MNST
#There was a gain on the sale of the Monster non-energy business.
Hello, <UNK>.
The first question is just looking at the US trend.
I guess the gross sales number in July, I know you called out the less shipping date issue, but just broadly, it seems like maybe trends are little bit softer in the measured channel data.
So first, what do you think is driving that.
Secondly, how much is the non-measured, the nontraditional, channel really adding to the growth because it looks like the second quarter US number for your DSD business actually came in pretty healthy.
And then my second question is just on Latin America.
It sounds like you're making progress with the bottlers there in Mexico and Brazil and just trying to get a sense of is this more of a staged transition where you're going into certain regions within that country with a one bottle and then you roll out to other bottlers.
Or how much of this could really have an impact in the more near-term.
Thanks.
We have to got to get you to start asking single questions because our memory is not good enough to have all six of them all answered.
It's really two.
Two to get subdivided into categories.
I'm not quite sure how many there are.
But okay.
Just going back to the, I think everybody has noticed that there's been a slight decline in the monthly or the 4-week or 13-week numbers coming out of Nielsen for the category.
And you saw that in the numbers as we indicated earlier now, and I think, <UNK>, you've published numbers over the past couple of months as well.
As it showed, there has been a decline.
Monster is growing ahead of the category, which I think is the important news.
And we're continuing to take share in all the major channels.
What has been quite interesting is that part of our growth has been coming from the other major channels, and traditionally, or historically, we sort of grew more in the convenience channel.
And we are now starting to grow, we were underrepresented in grocery and drug and some of the other independent channels, and we are starting to pick up higher growth in those channels.
So if you look at our Nielsen numbers for convenience and then you look at the all measured, we're actually growing more in the all measured than the convenience.
But we still believe that the trends are healthy for Monster.
If we look at the gross sales, the key product in the gross sales, Monster Green, is still continuing to be positive.
We're getting good traction in the Ultra line in the US and internationally, as I indicated earlier in the call, in Europe, and generally we're getting growth again in lines that had leveled off a little bit like Rehab and the juice lines, they're both in growth again.
And obviously, what's quite exciting is the Java line.
In fact, in the last four weeks, the Java line generally is up at a higher growth rate than it has been reported and has been sort of in the last quarter.
So that's where we still see the numbers.
Obviously, the non-measured channel are also growing.
Walmart is a big, an important customer for us and those channels are growing.
And that's why, even in relation to July, I did want to mention that we looked at the all measured channel for the four weeks because that continues to grow at 7.5%.
<UNK>, there's two points I'd like to make.
Firstly, the benefit of the Coca-Cola transaction is in fact in the drug and retail channels as well as in the non-measured channels and we are making significant progress with the Coca-Cola organization in the non-measured channels.
Yes.
Then <UNK>, just going to your second question.
Which one of the two questions, the two remaining questions do you want answered first, <UNK>.
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Okay.
Sorry.
Can you hear me now.
I think I was cut off from the queue.
I think I'm still mute.
Oh, am I on.
Because I can't hear.
Anyway, I was trying to just get a better sense of your Latin America transition and whether you're transitioning to one bottler at different stages or is this just more of a broader rollout into Mexico and Brazil from a transition standpoint.
I can't hear anything.
Can you hear.
Pardon me.
I'm still on.
I think we're having technical difficulties.
Wait one second, ladies and gentlemen.
Please stand by.
Hello.
<UNK>.
<UNK>.
Can you hear me.
I don't understand.
All right.
I think people could hear me.
Ladies and gentlemen, please stand by.
Your conference will resume momentarily.
Again, please stand by.
Again, ladies and gentlemen, please stand by.
Speakers have rejoined and you still have <UNK> <UNK> is still on.
Sorry.
We were cut off.
Apologize.
And I apologize for my two questions (multiple speakers).
Sorry.
We just get focused on one and then we just lose track of the other one.
What was the other question we were still, you wanted to ask me.
It was related to Latin America.
You talked about transitioning in Mexico and Brazil and I just wanted to get some color on whether this is one bottler you're transitioned is this the broader country in both ---+.
No, that's fine.
What was happening was you have FEMSA that has a lot of areas in which they have operations and even though they're in different countries, they don't necessarily pull out the whole country.
So ultimately, we spend a lot of time ultimately negotiating and getting to a deal with FEMSA.
Once we had done that, it then facilitated moving quite quickly with other bottlers in each of these different countries.
So as we indicated in the call, we have transitioned the whole of Mexico to all of the bottlers that comprise the Coca-Cola group in Mexico and that has already started as of last week.
In the case of the planned transition in Brazil, it will be to all of the bottlers at the same time.
The whole group of bottlers have signed agreements with us.
We were waiting until all that happened at one time and we will transition the whole country on November 1.
In the case of Chile, there are two bottlers we are going to the whole country.
In case of Brazil ---+ sorry, Columbia, there may be some small areas, but really, it pretty much is FEMSA.
We've already transitioned Peru, and we will be transitioning the other countries.
So it will be pretty much the whole area.
We will also be starting Central America and going to the countries that are tied in the Caribbean.
We will be making that quite extensively.
And that's not the same, for example, which are indicated in China where we are looking at the three main bottlers, but we are looking at that as such a big country, we're looking at selected areas and selected operating units first to go into then to launch in the second area with the second bottler, then in third area, which are large town, for example.
We are looking at focusing in Beijing, in Shanghai and in Guangzho, those area, and then launching, and then going to, rolling it out to through the different operating units as we go forward.
And let's not forget about OXXO and how import OXXO is in Latin America as well.
Yes, and so we have come there.
That's was part of the arrangements we spent time negotiating with those two, in sense, the two principles bottlers.
That is correct and so that is a more extensive rollout over the next coming months in Latin America.
<UNK> <UNK>, Bank of America.
Good evening, everyone.
Just on the Mutant launch, you talked about being in advanced stages.
If you could just talk a little bit about the sort of the planned size of the rollout, just the channels.
Is it just going to be focused on C stores initially or other channels as well.
And then it would be helpful is just if you've launched other new platforms, not necessarily flavor extensions, but new platforms like this, how additive has it been to your sales growth in let's say the first 12 to 18 months.
I think that each country is unique.
Where we've been in countries and we've transitioned, you obviously are going into all channels.
Where you run into smaller countries, particularly where you've got a bottler with good connections, with some of the measured channels of the modern trade, you're going to, the independent stores and the modern trade and grocery at the same time.
Other markets, we just generally try and focus first on the down the street and the independent markets and then go into the markets, so you can't, there's no single formula for all of these markets.
There isn't even a single formula for which markets you're going into.
These are being done on opportunistically, on the basis that when we're able to conclude agreements with the Coke bottlers, when we're able to properly terminate on due notice to our existing bottlers if there are bottlers in those markets and when we will then go into markets.
I mean, you take Argentina, there we haven't gone into the market, but in that market, we are, at the moment, engaged in planning production and looking at changes being made to the line in order to accommodate our product.
And then once that's done, we're working through the value chains with the local Coke bottlers in Argentina.
Then we will, hopefully we will come to an agreements with them and then plan a launch.
So that takes a much longer time and it's a longer planning process than in other countries.
So every country is different.
And while we would expect countries A, B, and C to the be the third quarter, and D, E, and F to be the fourth quarter, you may end up with A, B, and D in the third quarter and C, E, and F in the fourth quarter.
So it changes, literally from month to month.
So I can't give you a set plan of this on how it's coming.
And again, as to the contribution, it changes differently.
Some markets, the bottlers are, get more instant distribution and our sales are at a higher rate.
Some markets, it takes time for the bottlers to get to understand our brand, the velocity.
It has a different velocity to traditional beverages.
It doesn't start off at a high velocity in what would be the normal or ordinary high-volume accounts.
It needs to be bought in the smaller stores where it's served cold and sold cold one can at a time.
And so sometimes, that takes a lot of getting used to by the bottlers.
And it takes time, so there's no magical ramp up the day you start that you have a magical set of things.
It just takes time and evolves and continues to bolt.
So we are at the stage where we really are transitioning a lot of markets now and there are different stages and we have been for some months.
And these are going to continue to bolt over the rest of this year and in 2017.
Yes and what I would say is while we don't give guidance, I think you can look at some markets that have been transitioned.
We spoke, for example, on the call, about Germany, which was transitioned last year.
We spoke about South Korea, and you can look at some of those markets.
I'm not saying it's indicative of all markets going forward, but certainly there's been a lot of progress with some of the Coca-Cola bottlers internationally and we do expect good, that's why the transaction was done.
We expect good performance from those bottlers as we go forward.
Okay.
Let me deal with the China first.
In the case of China, we already have product approvals and we have manufacturing approvals with two of the three bottlers.
With the third bottler, we have our product approval and we're pretty much, I think we're almost through with the product.
I don't think we've actually seen it, but I think it should be eminent.
And then we will go through the manufacturing approval process.
We don't see any problem with that.
It's already been approved by two independent Chinese authorities or provinces and that should be fine.
And even if there was some technical hiccups, we could supply product from the Shanghai area, for example, to one of the other areas and produce it there.
So those shouldn't be issues.
We just, obviously, we are in the planning stages, we're just trying to get to the finish line on a couple of issues on the value chains and the sharing and basically just some contractual terms.
We think we should be there.
It started off with a very big laundry list and we're down to a very few items now, so we are quite comfortable that we will get there.
On the strategic brands on the run rate, you didn't have a full quarter last year whereas you did have the full quarter this year (multiple speakers).
Only completed on June 15, 2015, so you're comparing that to a full quarter in 2016.
Right.
And so, basically, I think if you take the, what you will get in the 10-Q, you'll get the breakout in the sectors and you'll get the, which will now be called the strategic brand sector, you will get the numbers in that sector which will give you, we think, which will be indicative of future quarters and the run rate.
But again, subject to seasonality, et cetera.
But that will be more in line with as we go forward.
There is a little bit of finished product in sales in that sector which, it doesn't, it really doesn't affect it very much.
It's a little bit of noise.
If that starts growing a little more, it obviously may have a bit more of an effect, for example.
And the reason we're saying that and pulling it out, and that's why we're putting it into the different sectors.
For example, in the case of NOS in the US, we converted the 22-ounce plastic bottle that's sort of that unique NOS bottle, but it wasn't really practical to have produced and shipped and on shelves.
And we converted that and changed it into our 24-ounce resealable can.
So we've relaunched the 24-ounce resealable can.
It is a good product and it's doing nicely, but that product, the Coca-Cola bottlers who are manufacturing NOS of a concentrate model, do not have the ability to manufacture the 24-ounce cap can.
So we are having it manufactured and supplied on a finished product basis.
So, again, there are some anomalies like this.
There is a little bit of finished product in Germany on strategic product because we changed Relentless into a 355-milliliter slim can and again, the Coke production plant that was producing Relentless in 500-milliliter can before we made the change to the design to the packaging and the pack size, doesn't have the, either the capacity or the ability, I'm not sure which, but to do so.
So we are producing it at one of our co-packers and selling finished product.
So that might have an effect on your sale process in slightly smaller margins because of just the nature of selling concentrate at a higher margin versus ---+ but we think, at the moment, that is not a meaningful number in that sector.
Evening.
Hello, <UNK>.
It wasn't.
That's our actual estimate and we're saying that we actually had 10% less selling days.
That's why we made that point, yes.
Yes.
We're not going to extrapolate, but we think that, obviously, that does happen.
I mean, if you're, you're selling and you just don't have those deliveries.
So, it's a delivery out.
And that's why we again pointed to the fact that the retail sale numbers going out of the store is up substantially higher than, for example, our sales are showing.
And so, and that's why we really are cautious because this single month is a very, very difficult month to start trying to look at it and look at trends and this happens to be one of those months where we looked at the, we can all see the number and say okay, but you look at these other factors and we just don't feel there's any significance to it.
But that's how we read and we run the business more on a trend basis than a single period of time.
Firstly, we don't give guidance, so I'm not going to comment on gross margins going forward.
What I can tell you is that, in the quarter, because of the accounting for the consolidation of AFF, we did not get the benefit of the lower cost of goods in this quarter because we had inventory and they had inventory and everything was related to fair value adjustments.
So we did not get the benefit of the AFF lower cost of sales in this quarter.
We will get it in subsequent quarters.
If you look at what that number should have been, had we not had to account for on these fair value adjustment methods, we would have added $24 million to our gross profit and whatever that percentage is, that's what the percentage is.
So sales team have been out making calls on Mutant and they've met with many of the retailers, many of the major retailers, and in general, the reception has been good.
I'm not sure of any negatives that have been portrayed so far.
We have very specific merchandising objectives for this product.
It's not a go into compromise our space or the Coca-Cola space.
So we have very specific merchandising objectives and the, all I can say, and I don't want to say too much, but the launch is proceeding in accordance with plan and the communication with the retailers is also proceeding in accordance with plan.
We have not had any negatives to speak of.
Then on the Hydro side, we are dealing with the planning on that product, but we're really focusing on getting Mutant out into the market and doing that and just we have our sales team and obviously, the Coke bottlers have theirs, so you want to focus on one thing at a time.
We do propose to follow with the Hydro launch.
We think that may still be, and we're anticipating it in the fourth quarter.
Again, it may be subject to getting the cooperation and the ability of the bottlers to focus and they get to that holiday season, it does become a bit tight.
But subject to that, we should be able to get Hydro out again late in the fourth quarter and then we do have one or two additional product ---+ innovation product lines, one particular one planned for launch towards the end of the year, beginning of next year.
But again, depending on simply timing, we may get the products done and shipped at the end of the year.
But probably we'll be fully launched in January or late January.
So that is the sort of the innovation pipeline going forward.
There are a number of individual items that we are still also looking at introducing in this period in the next couple of months, the next six months.
Thank you.
On behalf of the Company, I'd like to thank everyone for their continued interest.
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 bottlers system internationally.
We are particularly excited by the new opportunities that we have going forward with a robust portfolio of energy drink products throughout the world comprised of our Monster energy brand together with these strategic brands, as well as, for our new Mutant product line.
Thank you very much for your attendance.
