怪物飲料 (MNST) 2017 Q4 法說會逐字稿

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

I would now like to introduce your host for today's conference, Mr. Rodney Sacks, Chairman and Chief Executive Officer. Please 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'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, including our most recent annual report on Form 10-K filed on March 1, 2017, and our Form 10-Q dated November 8, 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 February 28, 2018. A copy of this information is also available on our website at www.monsterbevcorp.com in the Financial Information section.

The global beverage industry generally continues to face headwinds, although the energy category continues to gain momentum. In the fourth quarter, net sales were $810.4 million, up 7.5% from $753.8 million in the fourth quarter of 2016. Net sales in the fourth quarter were positively impacted by approximately $7.3 million of foreign currency movements. The company recorded fourth quarter gross sales of $954.8 million, up 10.1% from $848.8 million in the fourth quarter of 2016.

Gross sales in the fourth quarter were positively impacted by approximately $9.3 million of foreign currency movements. Net sales and gross sales in the fourth quarter were adversely affected by inventory reductions in the quarter by certain of our international distribution partners in Europe, Chile and Japan. We estimate that the impact of such inventory reductions was approximately 2% on net sales in the 2017 fourth quarter. The actual impact on net sales and gross sales could differ significantly from the currently estimate, which includes estimates of certain distributors' own inventory levels.

Gross profit as a percentage of net sales for the fourth quarter were 62.1% as compared to 66.1% for the comparable 2016 fourth quarter and 62.6% for the 2017 third quarter. As a reminder, lower promotional allowances as a percentage of sales in the 2016 fourth quarter, together with the reduction in Java Monster sales, had the effect of increasing the gross profit percentage by approximately 2% in the 2016 fourth quarter.

The decrease in gross profit as a percentage of net sales for the 2017 fourth quarter compared to the 2016 fourth quarter was primarily attributable to sales mix, primarily increased sales of Java Monster, inventory reserves in China, lower allowances as a percentage of sales in the fourth quarter of 2016 as well as the increases in other costs, primarily increases in sweeteners and aluminum cans as well as logistical costs from imports.

Distribution costs as a percentage of net sales were 3.6% for the 2017 fourth quarter as compared to 3.2% in the 2016 fourth quarter, largely due to distribution inefficiencies with certain products as well as duplicative storage costs due to the transition to our new 1 million-square-foot warehouse and distribution center in Southern California.

Selling expenses as a percentage of net sales were 13.6% compared to 12% in the same quarter a year ago. The increase was primarily due to increased sponsorship and endorsement costs, advertising, mainly for NOS, increased costs relating to in-store demos, merchandise displays, commissions and trade development.

General and administrative costs as a percentage of net sales were 11.9% as compared to 17.5% in the same quarter last year. Included in general and administrative costs were distributor termination expenses of $46.3 million in the comparable 2016 fourth quarter. General and administrative costs, excluding distributor terminations, were 11.4% of net sales for the comparable 2016 fourth quarter.

In the quarter, payroll expenses were up $10.8 million compared to the same period last year, primarily due to headcount growth, both domestically and internationally, including to support the launches in China and other countries. Payroll taxes increased $3.5 million in the quarter compared to the same period a year ago; and stock-based compensation, a noncash item, was $0.9 million higher.

Legal expenses related to regulatory matters and litigation concerning the advertising, marketing, promotion, ingredients, usage, safety and sale of the company's products were $2.5 million in the 2017 fourth quarter as compared to $5.1 million in the 2016 fourth quarter.

Operating income was adversely affected by losses in China and India. The losses in India were due to the establishment costs in advance of the launch, which has taken longer than anticipated for technical reasons as well as inventory reserves.

Our effective tax rate decreased from 29.9% in the 2016 fourth quarter to 24.8% in the 2017 fourth quarter. The decrease in the effective tax rate was due primarily to an increase in the stock compensation deduction. The amount of excess tax benefits recorded in income for the 2017 fourth quarter was $82.9 million compared with $13.7 million in the fourth quarter of last year. The decrease in the effective tax rate was partially offset by provisional charge of $39.8 million included in the provision for income taxes in the fourth quarter of 2017 and a $2.1 million charge for a onetime deemed mandatory repatriation of post-1996 earnings and profits as a result of the Tax Reform Act signed into law in December 22, 2017.

Under the Tax Reform Act, the U.S. corporate income tax rate will be reduced from 35% to 21% beginning in 2018. The provisional charge was attributable to the revaluation by the company of its net deferred tax assets at December 31, 2017.

Net income was $201.3 million in the 2017 fourth quarter compared to net income of $172.9 million in the 2016 fourth quarter, an increase of 16.4%. The weighted average number of diluted shares outstanding decreased from $580.5 million for the fourth quarter of 2016 to $575 million for the fourth quarter of 2017 as a result of share buybacks.

Diluted earnings per share for the 2017 fourth quarter increased 17.5% to $0.35 from $0.30 in the fourth quarter of 2016. We estimate that distributor termination expenses in the comparable 2016 fourth quarter reduced reported earnings by approximately $0.05 per share after tax.

We continue to make good progress in the implementation of our strategic alignment with Coca-Cola bottlers globally. We are also making good progress in the U.S. in nontraditional channels, including food service, accounts and e-commerce. In the U.S., we transitioned Monster in parts of Minnesota and Arkansas, and with the recent transition in the first quarter of 2018, Minnesota is now fully transitioned to Coca-Cola bottlers.

In EMEA, we commenced distribution of Monster with Coca-Cola bottlers in Ghana and Morocco in the fourth quarter of 2017. Additional launches are planned in the first quarter of 2018 in Armenia, Belarus and Tanzania. In the fourth quarter of 2017, we commenced distribution of Monster with Coca-Cola Bottlers in the Bahamas and Granada as well as in Jamaica with an independent bottler.

We plan to launch Monster in Argentina in the first quarter of 2018 and in Ecuador and Uruguay during the second quarter of 2018.

In China, we are now focusing our efforts towards establishing Monster around the country with an emphasis on key cities and accounts. We also transitioned Monster Energy in Vietnam and have begun distribution of Monster Energy in Taiwan.

We're also planning to relaunch Monster in India, initially in a limited territory, and are currently engaged in production trials. We recorded a loss for the quarter in India, which I referred to earlier.

We plan to launch Mutant, an affordable energy brand that is positioned differently than in the U.S. where Mutant is positioned as a super soda, in Pakistan, Cambodia, Myanmar and Vietnam in 2018.

Raw material cost savings from the AFF transaction were approximately $25.1 million in the fourth quarter of 2017 as compared with $22 million in the fourth quarter of 2016.

According to the Nielsen report for the 13 weeks through February 17, 2018, all outlets combined, namely convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category, including energy shots, increased by 4.5% versus the same period a year ago. Sales of Monster grew 12.2% in the 13-week period while sales of NOS increased 5.5% and sales of Full Throttle decreased 2.8%. Sales of Red Bull increased 2.8%. Sales of Rockstar increased by 0.1%. Sales of 5-Hour decreased 7.3% and sales of Amp decreased 22.4%.

According to Nielsen, for the 4 weeks ended February 17, 2018, sales in the convenience and gas channel, including energy shots, in dollars, increased 4.3% over the same period last year. Sales of Monster increased by 13.9% over the same period last year while NOS was up 5.9% and Full Throttle sales decreased 1.4%. Sales of Red Bull were flat. Rockstar was down 2.4%. 5-Hour was down 8.4% and Amp was down 15.5%.

According to Nielsen, for the 4 weeks ended February 17, 2018, Monster's market share of the energy drink category in the convenience and gas channel, including energy shots, in dollars, increased by 3.2 points over the same period last year to 38.1%. NOS' share increased by 0.1 points to 4.3% and Full Throttle share decreased 0.1 points to 1%. Red Bull share decreased 1.4 points to 34.1%. Rockstar share was down 0.5 points to 7.6%. 5-Hour's share was lower by 0.9 points at 6.6%. And Amp's share decreased 0.3 points to 1.1%.

According to Nielsen, for the 4 weeks ended February 17, 2018, sales of Energy Plus Coffee drinks, in dollars, in the convenience and gas channel increased 8.8% over the same period last year. Sales of Java Monster were 26.9% higher than the same period last year, while sales of Starbucks Doubleshot Energy were 8% lower.

The production capacity shortages that we experienced in the second half of 2016 for both Java Monster and Muscle Monster were largely worked through by the fourth quarter of 2017. Both Java Monster and Muscle Monster came off allocation in the quarter. Together with our bottling partners, we are currently focused on regaining lost shelf space for these products.

According to Nielsen, in the convenience and gas channel in Canada, for the 12 weeks ended February 3, 2018, the energy drink category increased 8% in dollars. Monster sales increased 14% versus a year ago. Our market share increased 1.7 share points to 32.4%. NOS's sales increased 65% and its market share increased 1.1 points to 3.1%. Full Throttle sales increased 45% and its market share increased 0.4 points to 1.6%. Red Bull sales increased 5% and its market share decreased 1.3 points to 35.8%. Rockstar sales increased 3% and its market share decreased 0.7 points to 18%.

According to Nielsen, for all outlets combined in Mexico, the energy drink category grew 3.3% during the month of January 2018. Monster sales increased 21.5%. Our market share in value increased 4.8 points to 31.7% against the comparable period last year. Sales of Burn decreased 39.7%. Burn's market share decreased 1.2 points to 1.7%. Red Bull sales decreased 7.4%, and its market share decreased by 1.4 points to 11.8%. Vive 100 sales decreased 9.6% and its market share decreased 4.6 points to 31.9%, while Boost's market share decreased 1.1 points to 11.9%.

The Nielsen statistics for Mexico covers 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 ending January 2018, Monster's retail market share in value compared to the same period last year grew from 15.9% to 18.8% in Great Britain, from 27.4% to 28.6% in Spain and in France from 22.5% to 25.5%.

According to Nielsen, in the 13-week period ending December 2017, Monster's retail market share in value as compared to the same period last year grew from 10.7% to 11.6% in Belgium, from 10.1% to 13.9% in Ireland, from 10.9% to 11% in Sweden, from 5% to 7.1% in the Netherlands, from 15.1% to 15.9% in Germany, from 10.8% to 15.7% in Norway and from 31.5% to 33.5% in Greece and from 8.8% to 13.5% in Italy.

For the 13-week period ended December 2017, Monster's retail market share in value decreased, however, from 16.1% to 14.9% in South Africa, although the retail value sales actually grew 10.6% in the same comparative period; and from 12% to 11.3% in the Czech Republic, although retail value sales grew 0.8% in the same comparative period.

I'd 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, for the month of December 2017 in Chile, Monster's retail market share in value increased from 26.1% to 33.2% compared to the same period last year. And Monster's market share in value in Brazil for the month of December increased from 5% to 15.2% as compared to the same period last year.

According to IRI, in Australia, Monster's market share in value grew from 6.3% to 7.1% in December 2017 as compared to the same period last year. According to IRI, in New Zealand, Monster's market share in value for the last 4 weeks ended December 24, 2017, grew from 5.3% to 6.4% as compared to the same period last year.

According to Nielsen, in South Korea, Monster's market share in value in all outlets combined grew from 22.7% to 26.5% in the fourth quarter of 2017 versus the same period last year.

According to INTAGE, Monster's market share in value in the convenience store channel in Japan grew from 41.6% to 44.4% in the fourth quarter of 2017 versus the same period last year. We again point out that certain market statistics that cover single months may often be materially influenced, positively and/or negatively, by promotions or other trading factors during those months.

Net sales for the Monster Energy Drink segment for the fourth quarter of 2017 increased 7.6%, from $684.4 million to $736.1 million from the comparable period last year. Net sales for the Monster Energy Drinks segment in the fourth quarter were positively impacted by approximately $5.8 million of foreign currency movements.

Net sales for the Strategic Brands segment was $69.6 million for the fourth quarter as compared to $64.5 million in the same quarter last year. Net sales for the company's Strategic Brands segment were positively impacted by approximately $1.5 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 both the 2017 and 2016 fourth quarters.

Net sales to customers outside the U.S. were $210.4 million in the 2017 fourth quarter compared to $193.5 million in the corresponding quarter in 2016.

Foreign exchange had the effect of increasing net sales in U.S. dollars by approximately $7.3 million. Included in the reported geographic sales are our sales to the company's military customers, which are delivered in the U.S. and transhipped to the military and their customers overseas.

In Europe, the Middle East and Africa, net sales for the fourth quarter increased 10.2% in dollars and 4.1% in local currencies over the same period last year. Gross profit in this region as a percentage of net sales for the quarter was 47.5% compared to 52.8% in the same quarter last year and 50.9% in the third quarter of 2017, in part due to increases in raw materials, aluminum and co-packing costs, as well as lower allowances as a percentage of sales in the fourth quarter of 2016.

The increase in sales in the fourth quarter in EMEA was negatively affected by inventory reductions at the end of the quarter by our largest distribution partner in the region. The inventory reductions resulted in substantially higher sales to that distribution partner in January 2018 as compared to January 2017.

It is significant to note that sales by our distribution partners to customers in the quarter increased by approximately 24% in EMEA, which was in line with the retail sales reported by Nielsen and IRI for that period.

We are pleased with the rollout of certain SKUs in the Ultra range in EMEA markets. In 2017, we added certain SKUs of Ultra across EMEA with the introduction of Ultra Citron, which is now available in 10 additional EMEA markets in 2017. Various SKUs in the Ultra range are now sold in 35 EMEA markets. We're also pleased that Monster continued to perform well and gained market share in Belgium, Denmark, France, Great Britain, Greece, Ireland, Italy, the Netherlands, Norway, Poland and Spain.

In Asia Pacific, net sales in the fourth quarter decreased 5.3% in dollars and 1.9% in local currencies over the same period last year, mainly due to a correction in inventories by our bottler partners in China. Gross profit in this region as a percentage of net sales was 32.4% versus 44.1% over the same period last year, largely driven by product reserves in China and India.

In Japan, net sales in the quarter increased 2.2% or 10% in local currency as compared to the same quarter last year, due to the timing of production, which effectively resulted in a reduction in inventory by our distribution partner at the end of the fourth quarter. As with the number of our other overseas distributors, sales by our distributor to the retail trade and retail sales to consumers remain strong and in line with earlier periods.

In South Korea, net sales increased 43.1% or 44.9% in local currency as compared to the same quarter last year. In Oceania, which includes Australia, New Zealand, Tahiti, French Polynesia, New Caledonia, Papua New Guinea and Guam, net sales increased 25.2% or 23.2% in local currencies as compared to the same quarter last year. As previously mentioned, we are engaged in production trials in India with a view towards reentering the market initially in a limited territory.

In Latin America, including Mexico and the Caribbean, gross sales in the fourth quarter increased 25.5% in dollars and 21.4% in local currencies. Net sales in the fourth quarter increased 18.9% in dollars and 14.4% in local currencies over the same period last year. Gross profit in this region as a percentage of net sales was 47.1% versus 52.5% over the same period last year and 47.6% in the 2017 third quarter. The decrease in gross profit was in part due to a decrease in sales of Burn in Brazil and Mexico as well as product returns in Peru.

In Mexico, promotional allowances were higher in the fourth quarter of 2017 relative to the same quarter in 2016. Net sales increased in Brazil by 82.8% in dollars or 79.3% 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 1.8% in dollars but decreased 3.8% in local currency, primarily due to inventory reductions by our Coca-Cola distributors in the fourth quarter. Sales to the retail trade by our distributors in the fourth quarter increased by approximately 49% compared to the fourth quarter of 2016.

Turning to the balance sheet. Cash and cash equivalents amounted to $528.6 million compared to $377.6 million at December 31, 2016. Short-term investments were $672.9 million compared to $220.6 million at December 31, 2016. Long-term investments were $2.4 million at December 31, 2017 and 2016. Accounts receivable increased to $449.5 million at December 31, 2017, from $448.1 million at December 31, 2016. Days outstanding for accounts receivable were 43.8 days compared to 48.2 days at December 31, 2016.

Inventories increased to $255.7 million from $162 million at December 31, 2016. Average days of inventory was 75 days at December 31, 2017, which includes increased inventories of Java Monster as well as in advance of their launches, Caffe Monster and Muscle Monster in bottles compared to 57 days at December 31, 2016.

Monster Energy continues to innovate with new beverages and new packages. We launched Espresso Monster in 2 flavors and NOS Nitro Mango in the U.S. at the end of 2017. In the first quarter of 2018, we launched Caffe Monster, a ready-to-drink energy coffee in 13.7-ounce glass bottles, in 3 flavors and relaunched Muscle Monster in a 15-ounce plastic bottle in 2 flavors.

In the first half of 2018, we plan on rebranding our 2 Monster extra strength SKUs into the Monster Maxx line. Beginning in the second quarter of 2018, we will be discontinuing 1 of our 2 existing SKUs in this line and adding 2 new flavors. We are also launching a rehabbed White Dragon tea. Finally, capturing on the 2017 excitement of Monster Hydro in a 16.9-ounce can, we're expanding Monster Hydro into a resealable 25.4-ounce bottle and adding 3 new flavors.

In Canada in the fourth quarter, we launched Monster Energy Ultra Violet with a large customer and also launched Mutant Super Soda nationwide. In the first quarter of 2018, we launched Monster Energy Ultra Violet nationwide and Monster Hydro in a 550 ml PET bottle in 3 flavors as well as Full Throttle Orange in 16-ounce cans.

We launched Monster Hydro in a 550 ml plastic bottle in the United Kingdom, South Africa and Ireland during 2017. We also launched Monster Hydro in Sweden and Germany in the first quarter of 2018. We are launching Monster Energy Ultra Violet in the first quarter of 2018 in the Czech Republic, Germany, Ireland and the United Kingdom.

The Lewis Hamilton signature Monster energy drink launched in the second quarter of 2017 and was available in 24 EMEA markets by the end of 2017. We are launching the Lewis Hamilton signature Monster energy drink in Australia and New Zealand in the 2018 first quarter.

We estimate January 2018 gross sales to be approximately 27.9% higher than in January 2017. On a foreign exchange adjusted basis, we estimate January 2018 gross sales to be approximately 25.1% higher than in January 2017. In this regard, we estimate that less than half of such increase is attributable to, a, the increase in January 2018 sales following inventory reductions by certain of our international distributors that occurred in the fourth quarter of 2017; and, b, initial shipments of Caffe Monster and Muscle Monster in bottles, which will launched in January 2018.

We caution again that sales over a short period are often disproportionately impacted by various factors such as, for example, selling days, days of the week in which holidays fall, timing of new product launches and the timing of price increases and promotions in retail stores, distributor incentives as well as shifts in the timing of production in some instances where our bottlers are responsible for production and unilaterally determine their production schedules, which affects the dates in which we invoice such bottlers as well as inventory levels maintained by our distribution partners, which they alter unilaterally for their own business reasons. We reiterate that sales over a short period, such as the single month or even longer, 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. During the fourth quarter, we purchased 0.02 million shares of common stock at an average purchase price of $54.99 per share for a total of $1.1 million, excluding broker commissions, leaving a remaining authorization of approximately $250 million. On February 27, 2018, the board authorized an additional repurchase program to bring the aggregate amount available to $500 million of the company's outstanding common stock.

In conclusion, I'd like to summarize some recent positive points. One, we recognized a reduction in raw material costs of $25.1 million in the fourth quarter as a result of our acquisition of AFF. Two, our gross margins remain healthy. Three, U.S. Nielsen convenience market statistics for the 4 weeks ended February 17, 2018, reflect that the company achieved its highest market share in the energy category in dollars and a 42.9% market share, including the strategic brands, and that the Monster Energy brand achieved its highest market share in the energy category at 38.2% market share. Four, despite inventory reductions by certain of our international distributors, retail sale statistics from many countries around the world demonstrate that the energy category is continuing to grow and that Monster is generally growing ahead of the category, in line with earlier periods. Five, the new additions to the Monster family continue to add to the company's sales. Six, we are excited about the prospects for our new product launches. Seven, we are pleased with our performance in our international markets and reiterate the growth potential for us in China and India despite operating losses recorded during the quarter for India and China of approximately $9 million. We have successfully launched or transitioned Monster Energy drinks to Coca-Cola bottlers in a number of markets last year and anticipate further transitions and launches this year.

I'd like to open the floor to questions about the quarter and the year. Thank you.

(Operator Instructions) The first question comes from the line of Bill Chappell of SunTrust.

Just on the gross margin side, the 3 factors that impacted the fourth quarter, China reserves, raw materials or having higher material costs and then the mix, would you expect kind of all of those to have a similar impact as we move into '18 or any of them being mitigated? How should I look at it, especially on the higher raw material costs, how should I look at that in '18?

The higher material costs, we expect to continue, particularly for aluminum. I think you've seen the announcements that are in play regarding aluminum and aluminum costs. So we expect an increase in aluminum. Sweetener, we'll continue to experience costs in sweetener this year. So the only factor that will possibly diminish is inventory reserves in China. Those we don't expect to continue.

The next question is from Mark Astrachan of Stifel.

So I guess I wanted to ask about these inventory reserves. So what exactly is going on in China, I guess, most specifically? But also, why are you doing that in India? And then just sort of more broadly, I guess I get the moving parts on what you talked about from inventory reductions by bottlers outside of the U.S. But I guess if you look at it within the U.S. as well, the numbers were still, on a reported basis, lower than what the on-demand or scanner data would have indicated. So I guess I'm curious how you think about that. Is that catch-up on the overshipment in prior quarters? And sort of how do you think about that from an inventory standpoint now going forward?

I think the issue in China was, I think, the demand was misjudged in summer. And we ended up with, I think, excess inventory, which we've needed to work through and we've made provisions for that. In India, we've also been running some test runs and trials, and we've been having some challenges in some of the testing of ingredient levels. They use a different testing -- set of tests to what we do and we use around the world. And we've been having a number of debates about what the testing levels are because we were comfortable with the ingredient levels that we put in, but yet they were coming out on testing levels because of the way they extrapolate the results, a little differently. But yet that is the method that is used in India, and that has caused us some hiccups and delays in getting going because we just can't -- we're just struggling with the testing levels. And that's resulted in, again, some inventory and stock writeoffs. With regard to the scanner data in the U.S., I think there's been an increase in the scanner data more recently. I think the numbers are coming up. And I think that's just indicative of where the market has been, but it has improved from the latter part of last year.

We've never said that there's a perfect science between our sales to our distributors and the sales at retail. But over a period of time, one does see the correlation. And then one other thing I wanted to add on India is there are some new can regulations, labeling regulations that are being put in place, which was another reason for certain reserves in India.

Right. I agree.

The next question is from Andrea Teixeira of JPMorgan.

I just want to clarify. You obviously said that the impact of the extra inventory could be about less than 50%. So I'm trying to do the math. Would you say it's like in the mid-teens growth? And then you had an extra selling day in January '18. So what should we be thinking like on a normalized basis like you would run through on run rate on the top line quarter-to-date? And then the other question is regarding your gross margin. I understand all the puts and takes, but in your view, you're still going to see pressure from these items into 20 -- bigger pressure into 2018 on the gross margin, but it is mostly a mixed effect and -- on aluminum. But if you can kind of like help us guide us through the impacts, that would be grateful.

So on the gross margin, we don't give guidance. And it's something that the company has never done. We give the information as we have it, as we see it through the quarter. But if you wanted a kind of gross margin, a conservative gross margin looking forward, I personally -- and this is a personal feeling, I would just use of the gross margin for the quarter.

That's helpful. And on the top line, just trying to see from the extra day. And obviously, you said less than 50% impact. So I'm trying to reconcile the 25% or 27% FX neutral on quarter-to-date. Is that something we should be thinking on the mid-teens kind of normalized base or are a bit less because of the extra day?

We actually described it as less than 50 -- less than half. And the reason we did that was that what we don't know is while there was, we believe, additional purchases by this distribution -- by the distributors, we're not sure all of those additional purchases took place in January because we haven't done an analysis of the specific SKUs and the purchases. And so we believe that it was less than 50%. But that is our best estimate on those numbers at this time.

The next question is from Laurent Grandet of Crédit Suisse.

On the international business, how should we think about the right level of growth in the international segments? So 5% organic growth in the quarter seems extremely low. Would yearly growth level at 25% be right and the 50%-plus we saw in the first 3 quarters to be inflated by gradual increase of inventory? So I'm trying to figure out what's the right level of inventory in international to figure out the right growth level in that segment.

Well, again, we described on this call what had happened with regard to inventory reductions. We also spoke about some issues with regard to China. We don't give guidance, but I think there's sufficient information for you to look at historical information and honestly make up your own estimates because we don't give guidance. It's really difficult to sit here and answer these questions where you guys are looking for guidance. We don't give guidance.

And I think we did mention that if you -- and that's why we actually have given a lot of the Nielsen information and sales out because that is less affected by purchases of inventory and timing and production timings. And so if you look at EMEA, which is probably our largest international market, we've given you it's close to -- Nielsens are up in EMEA but close to mid-20s. And we've given you Nielsens for the other areas as well. So those are the numbers that are showing where we expect the numbers to continue. And so when we look at the demand and ongoing sales levels for international, that's pretty much in line with the Nielsen numbers and the numbers that have been reported by us in previous quarters. It's clearly a choppy quarter, but that's why we think that the sales out numbers, the business from our distributors, and the best number of all is obviously the sales into the markets, which are measured, generally reasonably reliably measured, by the Nielsen, all the numbers that you guys should be looking to going forward.

And that's why we give these numbers.

The next question is from Caroline Levy of Macquarie.

This is on distribution and selling expenses up as a percent of sales. Could you just explain to us in an environment where there's a shortage of truckers and distribution costs are going up, how it works for you guys? Are you all third party? Are your contracts longer term? And then on the selling side, how much of that big percentage increase versus sales was relating to the China/India market?

So, on distribution costs, we relocated our warehousing to our new warehouse in California during the quarter, and that impacted distribution costs. Regarding trucking, we have our own fleet that we operate mainly for our local markets, but we depend extensively on third-party trucking. And then, Caroline, your other question was how much of the distribution costs were related to China and India, and I don't have that on hand, I'm sorry. In India, obviously, it wasn't much because we're still in production trials.

The next question is from Kevin Grundy of Jefferies.

Two quick points of clarification just because the quarter was a little bit noisy with the distributor issue. So one, just to be very clear, it seems like it was just sort of a 1-month issue that not only do you not expect it to persist but it already seems like it's begun to reverse out in the month of January. So if you could just clarify on that. And then...

Correct.

Okay, perfect. And question number two is it doesn't seem like there is anything quantitatively that changes your view on the outlook for your international business. The POS data, the Nielsen data sound very, very strong. So if you could just confirm that. And included in that response, could you also include China and whether you have a change in view there and what the company's outlook and what it's capable of achieving in that market?

I think that generally, international is in line with Nielsen and what we've already indicated. We are -- and we are comfortable with that. And we think that the -- basically, our sales momentum remains intact for the brand. In the China market, that has been a challenging market. And it's been costly and we've incurred -- obviously incurred losses. We knew we would do so. And your question is -- not [dissimilar to any] other companies who have entered the Chinese market, we are continuing to persist with it. We've obviously -- we have the resources. We put resources behind the brand. We put marketing and promotion behind the brand, and those are continuing to obviously impact our bottom line. But we see those as long-term opportunities. We've got to look to establishing the brand in the long term in China. That's our objective, and we're confident we'll get there. But we're just going to have -- it's going to take time to do so. And again, in India, we are -- we don't believe India, in the shorter term, is as big a market or potential as China. But it also has just been -- again, there have been some ups and downs in getting going. We are confident that we will get going, but it has -- we've set up with staff, we've set up with operations there, and that clearly has affected our bottom line. Those amounts will start eventually to improve as we continue to increase our sales and are able to manage our expenses in those countries more efficiently going forward.

Yes, I'd just like to add that the group that has worked with the company for a number of years will remember that it took a number of years for us to become profitable in Europe and in EMEA generally. And there are a lot of lessons that are being learned in China. Every day we've got some of our own executive staff over there on secondment. And our bottling partners are just very much on board. And we haven't heard anything negative about the long-term potential for the brand from our partners.

Thank you. And this concludes the Q&A session. I will now turn the call back over to Mr. Sacks for closing remarks.

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 and 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 bottlers system internationally. We're also particularly excited about the new opportunities 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 and Mutant. Thank you very much, for your attendance.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day, everyone.