怪物飲料 (MNST) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Monster Beverage Corporation First Quarter 2017 Financial Results. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference 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 today; as is Tom Kelly, our Senior Vice President of Finance.

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 which are based on currently available information regarding the expectations of management with respect to revenues, profitability, future business, future events, financial performance and trends.

Management cautions that these statements are based on our current knowledge and expectations and are subject to certain risks and uncertainties, many of which are outside the control of the company, that may cause actual results to differ materially from the forward-looking statements made during this call.

Please refer to our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K filed on March 1, 2017, 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 May 4, 2017. A copy of this information is also available on our website at monsterbevcorp.com in the Financial Information section.

Sales continued to be challenging in the beverage industry in the first quarter and remained weak. In the first quarter, net sales was $742.1 million, up 9.1% from $680.2 million in the first quarter of 2016. The company achieved record first-quarter gross sales of $845.5 million, up 8.8% from $777.5 million in the first quarter of 2016. Unfavorable currency-exchange rates reduced net sales by approximately $3.7 million in the 2017 first quarter.

Gross profit as a percentage of net sales for the first quarter was 64.8% as compared to 62.2% for the comparable 2016 first 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, which was partially offset by product mix and certain increases in other costs.

Distribution costs as a percentage of net sales were 3.1% for the 2017 first quarter as compared to 3.4% in the 2016 first quarter. Selling expenses as a percentage of net sales were 11.7% compared to 10.2% in the same quarter a year ago. The increase was primarily due to increased sponsorship and endorsement costs and commissions.

General and administrative costs as a percentage of net sales were 14.4% as compared to 11.1% in the same quarter last year. General and administrative costs, excluding distributed termination expenses as a percentage of net sales, increased to 11.8% in the first quarter of 2017 compared to 10.6% for the 2016 first quarter.

Payroll expenses were up $13 million, primarily to support the strategic brands that we acquired from Coca-Cola as well as the launches in China and other countries internationally, and stock-based compensation which is a noncash item, was $3.1 million higher. Distributor termination expenses were $19.9 million in the first quarter as compared to $3.4 million in the 2016 first quarter.

Legal expenses related to regulatory matters and litigation concerning the advertising, marketing, promotion, ingredients, usage, safety and sale of the company's products were $1.9 million in the 2017 first quarter as compared to $5.4 million in the 2016 first quarter.

Our effective tax rate decreased from 35.8% in the 2016 first quarter to 32.8% in the 2017 first quarter, primarily due to an increase in profits earned by certain foreign subsidiaries in lower-tax jurisdictions than the U.S. as well as an increase in equity compensation deductions.

Net income was $178 million in the 2017 first quarter compared to net income of $163.9 million in the 2016 first quarter, an increase of 8.6%.

The weighted average number of diluted shares outstanding decreased from 620.7 million for the first quarter of 2016 to 582 million for the first quarter of 2017 as a result of share buybacks, including the modified Dutch tender auction, which was completed in June 2016. The net income was impacted by the substantial increase in distributor termination expenses previously mentioned above.

Diluted earnings per share for the 2017 first quarter increased 15.8% to $0.31 per share from $0.26 in the first quarter of 2016. We estimate that distributed termination expenses in the 2017 first quarter of $19.9 million negatively affected diluted earnings per share by approximately $0.02 per share after tax.

We continue to make good progress in the implementation of our strategic alignment with Coca-Cola bottlers globally. Domestically, we transitioned distribution of Monster Energy drinks in Wisconsin to Coca-Cola bottlers in early January 2017; in parts of Minnesota, including Minneapolis and St. Paul, in March 2017; and in a part of North Dakota, including Fargo, in April 2017. We're also making good progress in the U.S. in nontraditional channels, including food-service accounts.

In EMEA, in the first quarter of 2017 we commenced distribution of Monster with Coca-Cola bottlers in Nigeria, Oman and then -- and smaller countries in EMEA. And in April 2017, we commenced distribution of Monster with the Coca-Cola bottler in Kazakhstan. Further additional launches are planned in the remainder of the second quarter of 2017 in certain countries in Africa and the Middle East.

In the first quarter of 2017, we launched distribution of Monster with Coca-Cola bottlers in certain countries in the Caribbean. In the second quarter of 2017, we anticipate launching Monster with Coca-Cola bottlers in certain other smaller and medium-sized markets in that geographic region.

In China during the first quarter of 2017, we continued with launches in Tianjin, Hebei, Shandong, Henan, Anhui, Zhejiang and Jiangsu. We also extended distribution in the Guangdong province. Further launches are planned in China and in other countries, including a relaunch in India in 2017. We also commenced distribution in Malaysia in the same period. We continue to make progress towards our planned relaunch in India later this year. We are also on track to commence distribution of Monster with Coca-Cola bottlers in Vietnam, Hong Kong, Macau and Taiwan in the second quarter.

As a result of the AFF Transaction, we achieved raw-material cost savings of $23.3 million in the 2017 first quarter, which were broadly in line with expectations.

According to the Nielsen reports, for the 13 weeks through April 22, 2017, all outlets combined -- namely convenience, grocery, drug, mass merchandisers -- sales in dollars in the energy drink category, including energy shots, increased by 2.5% versus the same period a year ago. Sales of Monster grew 1.8% in the 13-week period, while sales of NOS increased 10.6% and sales of Full Throttle decreased 5.1%. Sales of Red Bull increased 5.3%. Sales of Rockstar increased by 1.9%. Sales of 5-Hour decreased 6.4%. And sales of AMP decreased 29.9%.

According to Nielsen, for the 4 weeks ended April 22, 2017, sales in the convenience and gas channel, including energy shots, in dollars increased 2.7% over the same period last year. Sales of Monster increased by 1.5% over the same period last year, while NOS was up 12.7% and Full Throttle sales decreased 2.1%. Sales of Red Bull increased by 5.8%, Rockstar was up 4.6%, 5-Hour was down 7.2% and AMP was down 29.9%.

We point out that the energy shot category has been slowing for some time. And if we exclude the energy shots as well as energy coffee and energy protein drinks, where we have experienced production capacity shortages, for the 4 weeks ended April 22, 2017, sales in the convenience and gas channel in dollars, in fact, increased by 4.6% over the same period last year, with sales of Monster increasing by 4.5%.

We note that the Nielsen reports for the 13 weeks and 4 weeks ended April 22, 2017, exclude sales of NOS and Full Throttle 8 packs, which were not yet in the Nielsen system.

According to Nielsen, for the 4 weeks ended April 22, 2017, Monster's market share of the 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 0.4 points to 4.2% and Full Throttle's share remained the same at 1%. Red Bull's share increased 1 point to 36%, Rockstar's share was up 0.1 of a point to 8%, 5-Hour's share was lower by 0.8 of a point at 7.4% and AMP's share decreased 0.6 of a point to 1.2%.

According to Nielsen, in the 4 weeks ended April 22, 2017, sales of Energy + Coffee Drinks in dollars in the convenience and gas channel decreased 6.3% over the same period last year. Sales of Java Monster were 19.5% lower than in the same period last year, while sales of Starbucks Doubleshot Energy were 8.6% higher. We continue to experience production capacity shortages with 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 April 1, 2017, the energy drink category increased 2% in dollars. Monster sales increased 10% versus a year ago. Our market share increased 2.1 share points to 30.5%. Red Bull's sales increased 3%, and its market share decreased 0.4 of a point to 35.9%. Rockstar's sales increased 5% and its market share increased 0.8 points to 19.4%.

According to Nielsen, for all outlets combined in Mexico, the energy drink category grew 27% during the month of March 2017. Monster sales increased 41.1%. Our market share in value increased 2.7 points to 26.7% against the comparable period last year. Sales of Burn decreased 27%. Burn's market share decreased 2.7 points to 3.7%. Red Bull's sales decreased 3.5%, and its market share decreased by 3.7 points to 11.6%.

Vive 100's market share increased 4.5 points to 41.9%, while Boost's market share decreased 2.1 points to 7.9%. The transition to the KO bottler system in August 2016 resulted in significantly wider availability of Monster in the traditional trade channel, mom-and-pop stores in Mexico.

According to Nielsen, distribution of Monster grew from 10% in March 2016 to 24% in March 2017 in this channel. This translates to growth in Monster's value share of 9 percentage points versus March 2016 in the traditional channel.

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.

I would like to point out that the Nielsen and IRI numbers for EMEA should only be used as a guide, because the channels read by Nielsen and IRI for EMEA vary from country to country.

According to Nielsen, in the 13-week period ending March 2017, the actual 13-week periods differ -- vary by a few days between different markets. Monster's retail market share in value as compared to the same period last year grew from 13% to 15.5% in Great Britain; from 9.5% to 10.6% in Belgium; from 9.1% to 11.6% in Norway; from 21.5% to 23.7% in France; from 24.4% to 26.5% in Spain; and from 13% to 16.3% in Germany.

According to Nielsen, for the period ending March 2017, Monster's retail market share in value as compared to the same period last year declined from 6.8% to 5.2% in The Netherlands and from 11.1% to 10.8% in Sweden, although the retail value of sales grew 22.1% in Sweden in the comparable period.

For the 13-week period ending March 2017, according to Nielsen, Monster's retail market share in value as compared to the same period last year grew from 11.3% to 11.6% in the Czech Republic; from 15.8% to 17.7% in South Africa; and from 6.9% to 9.7% in Italy.

For the 13-week period ending February 2017, according to Nielsen, Monster's retail market share in value as compared to the same period last year grew from 7.3% to 9.9% in Ireland.

According to IRI, Monster's market share in Greece grew in the 13 weeks ended February 2017 from 27.7% last year to 29.1%.

According to Nielsen, Monster's retail market share in value in Chile increased to 28.4% in March 2017 as compared to 20.5% last year.

And after transitioning to the KO bottler system in November 2016, Monster's market share in value in Brazil grew to 7.4% in March 2017 as compared to 2.9% in the same period last year.

According to Nielsen, in South Korea, Monster's retail market share in value increased from 17.9% to 24.5% in February 2017 compared to the same period last year.

According to INTAGE, Monster's market share in value in the convenience store channel in Japan grew from 39.9% to 44.2% in March 2017.

According to IRI, in Australia, Monster's market share in value grew from 3.1% to 7.1% in March 2017. And in New Zealand, Monster's market share in value grew from 2.3% to 5.5% for the first quarter of 2017 versus the same period last year.

Net sales for the Monster Energy drink segment in -- for the first quarter of 2017 increased 7.5% from $621.7 million to $668.6 million from the comparable period last year. Gross sales for the Monster Energy drink segment for the first quarter of 2017 increased 7.4% from $713.5 million to $766.6 million for the comparable period last year. Net sales for the Monster Energy drink segment in the first quarter were negatively impacted by approximately $4.7 million of foreign currency movements.

Net sales for the Strategic Brand segment was $68 million for the first quarter as compared to $58.5 million in the same quarter last year. Net sales for the company's Strategic Brand segment were positively impacted by approximately $1 million of foreign currency movements in the quarter.

Net sales for the Other segment, which includes third-party sales made by AFF, were $5.5 million in the 2017 first quarter. There were no sales for the Other segment in the comparable 2016 first quarter.

We continue to experience production capacity shortages for our retort products, Java Monster and Muscle Monster. To reduce the shortfall, we have commenced manufacturing certain flavors of Java Monster in Europe, which will shortly be available to our customers in the U.S. We have also procured additional production in the U.S., which will be coming on stream early in the third quarter of 2017 and will result in additional Java Monster and Muscle Monster volumes being available for distribution to retailers thereafter.

As a result, we anticipate that it will still be a number of months before production availability allows us to restore normal supply patterns and fully meet consumer demand that exists for these products. We estimate that net sales in the quarter were negatively impacted by approximately $12 million as a result of such production-capacity shortages.

Net sales to customers outside the U.S. were $190.9 million for the 2017 first quarter compared to $149.1 million in the corresponding quarter in 2016. In local currencies, net sales to customers outside of the U.S. were approximately $3.7 million higher. Included in reported geographic sales are our sales to the company's military customers, which are delivered in the U.S. and transshipped to the military and their customers overseas.

In Europe, the Middle East and Africa, net sales in the first quarter increased 17.7% in dollars and 21.7% in local currencies over the same period last year. Gross profit in this region as a percentage of net sales increased from 50.2% in the same period last year to 50.3% during the quarter.

We are pleased with the rollout of certain SKUs in the Ultra range in EMEA markets. In 2017, we added additional SKUs of Ultra across EMEA with the introduction of Ultra Citron, which will be available in 10 additional EMEA markets in 2017.

Various SKUs in the Ultra range are now sold in 33 EMEA markets.

We are also pleased that Monster continued to perform well and gained market share in Great Britain, Germany, France, Spain, Norway, Denmark, Poland, Ireland, Italy and the Czech Republic.

In Asia Pacific, net sales in the first quarter increased 58.1% in dollars and 60.5% in local currencies over the same period last year. Gross profit in this region as a percentage of net sales increased from 45.2% in the same period last year to 47.7% during the 2017 first quarter.

In Japan, net sales in the quarter increased 18.8% or 22.3% in local currency as compared to the same quarter last year. We continue to experience strong performance in Japan.

In South Korea, net sales increased 15% or 18.2% in local currency as compared to the same quarter last year.

In Oceana, which includes Australia, New Zealand, Tahiti, French Polynesia, New Caledonia and Guam, net sales increased 44.7% or 50% in local currencies as compared to the same quarter last year.

As previously mentioned, we are moving ahead with plans for local production in India with a view towards reentering the market in 2017.

In Latin America, including Mexico and the Caribbean, gross sales in the first quarter increased 36.2% in dollars and 34.9% in local currencies. Net sales in the first quarter increased 42.2% in dollars and 41.8% in local currencies over the same period last year. Gross profit in this region as a percentage of net sales increased from 41.1% in the same period last year to 48.8% during the 2017 first quarter.

Net sales increased in Brazil 396.4% in dollars or 481.7% 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 47.6% in dollars and 59.1% in local currency.

Turning to the balance sheet. Cash and cash equivalents amounted to $576.3 million compared to $377.6 million at December 31, 2016. Short-term investments were $209.4 million compared to $220.6 million at December 31, 2016. Long-term investments decreased to $0.5 million from $2.4 million at December 31, 2016.

Accounts receivable increased to $509.5 million at March 31, 2017, from $448.1 million at December 31, 2016. Days outstanding for accounts receivable were 54.9 days compared to 48.2 days at December 31, 2016.

Inventories increased to $171.3 million from $162 million at December 31, 2016. Average days of inventory was 59 days at March 31, 2017, compared to 57 days at December 31, 2016.

As previously reported, in September 2016, we launched Mutant, an exciting super soda in limited convenience stores in certain U.S. markets with encouraging sales per point of distribution. We will be launching a line extension of our Mutant brand family, namely WHITE LIGHTNING, a 0-sugar offering, to limited customers initially, followed with a general market launch in July. We remain confident about the potential of this brand.

In preparation for the launch of Hydro, we commenced limited deliveries of Hydro products to our bottlers and full service distributors at the end of the quarter and are planning for the launch of Hydro to the general retail trade at the end of this month. Hydro is a noncarbonated lightly sweetened energy drink that is packaged in a unique 16.9-ounce PET can, the size of which is exclusive to us in the U.S. at this time.

We are planning to launch Hydro in a 550 ml PET bottle in the United Kingdom and Ireland during the second quarter of 2017. We expanded distribution of Monster Energy Ultra Violet and launched Full Throttle Orange during the first quarter of 2017.

At the end of April 2017, we launched a new Lewis Hamilton signature Monster Energy drink in Great Britain, which will be followed by launches in 24 European markets in the second quarter of 2017 and in South Africa in July.

We have a robust innovation pipeline and further launches such as [Mango Loco], a new flavor in our Monster Energy juice family, which is planned for a third-quarter 2017 launch and the new X-Presso Monster Energy drink in 8-ounce slim cans in 2 flavors planned for launch before year-end.

April 2017 had 1 fewer selling day compared with April 2016. We estimate April 2017 gross sales to be approximately 9.5% higher than in April 2016. On a foreign exchange-adjusted basis, we estimate April 2017 gross sales to be approximately 10.6% higher than in April 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 on 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.

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.

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 shares were repurchased under this repurchase program during the first quarter.

In conclusion, I would like to summarize some recent positive points. We recognized the reduction in raw-material costs of $23.3 million in the first quarter as a result of our acquisition of AFF. North American and international gross margins remain healthy. While the U.S. Nielsen market statistics show that the energy drink category slowed in the U.S. towards the end of the 2016 fourth quarter, it appears to have picked up steam through the first quarter. Equivalent market statistics for 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 first quarter and will 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) Our first question comes from Dara Mohsenian from Morgan Stanley.

Rodney, can you give us more detailed thoughts on your trend so far in the cities and where you've launched in China early on and you've been for a few months? Any update on consumer demand in those markets? And then also separately, some of the new cities launched more recently, what level of retailer reception you're getting?

I think that it really is still very early to tell. I mean, we're getting sales that we are comfortable with, sell rates, but they vary from area to area depending on the execution of the bottler, depending on the positioning in the stores and basically pricing and point-of-sale. So we think that it's certainly going to take time to continue.

You can't just put stuff -- a brand like Monster, which is not known -- on the shelf and expect it to immediately start achieving velocities that are where you'd would like it to be. There is a buildup, and we're going to go through this buildup over a period of time.

So really -- it really is premature. We're comfortable with the velocities we're getting and the volumes. We're comfortable with the attention and focus. We're putting a lot of effort behind it. We're building up our own infrastructure and team there to support the brand, support sampling and in-store execution. And we are seeing good execution from the point of view of our point-of-sale and things of that nature. And we are quite happy with that.

But really, it's just premature to talk. But -- we are comfortable with the market. It is a large market, and it will continue. We are right in the middle the rollouts. As we've indicated, where there were a whole new number of regions we introduced, probably late because of the Chinese New Year was late February into March. We are planning launches. We've planned launches, and we have launched throughout April, and we're continuing May. And then pretty much most of it will be done, so there will be a few more areas to do in June and July. But pretty much -- we think it will be pretty much done by then. There may be 1 or 2 hiccups that we don't anticipate at this point, but it will take time. And it's just a very big market that you got to be patient with and just build slowly.

I think one of the other points about China is that a number of the websites and social media that our consumers are used to elsewhere in the world don't appear in China. So in a sense, while we have extremely good exposure for the brand in many, many markets in the world, we don't have that same exposure through the Internet in China. So the build will be a lot -- I think a lot harder.

Our next question comes from Andrea Teixeira with JPMorgan.

I just wanted to follow-up with more like thinking of all the outlets. If you can think about like how your growth was -- I mean, if you're putting the $12 million back, most likely your sales grew close to 7%. I wanted to just clarify that in the U.S. and if that is a number that we should use? And how was the cadence of the improvement during the quarter? I'm assuming as most companies, like things have improved through the cadence of the quarter, and if you can tell us roughly how the takeaway -- I mean, how the sellout has been?

Let's just deal with the first question, one at a time.

Okay. All right.

You've got to do your own numbers. We don't report the numbers for the U.S. and break them out. You've seen the Nielsen numbers. If you take the Nielsen numbers and then factor in the negative effect on the production issues we've had, and they've really been sort of more identified by -- we've tried to keep the 2 main SKUs in production and on the shelf. But really what it does -- what it's done is that most of the other SKUs have been out of production and off the shelf. And that has continued. So you've got to really take that into account in looking at the growth of the industry and the growth of Monster in the U.S.

We did sort of have probably less innovation hitting in this period than we had last year. It's sort of the reverse for Red Bull. But again, we've got and -- we've explained on a number of occasions what our innovation is for this year and how it's going to come in later in the year just because of timing. So we really think that you guys are going to make your own judgment call on how you look at the U.S. and the growth.

We don't give guidance on the growth, either in the -- to U.S. or on a broader basis. But we feel pretty comfortable about the industry. We are seeing growth. If you look at the Nielsen numbers, and that's what I was referring to earlier, it was down to almost negative in convenience in December, and then it's grown just under a percent in January. It was 1.5% or so roughly, in February. It was 2.5% in -- or 2.6% in March, and it's actually gone up a little higher in April. So clearly, there is a nice trend. But -- you can see the numbers as well as we can, and we think that that is positive going forward.

But you say it tracks well at this point? Nielsen is tracking well your actual volumes?

I'm not sure I heard...

No. I'm just saying it's...

There's a difference between our sales and the increase in our sales and what we are seeing in Nielsen. So we went through the Nielsen numbers on the call. You saw what our quarterly sales levels were. And then you must make your own assumptions as to what do you think the performance was.

There -- we obviously sell in a lot of the nonmajor channels, and that really accounts for the differences. And if you've noticed, over the years, there always has been some timing differences between Nielsen and our numbers.

Our next question comes from the line of Mark Astrachan with Stifel.

So maybe just to go back to that last question, something that clearly comes up repeatedly in conversations from investors in terms of trying to reconcile the scanner data with your reported results, maybe if you could give us a bit of specifics about change in points of distribution in the untracked channels. Just sort of where have they come from, where are they now? And how large as a percent of the business -- if you don't want to say specifically, but just sort of broader strokes about how important they are becoming to the business today versus where they've been? I think that might help folks a bit.

Without going into the level of them, we are starting to do more business and have more sales in the nonmajor channels. For example, food service, specialty accounts, nonfood accounts, and those continue to increase. Internet, Amazon -- although small, some of them are small, they are increasing at quite a strong rate. And we think that one of the reasons there is possibly some slowdown in the convenience channel is it may be attributable to the broader availability, not only of Monster but, in fact, of energy drinks through a number of these nontraditional channels.

So, Mark, maybe I can give you a little bit more color on the -- in the on-premise segment, we continue to see double-digit growth in this channel. So maybe that will be helpful.

Our next question comes from Amit Sharma with BMO.

Two questions. One on China. You talked about the buildup as we go through the next few months or 3 months and expect to be fully done by later summer. When you say that, did you -- are you thinking about the ACV build or just the penetration? How are we thinking about it when we say fully implemented there? And then international again...

Well, let's just start -- let's just do it one at a time, guys, please.

Okay. When we say July, we will have launched through all of the business units in the -- on the 2, now, Coke bottlers. There were 3 Coke bottlers. And as you are aware, the Coca-Cola-owned bottler, they've sold their -- and refranchised their system and that's been divided effectively between COFCO and Swire. And then there was some interchange of territories between COFCO and Swire so that their own territories are more aligned and more adjacent to each other. So we will be -- have launched by July through the different BUs.

There is obviously no instantaneous, miraculous listing on all the shelves. We're going to continue to build, because particularly in China there is a modern trade, which is easier and that -- obviously, you pick up listings on that more -- much more quickly. But the very, very bulk -- large bulk of the business is still traditional trade, and that means it's got to be built up store by store slowly, one by one. So that is going to still take time to get that penetration up. And that is going to be a slow build, as we continue to build, as we continue to gain momentum, as we hopefully increase our velocity, we'll also be increasing our exposure and distribution through the whole system. So that's still going to take some time. There is a distinction between those 2.

Got it. That's really helpful. And then I just had a question on the international contribution margins, right? You talked about gross margins increasing in many markets. How should we think about it? Are you getting more and more contribution from international market? At the operating level also, are you seeing margins improve from these markets?

We are seeing some benefit. We are seeing benefits of scale and also improving our local production. We are continuing to get a number of additional plants online, which is helping us reduce our costs in many markets. And that will continue because there are -- as we continue to build out the international market, we are continuing to go through the -- this process of getting production lower and nearer to these markets.

We do have -- we'll have that same build in marketing and G&A spend. But initially, in some of the newer markets, we obviously are overspending in our G&A side, particularly payroll, in order to support the launches of brands. And so that will take some time. But as we continue, it will have less and less impact, as we get maturer in these markets.

But we still have -- do have some large markets. I mean, going through the market in China, at the moment we are continuing to increase our headcount quite substantially. As we're going to each of these launches and each of these BUs, we have to have representation. When we're going to -- India, we will need more people. So there is a disconnect, but it is becoming less impactful. And because of that, we are seeing, we think, some better gross margins and better bottom-line margins as we go forward.

Our next question comes from Laurent Grandet with Credit Suisse.

I'd like to understand -- I mean, to have a bit more clarification on 2 buckets of growth for you. So first is international launches. Could you give us an update on the 3 other major country launches in this year, so India, Pakistan and Argentina? I understand Nigeria has been done. And the second bucket, of course, is Mutant in the U.S. So would like to understand, I mean, what are the marketing activities you are planning to implement to support same-store sales growth since that seems to be soft for now? So if you can give me -- I mean, or give us, I mean, a bit on those two things -- I mean, 2 buckets of growth, that would be great.

All right. Just looking at the 3 markets, they are very large markets, but they're smaller markets from a point of view of the energy category -- or the premium energy category.

So in India, we are, as we've indicated, planning to launch. We're also evaluating the possibility of launching Mutant as a sort of an affordable energy drink in that market.

Argentina, we are moving forward. We are very close. We've still not finalized arrangements, packing arrangements, but we're right in the middle of negotiations on that and hope to be able to finalize that reasonably soon. We are at the same time going down the track of actually having our product registered and approved. So that's all happening. So that is -- again, will also be a later launch, later this year.

With regard to Pakistan, that is -- we just pretty much, I think we're about or we are in the throes of just starting to sell now. But it's a smaller market from a premium energy-drink product brand. We think there is a much larger market that we can look at. And again, we're also looking at the possibility of launching Mutant there, also still later this year. So they're sort of slightly different markets, and we are in the planning stages with them and in the process. So they're all, hopefully, going to come through before the end of the year.

And on Mutant in the U.S. Give us some color on to the marketing activities you're planning to implement to support the same-store sales growth, that will be great.

Well, we have some planning activities. We have switched certain of our existing Monster properties, which we've had for many years that have done -- worked very nicely for Monster, such as the Vans Warped Tour. We've made the Vans Warped Tour very much a Mutant property, which will get us a lot of sampling, a lot of exposure in 40-something markets and concerts around the U.S.

We will also -- we've also switched, not completely but a lot of exposure of Mutant into the Monster Jam series, which are those big trucks, and that's going to happen for the rest of the year. We're going to do in-store price promotions. We're doing sampling, extensive sampling promotions as well for Mutant. And that's all starting to kick in now, starting in May and June, the promotions and as I said, the sampling activities.

We also indicated that we had started in certain -- with certain limited retailers. We're actually starting some distribution of basically, our new 0-calorie WHITE LIGHTNING Mutant drink, which will then give us a better positioning on shelf and give us alternative offerings, full calorie, and sugar and 0. And that will be probably in the general market by beginning of July.

So those 2 things together, we believe with a much broader rollout now, we've opened the market. The number of accounts we're going to in the channels, we are expanding that at the same time now and getting listings. And so, again, by the time you get to summer, mid-year, we think that we will have much better distribution for Mutant.

Thank you. This does conclude our question-and-answer session. I would like to turn the call back over to Mr. Rodney Sacks, Chairman and CEO, for closing remarks.

On behalf of Monster, I would like to thank everyone for their continued interest in the company. We continue to believe in the company and our growth strategy and remain committed to continuing to develop and differentiate our brands and to expand the company, both at home and abroad, and in particular to expand distribution of our products through the Coca-Cola bottling system internationally.

We're also particularly excited by the new opportunities that we have going forward with the portfolio of energy drink products throughout the world, comprised of our Monster Energy brand together with the Strategic Brands as well as Mutant.

Thank you very much for your attendance.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you all may disconnect. Everyone, have a great day.