MNST
#Good day, ladies and gentlemen, and welcome to the Monster Beverage Corporation First Quarter 2018 Financial Results Conference Call.
(Operator Instructions) As a reminder, this conference call is being recorded.
I would now like to turn the conference over to Mr.
<UNK> <UNK>, Chairman and CEO.
Sir, you may begin.
Sure, sure.
In the last conference call, I did give my personal views on percentage gross margins going forward.
I said that while the company does not give guidance, my personal view was to use the gross margin for the 2017 fourth quarter of 62.1% going forward.
There are, of course, many factors that go into gross margin, some of which are one-off costs and some of which may well be ongoing as we experienced in Q1.
Looking forward, again, the company does not give guidance.
But it is important to bear in mind what's happening with aluminum, which can fluctuate significantly even within a day, the Midwest premium, freight, fuel issues, promotional allowances, geographic sales mix, domestic product sales mix, continuing investments in China and India.
And so it's extremely difficult to talk about a sustainable gross profit margin percentage when there are many noncontrollable factors.
So we really are not in a position to give any further guidance on gross margins.
On the other hand, we are continuing to progress production efficiencies and we continue to review pricing on an ongoing basis.
So what I said was, we continue to review pricing on an ongoing basis, and we do this irrespective of margin pressures.
Obviously, when we do have margin pressures, it's something that surfaces again and it's something that we are continually reviewing.
And more than that, I just don't want to say at this time.
Last year, we sort of ---+ I think, the whole industry was at a bit of a loss to understand why the convenience category had been growing, which had historically grown ahead of the ---+ all other ---+ all markets but had sort of changed and started to slow down.
What we're starting to see now is that the convenience category has really come back and is now growing ahead of the ---+ all measured channels.
And so I think that we are starting to see this trend, which is quite encouraging.
So I think we refer to some of the numbers ---+ I'm just trying to think.
The convenience was up 4.6% in the last 13 weeks, and I think it was up a little higher in the last 5 weeks.
5.
6%.
5.
6%.
So it certainly is moving in the right direction and starting to solidify and gain traction again.
Well, I don't think it's gone down to the high single digits.
And I think we did explain and drew the distinction in the markets to some of the geographic sales mix, which also affected sales.
If you look at the figures we gave you for Strategic Brands, which was down in dollars and marginally up, that has had a drag on our sales.
The Monster sales internationally are still continuing to grow quite ---+ on quite a healthy basis.
Wait, wait, wait.
You've now gone on to the third question.
We've lost track of the first one.
First ---+ no, no.
Guy, we spoke about one question at a time, okay.
So let's just ---+ let me just start with production.
All of our products are Coke-packed.
We have a finished product model.
That's not going to change.
What will change is, as we continue to align ourselves with the Coke bottlers, we will continue to increase production sites with those Coke bottlers in their countries and in their markets, which will have the effect of reducing cost, of reducing freight, reducing import duties.
And so that will benefit and continue to improve.
There isn't any plan to change that.
In the Strategic Brands, they are already being manufactured by Coke because the model for the Strategic Brands segment is pretty much a concentrate model.
Where there are some products in the Strategic Brands where the Coke bottlers can't manufacture them, for example, a 24-ounce cap can in ---+ for NOS in the U.S., we're then off-selling that product on a finished product basis.
And that accounts for a little bit lower product of gross margin for us because we're obviously, in one case, selling concentrate at a higher margin; and the other case, we are selling a finished product which does have a lower gross margin because ---+ just because of the economics and the law of numbers.
So that's on the margin side.
So we will continue to achieve production efficiencies.
We will lower costs by improving our production and increasing the number of plants.
That is also particularly so with regard to the newer products like Hydro.
As you know, we experienced some production increases in coffee products because we were having to import product.
We are still importing Espresso Monster but we are looking to convert that to a local production, which will ---+ again, which will assist in cost.
And as we start ramping up with Caffe Monster and others, we are looking to improve efficiencies in Hydro, which is really manufactured in the Northeast now.
We are looking to, in bottles and in Carolina for the cans, we are looking to increase facilities coming onboard, which will reduce costs.
Could you take the first question, <UNK>.
I don't remember.
You can't remember.
The first question, right.
Do you want to repeat your first question.
Hello.
Okay.
No, we're continuing with our product strategy, which was to remain competitive with Red Bull Gold, the Thai Red Bull.
So that strategy is continuing.
Our strategy is to maintain our products adjacent to Red Bull and to have what we call 3P execution, which is pricing competitive with Red Bull, point of sale, and position on shelf.
So that is the target that we have set our bottlers, and we're moving forward in those accounts where we believe that we can achieve good, sustainable sales.
And our bottlers, I've just come back from China, have set themselves an objective of focusing and trying to achieve what we have succeeded, and what we succeeded initially in the U.S. is to develop an energy shelf so that Chinese consumers can go to a shelf and select an energy drink.
When our product is placed in a Coca-Cola cooler adjacent to a Coke and a Sprite, it doesn't help the consumer understand what the product is.
So we are proceeding down our strategy, which we are supporting with a range of marketing media and social media.
We've got a major computer game program that we are tying in with called Battlegrounds, which is a significant property.
We're moving forward on that strategy this year.
So we always said that China would be a long-term development, and we're just staying the course.
Just to ---+ perhaps if I would just add that, obviously, one of the challenges we are still having is the level of execution or quality of execution from the bottlers to execute the 3P that <UNK> just alluded to.
And that continues to be an ongoing challenge.
We have seconded some of our key staff from the U.S. to really educate them and actually be able to really direct them and show them what we need to do.
And we're confident that we will get it done, but it's a longer and harder and harder road.
And it will be achieved, but we ---+ and we will get there.
With regard to the demographic, we talked about the younger and more affluent.
It's really ---+ it isn't been a change.
In China, we have ---+ our product is carbonated.
We ---+ our researchers indicated that younger consumers do prefer a carbonated product, and we've distinguished ourselves from Red Bull, which is a still product, Thai Red Bull, in China.
And we believe that we're continuing with that strategy.
The pricing is premium in that it's not as premium as our product in the rest of the world but ---+ and it is aligned with Red Bull China, but that is at a premium to other ---+ some of the other energy drinks and certainly soft drinks.
So that's just ---+ we'll continue and that continues to be our strategy.
There's been no change in our strategy.
The challenge is just to gain ---+ getting the recognition for Monster in China that is at a lower level because of the social media fact that you don't have as much access to ---+ or the consumer doesn't have access to Facebook and YouTube that they have around the rest of the world.
And we are improving and obviously taking steps to start getting the consumer more familiarized through the local social media companies that have equivalent channels and programs in China.
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, differentiate our brand 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 are also particularly excited by the new opportunities that we have going forward with a portfolio of energy drink products throughout the world comprised of our Monster Energy brand together with the Strategic Brands as well as Hydro and Mutant.
I hope to see you all at the Annual Stockholders' Meeting in Corona on June 7, 2018, at 2:00 p.
m.
Thank you very much for your attendance.
