怪物飲料 (MNST) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Monster Beverage Corporation's fourth quarter and year-end 2016 financial results call.

(Operator Instructions)

As a reminder, today's conference is being recorded. I would now like to turn the call over to Mr. Rodney Sacks, Chairman and CEO. Sir, you may 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, 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, and [filling] out the most recent Annual Report on Form 10-K filed today, including the sections contained therein entitled, risk factors and forward-looking statements for a discussion on specific risks and uncertainties that may affect our performance. The Company assumes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

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 March 1, 2017. A copy of this information is also available on our website, at MonsterBevCorp.com in the financial information section.

On October 14, 2016, we announced a 3-for-1 stock split of the Company's common stock to be effected in the form of a 200% stock dividend. The common stock dividend was issued on November 9, 2016 and the Company's common stock began trading as the split -- at the split adjusted price on November 10, 2016. Accordingly, all per share amounts, common stock outstanding, and common stock repurchased presented on this call have been adjusted retroactively where applicable to reflect the stock split.

Sales in the beverage industry in the fourth quarter continued to be soft globally. In the fourth quarter, the net sales were $753.8 million, up 16.8% from $645.4 million in the fourth quarter of 2015. The Company achieved record gross sales of $848.8 million, up 14.2% from $743.2 million in the fourth quarter of 2015.

The comparative net and gross sales of $645.4 million and $743.2 million, respectively, for the 2015 fourth quarter were impacted by advanced purchases made by the Company's customers due to a pre-announced price increase, effective August 31, 2015 on certain of the Company's Monster Energy brand energy drinks. The Company estimates that both net and gross sales for the 2015 fourth quarter were reduced by approximately $11 million and $12 million, respectively, as a result of such advanced purchases. Net and gross sales for the 2016 fourth quarter, after adjusting the 2015 fourth quarter comparatives for advanced purchases increased by 14.8% and 12.4%, respectively.

Unfavorable currency exchange rates reduced net sales by approximately $3.3 million, and gross sales by approximately $5.9 million in the 2016 fourth quarter. Gross profit as a percentage of net sales for the fourth quarter was 66.1%, as compared to 62.5% for the comparable 2015 fourth 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, as well as reduced promotional allowances as a percentage of sales in the fourth quarter.

We estimate the lower promotional allowances as a percentage of sales as compared to prior periods, together with the reduction of Java Monster sales, had the effect of increasing gross profit percentage by approximately 2% in the fourth quarter. Distribution costs as a percentage of net sales were 3.2% for both the 2016 and 2015 fourth quarters.

Selling expenses as a percentage of net sales were 12% compared to 12.9% in the same quarter a year ago, while they increased in absolute dollars. The increase in absolute dollars was primarily due to increased sponsorship and endorsement costs and premium. General and administrative costs as a percentage of net sales were 17.5%, as compared to 11% in the same quarter last year. General and administrative costs, excluding distributor termination expenses as a percentage of net sales increased to 11.4% in the fourth quarter of 2016, compared to 10.5% for the 2015 fourth quarter.

Payroll expenses were up $12.3 million, primarily to support the strategic brands that we acquired from Coca-Cola, and stock-based compensation which is a non-cash item was $3.1 million higher. Distributor termination expenses were $46.3 million in the fourth quarter, as compared to $3.3 million in the 2015 fourth quarter. Regulatory matters and litigation considering the advertising, marketing, promotion, ingredients used, safety and sale of the Company's products were $5.1 million in the 2016 fourth quarter, as compared to $6 million in the 2015 fourth quarter.

Our effective tax rate in the quarter decreased from 39.5% in the 2015 fourth quarter to 29.9% in the 2016 fourth quarter, primarily due to an increase in the domestic production deduction, as well as an increase in -- as a result of the adoption of new accounting guidance effective January 1, 2016, under which excess tax benefits are recorded in net income. Net income was $172.9 million in the 2016 fourth quarter, compared to net income of $138.7 million in the 2015 fourth quarter, an increase of 24.7%.

The weighted average number of diluted shares outstanding decreased from 617.4 million for the fourth quarter of 2015, to 580.5 million for the fourth quarter of 2016, as a result of share buybacks, including the modified Dutch tender auction which was completed in June 2016. Net income was impacted by the substantial increase in distributor termination expenses previously mentioned above.

Earlier diluted, sorry, diluted earnings per share for the 2016 fourth quarter increased to 32.6% to $0.30, from $0.22 in the fourth quarter of 2015. We estimate that distributor termination expenses in the 2016 fourth quarter of $46.3 million negatively affected diluted earnings per share by approximately $0.05 per share after-tax. Distributor termination expenses for the 2015 fourth quarter had no effect on diluted earnings per share after-tax. We refer you to the press release for the specific factors affecting profitability for the 2016 and 2015 fourth quarters, respectively.

Turning to the full year results, the Company achieved record gross sales of $3.5 billion for the full year of 12.2% from $3.1 billion in 2015. Net sales were up 12% from $2.7 billion to $3 billion. Gross and net sales for the year were adversely affected by unfavorable changes in foreign currency exchange rates totaling $31 million and $22.3 million, respectively, for the year.

Gross profit as a percentage of net sales increased to 63.7% for the year ended December 31, 2016, from 60% for the year ended December 31, 2015. Operating income was up 21.4% to $1.1 billion, from $893.7 million in 2015. Our effective tax rate decreased to 34% in 2016, from 38.7% in 2015.

Net income was $712.7 million, up [30.4]% over net income of $546.7 million in 2015, and diluted earnings per share increased 25.6% to $1.19 from $0.95 in 2015. We refer you to the press release for the specific factors impacting profitability for the 2016 and 2015 financial years, respectively.

We have made good progress in the implementation of our strategic alignment with Coca-Cola bottlers globally. Domestically, we transitioned distribution of Monster Energy drinks in Wisconsin to Coca-Cola bottlers early in January 2017, and are making good progress in the United States in non-traditional channels, including foodservice accounts.

In EMEA in the fourth quarter of 2016, we commenced distribution of Monster with Coca-Cola bottlers in Bahrain, Mauritius, Qatar, and United Arab Emirates. In EMEA in the first quarter of 2017, we commenced distribution of Monster with Coca-Cola bottlers in Nigeria and Oman, with additional launches planned in the second quarter of 2017 for Jordan, Kazakhstan, Kuwait and Pakistan.

In LatAm, in the fourth quarter of 2016, we transitioned distribution of Monster to Coca-Cola Bottlers in Brazil, Costa Rica, [Guyana] and Panama. In the first quarter of 2017, we launched distribution of Monster with Coca-Cola bottlers in certain countries in the Caribbean, and transitioned distribution to Coca-Cola bottlers in certain other smaller markets in that geographic region.

In China, in the fourth quarter of 2016, we commenced distribution of Monster with Coca-Cola bottlers in selected markets that include Shanghai, Hunan Province, Shenzhen, Guangzhou, Zhanjian, and Hainan. We also commenced distribution in the Maldives in the fourth quarter of 2016. We received approval for our product in India, and are planning to re-launch Monster in India later this year.

As previously reported, we successfully completed our acquisition of the concentrated flavor business operated by American Fruits & Flavors on April 1, 2016. As a result of the AFF transaction, we achieved raw material cost savings of $22 million in the 2016 fourth quarter, which were broadly in line with the expectations.

According to the Nielsen reports, for the 13 weeks through February 18, 2017, all outlets combined, namely convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category including energy shots increased by 0.6% versus the same period a year ago. Sales of Monster grew 0.1% in the 13 week period, while sales of NOS [increased] 7.3%, and sales of Full Throttle decreased 6.3%.

Sales of Red Bull increased 0.8%, sales of Rockstar decreased by 0.9%, sales of Five Hour decreased 5.7%, and sales of AMP decreased 24.6%.

According to Nielsen, for the four weeks ended February 18, 2017, sales in the convenience and gas channel including energy shots in dollars increased 0.1% over the same period last year. Sales of Monster decreased by 0.9% over the same period last year, while NOS was up 6.2%, and Full Throttle sales decreased 6.2%.

Sales of Red Bull increased by 0.7%, Rockstar was down 4.5%, Five Hour was down 8.5%, and AMP was down 25.5%.

We pointed out that the energy shot category has been declining for some time, and if we exclude the energy shot, energy plus coffee and protein drinks, where we have experienced production capacity shortages, for the four weeks ended February 18, 2017, sales in the convenience and gas channels in dollars, in fact, increased by 1.4% over the same period last year. And on this basis, sales of Monster increased by 1.6%.

According to Nielsen, for the four weeks ended February 18, 2017, Monster's market share of energy drink category in the convenience and gas channel including energy shots in dollars decreased by 0.4 points over the same period last year to 35%. NOS' share increased 0.2 points to 4.3%, and Full Throttle share decreased 0.1 points to 1%. Red Bull share increased 0.2 points to 34.7%, and Rockstar share was down 0.4 points to 8%, Five Hour share was lower by 0.7 points -- at 7.6%, and AMP share decreased by 0.5 points to 1.3%.

According to Nielsen, for the four weeks ended February 18, 2017, sales of energy plus coffee drinks in dollars in the convenience and gas channel decreased 5.1% over the same period last year. Sales of Java Monster were 19.7% lower than in the same period last year, while sales of Starbucks Doubleshot Energy were 12.6% higher. 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 January 7, 2017, the energy drink category decreased 5% in dollars, due largely to lower pricing of private label brands. Monster sales increased 1% versus the year ago. Our market share increased 1.8 share points to 30%. Red Bull sales decreased 2%, and its market share increased 0.9 points to 38.2%. Rockstar sales decreased 6%, and its market share decreased 0.2 points to 18.7%.

According to Nielsen, all outlets combined in Mexico, the energy drink category grew 23.9% during the month of January 2017. Monster sales increased 22.3%. Our market share in value decreased 0.4 points to 26.8%, against the comparable period last year. Sales of [Burn] decreased 22.7%. Burn's market share decreased 2 points to 3.4%. [Red Bull] sales decreased 8.9%, and its market share decreased by 4.1 points to 11.4%. [Viva 100] market share increased 9.6 points to 37.8%, while Boost's market share decreased 4.8 points to 13.6%.

The transition to the [KO] bottler system in August 2016, while initially slow has since improved and we are now seeing wider availability of Monster in the traditional trade channel in Mexico. According to Nielsen, Monster's numerical distribution in the traditional trade channel grew from 10% in January 2016, to 24% in January 2017.

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 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.

According to Nielsen in the 13 week period ended December 2016, the actual 13 week periods vary by a few weeks between different markets. Monsters retail of market share in value, as compared to the same period last year grew from 13.5% to 15.4% in Great Britain, from 20.3% to [22.9]% in France, from 13.4% to 15.2% in Germany, from 8.7% to 9.5% in Italy, from 8.9% to 12.4% in Ireland, from 7.1% to 10.9% in Norway, and from 8.8% to 12% in the Czech Republic.

In the same period, Monster's market share grew from 10.9% to 11.1% in Sweden, from 8.7% to 10.5% in Belgium, and from 23.8% to 27.2% in Spain. Monster's retail market share in value for the 13 weeks ending December 2016, as compared to the same period last year decreased from 6.7% to 5% in the Netherlands. Monster's retail market share in value for the 13 weeks ending December 2016 grew from 15.8% to 16% in South Africa. According to IRI, Monster's market share in Greece increased in the 13 weeks ended December 2016 from 28.2% to 28.5%.

I'd like to point out that the Nielsen and IRI numbers in the EMEA should only be used as a guide, because the channels rated by Nielsen and IRI in the EMEA vary from country to country. According to Nielsen, Monster's retail market share in value in Chile increased to 26.9% in January 2017, as compared to 19.9% last year. And after just two months with the [KO] bottler system, Monster's market share in value in Brazil grew to 5% in December 2016, as compared to 3.7% in the same period last year.

In South Korea, Monster's retail market share in value increased from 13.3% to 23.7% in December 2016, 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 38.6% to 43.3% in December 2016. According to IRI in Australia, Monster's market share in value grew from 3.1% to 6.3% in December. According to IRI New Zealand Monster's market share in value grew from 2.3% to 5.7% for the last four weeks ending December 4, 2016 versus the same period last year.

Net sales for the Monster Energy drink segment in the fourth quarter of 2016 increased 17% from $585.1 million to $684.4 million from the comparable period last year. Gross sales for the Monster Energy drink segment for the fourth quarter of 2016 increased 14.3% from $677.7 million to $774.8 million from the comparable period last year. Net sales for Monster Energy drink segment in the fourth quarter were negatively impacted by approximately $3.2 million of foreign currency movements.

The [comparative] gross to net sales for Monster energy drink segment of $677.7 million and $585.1 million, respectively, for the 2015 fourth quarter were impacted by advanced purchases made by the Company's customers due to a pre-announced price increase effective August 31, 2015, on certain of the Company's Monster Energy brand energy drinks. The Company estimates that both gross and net sales for the 2015 fourth quarter for the Monster Energy drink segment were reduced by approximately $12 million and $11 million, respectively, as a result of such advanced purchases.

Gross and net sales for the Monster Energy drink segment for the 2016 fourth quarter, after adjusting the 2015 fourth quarter comparatives for advanced purchases increased by 12.4% and 14.8%, respectively. Net sales for the strategic brand segment were $64.5 million for the fourth quarter, as compared to $60.4 million in the same quarter last year. Net sales for the Company's strategic brand segment were negatively 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 were $4.7 million in the 2016 fourth quarter, (inaudible) sales for the other segment in the comparable 2015 fourth quarter.

We continue to experience production capacity shortages for our retooled product, Java Monster and Muscle Monster. We are taking steps to address the issues, including securing products from Europe, but anticipate that it will still take a number of months before production availability allows us to restore normal supply patterns, and fully meet consumer demand that exists for all of these products. We estimate that sales in the quarter were negatively impacted by approximately $22 million, as a result of such production capacity shortages.

Net sales to customers outside the United States were $193.5 million in the 2016 fourth quarter, compared to $145.3 million in the corresponding quarter in 2015. In local currencies, net sales to customers outside of the United States were approximately $3.3 million higher. Included in reported geographic sales are our sales to the Company's military customers, which are delivered in the United States, and [transported] to the military and their customers overseas.

In Europe, the Middle East, and Africa net sales in the fourth quarter in local currencies increased [14]% and 33% in dollars over the same period last year. Gross profit in this region as a percentage of net sales decreased from 53.4% in the same period last year to 52.8% during the quarter. For the full year of 2016, net sales increased 36% in local currencies and 30% in dollars over 2015. Gross profit in this region as a percentage of net sales increased from 48.4% in 2015 to 51.1% in 2016.

Monster continued to gain momentum, and increased market share throughout Europe in the fourth quarter. In particular, in Great Britain, Germany, Spain, France, Czech Republic, Ireland, Poland and Norway, Monster achieved increased sales guidance, as well as increased market share. In Asia Pacific, net sales in the fourth quarter increased 53.1% in dollars and 41.1% in local currencies over the same period last year. Gross profit in this region as a percentage of net sales decreased from 49.6% in the same period last year to 44.1% during the 2016 fourth quarter. In Japan, net sales in the quarter increased 45.1% or [25.1]% in local currency, primarily due to the strengthening of the Japanese yen against the US dollar, as compared to the same quarter last year.

We continue to experience strong performance in Japan. In South Korea, net sales increased 135.9% or 130.3% 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 increased 3.6%, a [minus] 3.4% in local currencies as compared to the same quarter last year. As previously mentioned, we're 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 fourth quarter increased 20.7% in dollars, and 23.6% in local currencies. Net sales in the fourth quarter increased 19.7% and 21.8% in local currencies over the same period last year. Gross profit in this region as a percentage of net sales increased from 48.9% in the same period last year to 52.5% during the 2016 fourth quarter.

Net sales increased in Brazil 115.3% in dollars or 117.2% 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 148.6% in dollars, and 137.7% in local currency.

Turning to the balance sheet. Cash and cash equivalents amounted to $377.6 million, compared to $2.18 billion at December 31, 2015. Short-term investments were $220.6 million, compared to $744.6 million at December 31, 2015. Long-term investments decreased to $2.4 million from $15.3 million at December 31, 2015.

Accounts receivable increased to $448.1 million at December 31, 2016, from $353 million at December 31, 2015. Days outstanding for accounts receivables were 48.2 days, compared to 43.2 days at December 31, 2015. Inventories increased to $162 million from $156.1 million at December 31, 2015. Average days of inventory was 57 days at December 31, 2016, compared to 58 days at December 31, 2015.

In September 2016, we launched Mutant, an exotic Super Soda in limited convenience stores in certain US markets, with encouraging sales per point of distribution. For the 13 weeks ended January 21, 2017 [per] Nielsen total US convenience, Mutant had the highest dollar share gain of any single serve soft drink brand. For single serve packages sold in convenience stores during the same [period in] dollars, Mutant outsold a number of well-established single serve brands such as 7-Up. We remain confident about the potential of this brand.

We are planning the launch of our new Hydro line, which 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 US at this time. We are planning to launch Hydro to the retail trade towards the end of March, early April.

Monster Energy Ultra Violet was launched exclusively with Sam's Club, and will be expanded to all channels at the end of March 2017. We are also planning to launch Full Throttle Orange at the end of March. We have a robust innovation pipeline, and further launches are planned for the remainder of 2017.

We estimate January 2017 gross sales to be approximately 10.4% higher than in January 2016. On a foreign exchange adjusted basis, we estimate January 2017 gross sales to be approximately 11.6% higher than in January 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, distributing centers, as well as shifts in the timing of production, in some instances where our bottlers are responsible for production, and [unit equity] is determined if production schedules, which affects the dates on which we invoice such bottlers. We reiterate tat sales over a short period, such as a single month should not necessarily be a [future to], or regarded as indicative of our results for a full quarter or any future period.

With regard to the litigation between the Company and the San Francisco city attorney, we advise that the action was settled in January 2017 on terms acceptable to the Company. The settlement does not include any penalty under California's Unfair Competition Law, any finding or admission of liability or wrongdoing, or any change in the formulation of Monster Energy drinks, or to whom the drinks may be sold. In consideration of a release of claims and dismissal of the action with prejudice, the Company agreed to maintain various current marketing and labeling practices towards [its] energy drink products through December 31, 2018.

On February 28, 2017 the Company's Board of Directors authorized a new repurchase program for the repurchase of up to $500 million of the Company's outstanding common stock. No availability remains under the previously authorized share repurchase programs.

In conclusion, I would like to summarize some recent positive points. One, as previously reported, our acquisition of AFF represents an important milestone for the Company, and gives us ownership of our proprietary formulas for our principal products. We recognized a reduction in operating costs of $22 million in the fourth quarter, as a result of the acquisition.

Two, North American and international gross margins remain healthy. Three, while the US Nielsen market statistics show that the energy category slowed in the US towards the end of the fourth quarter equivalent -- at beginning of first quarter, 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 continue to affect our results.

The new additions to the Monster family continue to gain momentum, and add to the Company's sales. We're excited about the prospects for our new product launches. 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.

We have successfully transitioned additional international countries to Coca-Cola bottlers in the forth quarter, and we'll be transitioning a number of [other] markets to Coca-Cola bottlers in 2017. I'd like to open the floor to questions about the quarter and the year. Thank you.

(Operator Instructions)

Thank you. And our first question comes from (inaudible) Bill Chappell with SunTrust.

Hey, thanks. Good afternoon.

Afternoon.

Just a little more color around the fourth quarter on both, kind of you said, lower promotional allowances, and then, also on the top line. On the promotional allowances, is that something that was more year-over-year comparison, or is it something that we should expect in general going forward in 2017? And then, on the top line, was there -- you maybe could break out -- was there much benefit from kind of the Mutant sell-in, and from the China sell-in? Or was that negligible to the top line growth?

I think that, for most of the answers are, comparatively based on our quarter by, comparable quarter for last year.

Okay. (multiple speakers) You had said, it was a benefit to gross profit, that is what I was wondering?

I think we made the point, Bill, when we spoke about gross profit that the additional promotional allowances in the quarter, and other items had the impact of increasing gross profit margin by approximately 2%. So in there, I think, what we tried to suggest, was that these promotional allowances, the reduction in promotional allowances may not necessarily endure over quarters in 2017.

Thank you. And our next question comes from the line of Mark Astrachan with Stifel.

Hey, guys. Just one housekeeping, I think you still need to answer Bill's other questions on, I think, Mutant sell-in? Also my question, is just on general sell-in and sell-through trends. So you touched on this at the Investor meeting in January, about untracked channels contributing more than you had seen historically. Obviously, that disconnect has widened pretty substantially here.

So maybe if you could touch on, what you think is contributing to that? And I'm talking specifically about the US, maybe this sort of methodology gathering, what you're doing in universities, foodservice, vending et cetera? Just sort of, as much specificity there, as you can give, would be helpful, please?

Just dealing with Mutant. Mutant, we've been through this a few times. We've positioned Mutant in selected channels at full pricing. We've not been addressing the [announced] promotion. If you look at the average pricing in Nielsen, Mutant is average pricing in all the different periods. Depending which period you look at, it's still about [196]. If you compare that, that's quite a substantial premium to the other soft drinks, and its main competitive soft drink that we're looking at competing with, which is Mountain Dew.

And so, we have strategically not promoted Mutant during the winter period. We are taking steps to deal with expanded distribution. We will obviously increase our promotional and other activities around the brand, as we continue to go into spring and summer.

So when we look at the numbers, and we look at the sales per point, we think the sales per point are pretty good, in relation to a lot of the other well-established brands in the area. If you look at the last four weeks, that has dropped off a little bit. Again, because of the -- we believe the lack of promotional spend, and behind the brand, but that was intentional in this period of time. It is a soda, and we are looking to, as I said expand distribution, expand the channels, and also become substantially more active in the promotion [spend], as we start going into spring now.

So we are still positive about the brand, and its prospects and sell-through, particularly where we have seen, at this substantial price premium, we've seen substantial sales per point, that are higher than a lot of very well-established brands that have been around for a long time.

I think there's one other point, that we need to focus on, and that is that the permanent steps will be done -- and the [placements] will be done in March. So we launched Mutant off cycle, which means that in many cases, the product can't space where the bottlers could find space for the product. And in March, the sets, new sets will become available in the convenience guest channel where the product is sold.

They're another, a couple of other key channels where we have secured listings, and we will be -- those are the things will start coming through in April and May. So we do have ongoing plans to basically ramp up for -- or put effort and focus behind the brand.

I think it's also, [in most places] that the -- it was not a full blown launch, it was what we call a bubble up launch, it was only launched in convenience retail, in chains and convenience retail. It was rolled out to mom and pops to a limited degree, and that's where we are at this time. As Rodney said, there will be further listings that have been secured, that will take place and secured starting in April.

And then, just talking about Mark's question. There is a bigger divergence, but that is -- the fact of the matter is that the non-measured channels are continuing to expand for us. We are dealing in the non-measured area.

We also have some concern about the accuracy, and the representative nature of the convenience data, which does seem to us to be a little more inaccurate, if you -- in relation as compared for example, to grocery where we think there is a closer correlation and a better read. And that's just a fact of life, but we are, where we are on our sales, and we continue to see increases. Although clearly, there is some softening in the convenience channel.

And also don't forget, that the Java shortage that we experienced, they also affect the numbers.

Yes, affect the whole channel, and the whole category.

Thank you. And our next question comes from the line of Amit Sharma with BMO Capital Markets.

Hi, just a quick clarification. So going back to the question, there is no case to sort of like (inaudible) inventory build up in the channel, because of [divergence of these transfer rate]

Sorry, just say that again?

So we shouldn't assume that there is an inventory build up in the channel, as suggested by the divergence of euro sales and the slow down in the channel? You're not seeing inventory build up there?

No. Not that we see.

Got it.

And it's unlikely that the bottlers will be building up inventory of Monster in their system either.

Got it. And then as we think about Hydro launching later this year, would you expect Hydro also to be a bubble up launch, or would you expect that to be a little bit bigger launch, more in line with your (inaudible) product?

I think it will be more in line with our traditional launches. But again, we generally do launch through a bubble up process, but it's -- some are more or less extensive. But that's generally, how we've always launched our products, to go into selected chains, and then to launch. But it will be a more extensive launch than we had for Mutant.

Mutant was a very exceptional launch, and it was very limited by design and by strategy. And being [off] cycle, Hydro will be a more -- a broader-based launch going out. But clearly, the initial focus will be on the convenience and gas and independent channels, et cetera.

Thank you. And our next question comes from the line of Kevin Grundy with Jefferies.

Thanks. Good evening, guys. A first one, a housekeeping question, just point of clarification on the January gross sales update. If I'm not mistaken, there's an extra selling day in the month of January, and then, I think that there's one less in the first quarter. So Hilton, perhaps, if you could just clarify that, that would be helpful?

And then, the broader question, on Brazil, which looks like it's starting to bounce back, now with the distributer change behind you, how high can that share go, how quickly can you guys ramp in that market? Can you give us any sort of parameters for which you think you can grow market share? Like the 27% that you have in Chile, is that reasonable, and over what period of time? Thanks.

I think there is an extra selling day in January.

There's an extra selling day in January, that is correct.

Yes, and I'm not sure about the quarter, but it may be one less in the quarter. I think that -- we know it's one less in February, but we haven't done the exercise, so I think, just mathematically you got -- (multiple speakers)

Yes, exactly -- (multiple speakers) Just to be clear, I mean, we run our business quarter by quarter, and while selling days, obviously are important, because as sales are generated on each day, we've never looked at our business, and never tried to explain our business based on one or less selling day. And I just want to be clear on that.

On Brazil, Brazil is a very unique market. The country at the moment is struggling. I mean, there's been talk of it being almost in a depression, and so there are challenges. We also have a group of 10 bottlers. It's a little bit different to Chile.

Chile, there were two main bottlers, that really -- we started to have some pretty -- we really had pretty good momentum for the brand. It was well established. It didn't have deep distribution, but where it was, it was already selling into the high teens, and pretty nicely. So when the two Coke bottlers, and Chile took it over, they really did embrace the brand. And obviously, we're able to -- it's sort of a more structured market, we're able to expand the market and roll it out probably more quickly, and more I think efficiently, than is the case in Brazil. And so, the results have been very good, and we've been very encouraged by the results.

In the case of the Brazilian market, it is a much more non-traditional market. You have literally, well over 1 million of these little traditional stores all over the place, and they're harder to get to, harder to service and grow. And invariably, there's a very, very large, and intricate wholesaler system that helps get to these stores. And it's just -- you're just not comparing the apples and apples and apples.

So we've got to manage a group of 10-odd bottlers, in a very different environment, a country, and also that is going through tough financial conditions at the moment. But that being said, we think that it will take some time. But as it has in many of the Coke markets, where you do deal with these very big bottlers, or basically groups of bottlers, it takes time for them to get coordinated, and get their system going. But when it does start going, it does really work, it does improve. And so, we're very encouraged by what we've seen.

We're at a point now where we're selling at a rate, which is higher than we've ever saw, even where we were with our previous distributer at the peak, before we announced the Coke transaction, and they tended to lose interest in the brand, and stopped putting the effort behind it, because they were also a good distributor. And so, we are encouraged by where we're going, but it will take time to build up. The good news is that, it's a big energy market.

We do quite nicely with Burn there, and really by far, the largest player is Red Bull. That is really our main competitor, and we're at a sort of a similar price point, which for us means that we will -- it gives us a lot of opportunity to grow into that market against the Red Bull share, which is at a premium price, and is not at the low end. They do have low end brands, but at least we know there is a lot of good business to be gone after there. So, but it's going to take time to develop.

Thank you. And our next question comes from the line of Laurent Grandet with Credit Suisse.

Hi, Rod, hi Hilton.

Hi.

A quick follow up on Mutant. You mentioned earlier this year, that you would be launching the Mutant in Wal-Mart in Q2 this year. Could you please give us a bit more color, (inaudible) where it would be in about 1,000 stores from April, with first shipment in March. Should we think now differently or --

Well, I'm not sure where you got that from.

Okay. Well, that's -- I mean, a question I ask at some point to, so are you confirming or -- ?

I'm not confirming anything.

Oh, okay, so I've got a chance then, for a second question. Regarding the on-premise, I mean, you mentioned, I mean, you're making lots of progress there. Two quarters ago, you mentioned you were testing McDonald's and Dunkin' Donuts. My understanding here as well, that you will be launching in Dunkin' Donuts. So could you [update] us on those two tests, and [either] any other big customers we should think of, I mean, are you making progress?

Well, McDonald's, their test is continuing. They don't make an instantaneous decision, so that test is continuing. And with Dunkin' Donuts, we are distributed in a number of their outlets. So that's the answer to that. And then, we alluded earlier to the fact, that we were launching Mutant in a number of chains later this year. And you can read into that, but certainly, one of them is a major retailer.

Yes, but I think it's premature at this time, to give more detail on that launch. As we'll start going through, as we said in spring, and then, I think that we will be in a much better position to give you much more color on Mutant, and the activities we have planned behind it, when we report next -- we report our first quarter results in the first week of May.

Thank you. And this concludes today's question and answer session. I would now like to turn the call back to Mr. Rodney Sacks for any closing remarks.

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 bottler system internationally.

We are also particularly excited by the new opportunities that we have going forward, for 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 participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.