mother Kiwi Sublime in Australia and are planning to launch Super Fuel Tropical Thunder in New Zealand.

In EMEA, in the fourth quarter of 2021, we launched Monster Green, Monster Nitro and Monster Result in a number of countries. We also launched Ultra Watermelon, Golden Paradise and Juice Monarch Mango Loca and Pacific Punch in a number of countries during the 2021 fourth quarter.

Monster Super Fuel Mean Green Watermelon and Subzero were launched in 2 countries in the fourth quarter of 2021. During the 2021 fourth quarter and 2022 first quarter, we also launched our Strategic Brands innovation and Predator in additional countries. In particular, we launched our Predator Spicy Ginger and Tropical in South Africa.

During the fourth quarter of 2021, we launched Monster Rose in Japan in October, and the Predator brand in Vietnam in November 2021. We are planning to introduce the Predator brand in several additional countries in APAC in the course of 2022.

We are planning to launch a number of additional products or product lines in our domestic and international markets later this year. On February 17, 2022, we completed our acquisition of CANarchy Craft Brewery Collective, a craft beer and hard sales for company for $330 million in cash subject to adjustments.

The transaction brings the Cigar City, Jai Alai IPA and Florida Man IPA, Oskar Blues, Dale's Pale Ale and Wild Basin Hard Seltzer, Deep Ellum, Dallas Blonde and Deep Ellum IPA, Perrin Brewing, Black Ale, Squatters, Hop Rising Double IPA and Juicy IPA and Wasatch, Apricot Hefeweizen brands to our beverage portfolio.

The transaction does not include CANarchy stand-alone restaurants. Our organizational structure for our existing energy beverage business will remain unchanged. CANarchy will function independently, retaining its own organizational structure and team.

We are enthusiastic about the opportunities that this acquisition presents to us in the alcohol space and through their distribution network. We estimate January 2022 sales to be approximately 20.2% higher than in January 2021.

On a foreign currency adjusted basis, January '22 sales would have been approximately 23% higher than the comparable January 2021 sales. January 2022 had 1 more selling day than in January 2021. Although we see some improvement, the company has continued to experience supply chain challenges in January, which adversely impacted sales.

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 affects the dates on which we invoice such bottlers as well as inventory levels maintained by our distribution partners, which they alter unilaterally for their own business reasons.

We reiterate that sales over a short period, such as a single month, should not necessarily be imputed to or regarded as indicative of results for a full quarter or any future period. If the COVID-19 pandemic and related unfavorable economic conditions continue in certain regions, our new product innovation launches in those regions could be delayed.

In conclusion, I'd like to summarize some recent positive points. Currently, the company's flavor manufacturing facilities, its co-packers, warehouses and shipment facilities and bottlers and distributors are all operating.

The company continues to address the challenges in its supply chain as it navigates through the uncertainty of the current global supply chain environment.

We are continuing to experience increased costs in our operations, some of which may be transitory, and we have and are in the process of implementing reductions in promotions and other pricing actions in the United States and EMEA to mitigate against such increased costs.

Our AFF flavor facility in Ireland is operational and is providing flavors to our EMEA region and will improve service levels in EMEA. We are pleased with the new additions to the Monster Energy portfolio. We are planning to continue additional launches of our Reign Total Body Fuel high-performance energy drinks in additional international countries.

We are pleased with the rollout of Predator and Fury, our affordable energy drink portfolio internationally. We are proceeding with plans to launch our affordable energy brands in a number of international countries. Our supply chain challenges are improving. We are enthusiastic about the opportunities that CANarchy presents.

I would like to now open the floor to questions about the quarter and the year. Thank you..

[Operator Instructions] The first question is from Kaumil Gajrawala from Credit Suisse..

Thank you operator. Hey everybody. You talked a lot about improved supply and the things you're doing to increase supply. Your margins obviously were down quite a bit, I think, 540 basis points.

Speaking -- can you speak maybe more to margins as opposed to just availability of product and how we should be thinking about that within the context of some of the changes that are being made for '22?.

Well, Kaumil, I think that we've been through enlisted the supply chain challenges. And I'm not sure it's worthwhile repeating what we said earlier. But what we did mention on the call and gave some numbers was that the -- certain of those costs in the supply chain are expected to be transitory.

And that is, for example, we do satisfy demand, we opened up what we regarded as orbits where we manufactured and distributed within specific geographies. And to satisfy demand, we had to open up those orbits. And the cost of that was pretty exceptional. And we detailed that, I think, on this call.

Also to import cans from abroad is a very expensive exercise, as you can imagine. And that we see kind of mitigating in 2022. We have 2 new suppliers coming on stream and they aren't -- in fact, they are on stream.

So we will be reducing our dependence on imported cans certainly in the U.S., and then we'll buy some cans, not to the same degree as we did in the first half. And the second half will be -- we believe we'll be self-sufficient with cans in the U.S. In EMEA, we'll continue to input cans, but they will kind of tail off in the second half of the year.

So there are some of these costs that are transitory. Some of the costs may stick. There's been costs across the board, and we had a big shock this morning. As no doubt you guys did as well with aluminum, where aluminum plus the Midwest index went up to $1.97 a pound as opposed to what we were paying in last year of just kind of half of that.

So there are a lot of costs that are coming to us. The cost that we can mitigate, the cost that we may not be able to mitigate. Now we'll aluminum stay at this level? I don't think anyone knows. So overall, I think we are navigating well through these supply chain challenges.

And we're doing the very best we can to ensure that our customers receive product because at the end of the day, as I've always said to this audience, we bank dollars, we don't bank margins, and we have enough profitability in the system to be able to do what we've been doing and make a profit.

And unfortunately, the result is that the GP percentage does come down, but we expect that this will not last forever and that margins will be back to some degree as we move forward..

The next question is from Chris Carey of Wells Fargo. Please go ahead..

Hi, good evening everyone. Thank you for the question. I just wanted to follow up on that line. If I look at -- not to be so shortsighted in a way, but where The Street is modeling your gross margins, it's slightly up for 2022.

But if I hear you right, if you have aluminum inflation still coming through, you're still going to be sourcing cans from other places. So you have freight costs. Pricing, as you noted, at the annual Investor Day, will be a positive to the story, but maybe not enough to offset this inflation.

And so I just want to make sure I'm hearing right that the top line, of course, remains a very good story here, but the gross margins should remain under pressure in 2022 and then really building into 2023 as these costs are a bit transitory.

And then if I could, just on the quarter-to-date number, is that mostly international versus the U.S., just given the disconnect to Nielsen sales. So thanks so much for that perspective..

Well, let's go back to the -- your second question. That number -- the U.S. is very close to that number for January. So we can -- we have a lot of unmeasured channels in our system, and Nielsen is not always a good indicator of our sales to our distributors.

So let's go -- if we can, let's take a step back and look at your -- and address your first question. So aluminum jumped up today significantly. It's been moving up I gave you the number as of today, as of yesterday, it was $0.10 a ton less than that.

So with this war and everything else going on in the world, I can't say for certain, and I don't think anyone can tell you what aluminum is going to do and what it's going to be. And obviously, with most of our products being packaged in aluminum cans that is a significant item.

Looking back at some of your other comments, I mentioned that -- we mentioned at least on the script that we have sufficient cans now. So we're able to start working towards closing off and close going back to the orbits, which means that trading costs should significantly reduce. When? I can't say for certain, but it's going to happen.

Other costs in the system are being controlled. And so what -- looking forward, I think that we will continue to have a difficult 2022. Will the margins stay at the level that we talked about on this call? I don't know. Honestly, a lot depends on what happens with aluminum. So the rest of the stuff is coming under control.

I mentioned that we were importing less cans into the U.S. than we did in 2020. That will have a positive impact on margins from the second half of the year will be -- we believe, will be totally self-sufficient with cans in the U.S. So that's a positive factor.

And then in EMEA, we will be importing cans in the first half with a significant reduction in the second half. So there's a lot of good things in the cost story, but unfortunately, it is what it is. On the sales side and price increases, we spoke about that.

On previous calls, as you know, we have a play that we're running, irrespective, really, I think, of what Red Bull is doing, we've come to the conclusion that we're going to run our own play. We know what we want to do, and we're working on reducing promotional ounces.

You've seen prices go up already in the trade, and you've seen them going up in Nielsen. So that is something that is happening as well. What else do I want to say? So we spoke about prices went up in the -- through reductions in promotional launches in the quarter that we look at, although at a very modest degree.

And as we go through 2022, you'll see prices -- price increases in our business accelerating..

The next question is from Andrea Teixeira of JPMorgan. Please go ahead..

Hi, how are you. I just wanted to perhaps elaborate more on what you said, Hilton on the pricing front.

Are you saying that you -- we should be able to see pricing be on what was passed through by top manufacturing at some point in 2022? And then regarding that, are you seeing any impact from the gas stations given the gas price is going up? Or this is not a concern for affordability at this point?.

So you've seen the convenience and gas numbers in Nielsen. They are somewhat lower than the rest of the market of recent. But we've been through higher gas prices before and they haven't really impacted sales. But we are seeing -- if you look at the Nielsen, you'll see that the numbers in convenience and gas in the energy category are reducing.

So whether they'll stay at that level, I don't know. But we have been through this before, and we haven't seen a slowdown in sales and energy in the convenience and gas market. And then looking at pricing --.

Of a pickup may add -- sorry, just been a little bit of a pickup in the last week. If you look at the single last week's numbers, again, that's a very short period, but we are seeing a pickup in convenience with the price increase -- effective price increase, it still is translating. So we'll see how that extends..

Yes, it's a 1-week number, sure. And with regard to pricing, we spoke about what we were doing to increase pricing. We're running our play. 24 ounces going up April 1 in low double-digit numbers. So that will be a nice percentage in 24 ounce.

And the rest, we're working on, as you know, with our revenue growth management department working on taking promotional allowances down to achieve the same result as a price increase. But we're continuing to monitor whether we need to take a general price increase or not.

And if we have to, we will and in particular, with regard to metal, and we don't know where metal is going. But with regard to metal, if it becomes a permanent situation, yes, then we probably have to reconsider and decide what else could be done on the pricing front, but we're not ruling out a general price increase..

The next question is from Kevin Grundy of Jefferies. Please go ahead..

Good afternoon guys. I wanted to come back to your strategy on alcohol.

So now with the CANarchy deal closed, do you think the company has the right product portfolio, distribution and capabilities at this point in time to deliver against your ambitions? You've been talking about this for the better part of two years and now with this deal closed, do you think you have everything that you need to deliver? And I guess, specifically, just to kind of drill down a little bit, do you think that you need more in terms of capabilities with respect to spirits, both consumer capabilities, a broader wholesaler distribution network? And if the answer to that is yes, how do you intend to sort of address that and is larger scale M&A a possibility?.

I think that the CANarchy acquisition is not the complete answer to everything. They are craft brands. They are -- they have a distribution network. They have some sales of brands. We do have a good infrastructure in staff there, and we have -- we're going to use that to build on.

We are going to look at taking the distribution system, refining a little bit. We're looking at addressing their products and taking steps to invigorate their sales and looking at our own products that we've been developing, that we have discussed previously and taking and deciding where to and help to launch those through the CANarchy system.

And we will separately address the possible M&A of additional brands, whether in a -- sort of in the malt side, the beer side or the spirit side. Those are things that are opportunities. But again, we're looking at the whole business now and reviewing it, but it's the platform that is really good for us.

And I think that is what is -- that's the function that's going to serve for us. We are going to obviously have to address issues and other matters in getting that fully implemented. It's not just a perfect system that we've taken over.

But it's a good base for us, and we're going to build on it, and we're very confident and we're very pleased with having closed that acquisition, which will give us the springboard from here on..

The next question is from Vivien Azer of Cowen. Please go ahead..

Hi, good evening. Thank you for the questions.

I was wondering if you could just offer some better detail on your supply chain in Russia, in the Ukraine and if you could quantify your exposure to those two countries, please?.

Yes. Well, those countries, including Belarus, in Kazakhstan, which really work within that region account for about 10% of our sales in our EMEA sales. So we have a nice business in Russia, which -- we have to see what happens there, and we have a reasonable business in Ukraine. We have staff and we have people in those countries.

And it's really concerning is to -- we don't know what will happen, and it's really concerning, frankly..

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

Thank you. On behalf of the company, 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 continue to innovate, 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 believe that we are well positioned in the beverage industry and continue to be optimistic about the future of our company. We hope that you will stay safe and healthy. Thank you very much for your attendance..

The conference has now concluded. Thank you for attending today's presentation..