Monster Beverage Q1 2022 Earnings Call Transcript

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Provided by Quartr
May 5, 2022

There are 9 speakers on the call.

Operator

Good

Speaker 1

day, and welcome to the Monster Beverage Company First Quarter 2022 Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'd now like to turn the conference over to Rodney Sachs and Hilton Schlossberg, please go ahead.

Speaker 2

Thank you. Good afternoon, ladies and gentlemen. Thank you for attending this call. I'm Rodney Sachs. Hilkner Slosberg, our Vice Chairman and Co Chief Executive Officer is on the call, as is Tom Kelly, our Chief Financial Officer.

Speaker 2

Tom Kelly will now read our cautionary statement.

Speaker 3

Before we begin, I would like to remind listeners that certain statements as amended and Section 21E of the Securities Exchange Act of 1934 as amended and are based on currently available information regarding the expectations of management with respect to revenues, Profitability, future business, future events, financial performance and trends, as well as the future impact of the COVID-nineteen pandemic on the company's business and operations. 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 ks filed on February 28, 2022, including the sections contained therein Risk Factors and Forward Looking Statements for a discussion on specific risks and uncertainties that may affect our performance. The company assumes no obligations to update any forward looking statements, whether as a result of new information, future events or otherwise. I would now like to hand the call over to Rodney Sachs.

Speaker 2

Thank you. The company achieved record 1st quarter net sales of $1,520,000,000 in the 2022 Q1, 22.1 percent higher than net sales of $1,240,000,000 in the 2021 comparable period. As in recent quarters, to meet increased demand for our products rather than experience out of stocks for certain lines at retail, During the 2022 Q1, the company continued to procure additional quantities of aluminum cans The company experienced significant increases in cost of sales relative to the comparative 2021 Q1, primarily due to increased freight rates and fuel costs, including costs relating to the importation of aluminum cans, as well as aluminum can costs attributable to higher aluminum commodity pricing. The company also experienced a significant increase in ingredient and other import Costs, secondary packaging materials, co packing fees and production inefficiencies. The company continued to experience Additional global supply chain challenges, including the lack of adequate shipping containers and port congestion, which resulted in shortages of certain ingredients and finished products.

Speaker 2

This necessitated the company air freighting substantial quantities of Certain Ingredients internationally, particularly to EMEA, Asia Pacific and Latin America at additional costs and inefficiencies. Furthermore, the company experienced significant increases in distribution expenses, including increased fuel, freight and warehousing costs, which adversely impacted operating expenses. The company continued to address the challenges in its supply chain as it navigates through the uncertainty of the current global supply chain environment. In the United States, the company secured additional co packing capacity to meet increased demand for certain of its products. The company estimates that approximately $46,000,000 of costs in the quarter were the result of operating inefficiencies Due in part to strong consumer demand, including the importation of aluminum cans as well as COVID-nineteen related issues such as port congestion, Shortage of shipping containers resulting in the need to airfreight ingredients, which the company continues to address.

Speaker 2

In addition, increased commodity and raw materials costs, Including aluminum, other ingredient costs and secondary packaging incurred during the quarter amounted to approximately 45,000,000 And increases in freight rates and fuel impacted gross profits by approximately $6,000,000 Gross profit as percentage of net sales for the 2022 Q1 was 51.1% compared with 57.5% In the 2021 Q1, the decrease in gross profit percentage for the 2022 Q1 was primarily the result of the items mentioned previously as well as geographical sales mix. Additionally, GALP requires a fair value step up of the Canopy inventories of $3,800,000 which together with expenses related to the acquisition of Kanarki of $4,200,000 during the quarter adversely affected both gross margins and operating expenses. The decrease in gross profit as a percentage of net sales for the 2022 Q1 was partially offset by pricing actions. Operating expenses for the 2022 Q1 was 377,200,000 compared with $300,800,000 in the 2021 Q1. As a percentage of net sales, operating expenses Distribution expenses for the 2022 Q1 increased to $81,400,000 which is an increase 49.7 percent or 5.4 percent of net sales compared to 54,400,000 or 4.4 percent of net sales in the 2021 Q1.

Speaker 2

The 27 expenses was primarily due to increased freight out costs of $20,600,000 as a result of higher outbound $6,400,000 as a result of higher raw material and finished good product inventories in the United States and EMEA. We believe that a portion of the increase in distribution expenses that we experienced in the quarter are likely to be transitory. The increase in other operating expenses was primarily due to increased expenditures for Travel and Entertainment, increased payroll expenses, Increased professional services expenses, including accounting and legal expenses, increased commissions and increased sponsorships and endorsements. During the comparative 2021 Q1, the company decreased expenditures for travel and entertainment As well as our marketing programs, largely as a consequence of the COVID-nineteen pandemic, the impact of the COVID-nineteen pandemic was Less pronounced on such expenses during the 2022 Q1. Operating expenses as a percentage of net sales For the 2022 Q1, we're 24.8 percent as compared to operating expenses as a percentage of net sales for the 2019 1st quarter pre COVID, which was 27.7%.

Speaker 2

Our 2 new suppliers of aluminum cans in the United States are now operational. And as a result, we are able to decrease our reliance on the use of imported aluminum cans in the United States. In the United States, we anticipate seeing a reduction in cost of sales related to the use of imported aluminum cans in the latter half of twenty twenty two. Although we expect to reduce the importation of aluminum cans into EMEA in the second half of twenty twenty two, We will only see a reduction in cost of sales after we have worked through current inventories of imported cans in EMEA. We rebuilt and increased finished product inventory levels across the United States and EMEA to reduce Excessive cost of long distance freight to satisfy demand and to return to our orbit strategy of producing in closer proximity to our customers.

Speaker 2

The costs of repositioning finished products to distribution centers are included in freight in costs. Operating income For the 2022 Q1, decreased 3.5 percent to $399,500,000 from 414 Net income decreased 6.7 percent to $294,200,000 as compared to $315,200,000

Operator

in the 2021 comparable quarter.

Speaker 2

Diluted earnings per share for the 2022 Diluted earnings per share for the 2022 Q1 decreased 6.8 percent to $0.55 from $0.59 in the Q1 of 2021. Through pricing actions during the quarter, the company was able to record Positive pricing actions in excess of 3% in the United States and in EMEA. Due to continued cost pressures, September 1, 2022. The company is also monitoring the opportunity for additional pricing actions internationally as well as in the United States. According to the Nielsen reports for the 13 weeks through April 23, 2022, For all outlets combined, namely convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category, including energy shots, increased by 11.5% versus the same period a year ago.

Speaker 2

Sales of the company's energy brands, including Reign, were up 8.6 Sales of NOS decreased 3.5 percent and sales of Full Throttle increased 5.5%. Sales of Red Bull increased 7.8%. Sales of Rockstar increased 5.4 percent, sales of 5 Hour decreased 1.2% and VPX Bang's Sales decreased 8.1%. The sales growth of the Monster brand exceeded that of Red Bull in the period. According to Nielsen, for the 4 weeks ended April 23, 2022, sales in dollars in the energy drink category in the convenience and gas channel, including energy shots in dollars, increased 3.8% over the same period the previous year.

Speaker 2

Sales of the company's energy brands, which include Reign, increased 4.8% in the 4 week period in the convenience and gas channel. Sales of Monster increased by 5.7% over the same period versus the previous year. Reign sales decreased 2%, NOS was down 2.3% and Full Throttle was up 7.1%. Sales of Red Bull were down 0.4 percent of 8%. Rockstar was down 1.7%, 5 Hour was down 5.2%, and BPX Bang sales decreased by 11.7%.

Speaker 2

According to Nielsen, for the 4 weeks ended April 23, 2022, the company's market share of energy drink category in the convenience and gas channel, Including energy shots in dollars increased 0.4 of a point to 37.5%. Monster's share increased 0.6 share points to 31.6 percent. Rhein's share decreased 0.1 of a share point Red Bull's share decreased 1.5 points to 35.3%. Rockstar share was down 0.2 points to 3.6%, 5 Hour's share was lower by 0.4% of a 0.4% And VPX Bang share decreased 1.2 points to 6.6 percent. According to Nielsen, for the 4 weeks ended April 23, 2022, sales In dollars of the coffee plus energy drink category, which includes our Java Monster line in the convenience and gas channel decreased 5.3 Java Monster 300, Java Monster Cold Brew, Starbucks Double Shot and Triple Shot, Rockstar Roasted and Bang Keto Coffee For the 4 weeks ended April 23, 2022, was 55.3%, up 4.2 points, While Starbucks Energy share was 42.9 percent, down 3.1 points.

Speaker 2

According to Nielsen, in all measured channels in Canada, Brands increased 11.6% versus a year ago. The market share of the company's energy drink brands was 41.5%, down 0.7 points Monster sales increased 13.3% and its market share remained at 37.1 NOS's sales decreased 12.8 percent and its market share decreased 0.4 of a point to 1.5%. Full Throttle's sales According to Nielsen, for all outlets combined in Mexico, the energy drink category increased 25.4% for the month of March 2022. Monster's sales increased 28.9 percent. Monster's market share in value increased 0.8 of a share point to 28.3% against the comparable period the previous year.

Speaker 2

Sales of Predator increased 67% and its market share increased 0 point 9 of a share point to 3.7 percent. The Nielsen statistics for Mexico cover single months, which is a short period that may often Sales in the OXXO convenience chain in turn can be materially influenced by promotions that may be undertaken in that chain by 1 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, for the month of March 2022 compared to March 2021, Monster's retail market share in value decreased in Argentina According to Nielsen, for the month of March 2022 compared to March 2021, Monster's retail market share in value increased in Brazil From 34.9 percent to 40.2 percent, Monster is now the leading energy brand in value in Brazil, marking another important milestone for our brand in South America. In Chile, Monster's retail share for the month of March 2022 decreased from 40% to 36.3% due to a shortage of shipping containers.

Speaker 2

Our bottler in Chile is in the process So validating its new production line in order to increase our in country production. I would like to point out that the Nielsen numbers In EMEA, it should only be used as a guide because the channels read by Nielsen in EMEA vary from country to country and are reported on varying dates Within the month referred to from country to country. According to Nielsen, in the 13 week period ending April 2, 2022, Monster's retail market share in value as compared to the same period the previous year grew from 14.7% to 16.2% in Germany. Monster's retail market share and values compared to the same period the previous year declined from 20.7% to 20.3% in South Africa. As compared to the same period the previous year grew from 25.5 percent to 27.1% in Denmark, From 31.9 percent to 32.1 percent in France, from 27.9% to 29.3% in Great Britain, From 27.2 percent to 27.6 percent in Norway, from 18.1% to 21.4% in Poland, from 36% to 37.8% in Spain and from 14.9% to 15.9% in Sweden.

Speaker 2

Monster's retail market share in value as compared to the same period the previous year declined from 15.2% to 14.9 grew from 15.8% to 17.7% in the Czech Republic, from 37.2% to 38.3% in Greece, and from 27% to 27.6% in Italy. According to Nielsen, in the 13 week period until the end of February 2022, Predator's retail market share in value as compared to the same period the previous year grew from 14.5% According to IRI in Australia, Monster's market share in value for the month ending April 10, 2022 increased from 13% to 13.6 As compared to the same period the previous year, Mother's market share in value decreased from 11.5% to 10.4% during the same period. The market share of the company's brands in Australia for the month ended April 10, 2022 decreased from 24.5% to 24%. According to IRI in New Zealand, Monster's market share in value for the 4 weeks ended April 17, 2022, increased from 12.7 percent to 12.9 percent as compared to the same period the previous year. Lyft Plus' market share in value decreased from Market share of the company's brands in New Zealand for the 4 weeks ended April 17, 2022 remained at 24.7%.

Speaker 2

According to Nielsen, in South Korea, in the last month ending March 2022, Monster's market sharing value in all outlets combined as compared to the same period the previous year grew from 54.8% to 59.4%. We again point out that in certain market statistics that cover single months or 4 week periods may often be materially influenced positively and or negatively by promotions or other trading factors during those periods. Net sales to customers outside the U. S. Were $553,400,000 36.4 percent of total net sales in the 2022 Q1 Foreign currency exchange rates had a negative impact on net sales in U.

Speaker 2

S. Dollars by approximately $32,900,000 in the 20 military customers, which are delivered in the U. S. And trans shipped to the military and their customers overseas. In EMEA, net sales in the 2022 Q1 increased 21.8 percent in dollars and increased 30% in local currencies over the same period in 2021.

Speaker 2

Gross profit in this region as a percentage of net sales for the Q1 was 29.6 compared to 37.3 percent in the same quarter in 2021. Gross profit in the Q1 was impacted by The company is continuing to address the controllable challenges in its supply chain in EMEA. We are also pleased that in the 2020 2 1st quarter Monster gained market share in the Czech Republic, Denmark, France, Germany, Great Britain, Greece, Italy, Norway, Poland, Spain and Sweden. In Asia Pacific, net sales in the 2022 Q1 increased 1.9% in dollars an increased 9.4% in local currencies over the same period in 2021. Gross profit in this region As a percentage of net sales was 40.9% versus 48.8% over the same period in 2021.

Speaker 2

In Japan, net sales in the 2022 Q1 decreased 5.8% in dollars, but increased 3.4% in local currency. Sales decreased over the same period in 2021, largely due to COVID-nineteen restrictions in Japan. In South Korea, net sales increased 71.7 percent in dollars and 86.1 percent in local currency as compared to the same Australia, New Zealand, Tahiti, French Polynesia, New Caledonia, Papua New Guinea and Guam. Net sales decreased 13.8% in dollars and 7.9% in local currencies. Sales in Australia and New Zealand were negatively impacted by shipping delays of certain flavors, Concentrates and Ingredients.

Speaker 2

Furthermore, sales in Australia were also impacted by severe flooding in that country in the 2022 Q1. In Latin America, including Mexico and the Caribbean, net sales in the 2022 Q1 increased 52.5 percent in dollars and increased 59.7 percent in local currencies over the same period in 2021. Gross profit in this region as a percentage of net sales was 35.4% for the 2022 Q1 versus 37 and 67.4 percent in local currency. Net sales in Mexico increased 37.7 percent in dollars and 41.4 percent in local currency in the 2022 Q1. Net sales in Chile increased 28.4% in dollars and 45.5 percent in local currency in the 2022 Q1.

Speaker 2

Net sales in Argentina increased 103.1% in dollars and 146.4 percent in local currency in the 2022 Q1. I will now In June 2020, Monster Energy Company, which I will refer to as MEC and Orange Bank Inc, a family owned beverage business and the rightful owner of several trademark registrations to the bank marks initiated an arbitration against VPX. MEC and Orange Bank alleged that VPX breached a 2010 settlement agreement with Orange Bank that restricted as well as claims that VPX infringed Orange Bang's trademark rights to the bank marks. In April 2022, the arbitrator issued a final award Finding in favor of MEC and Orange Bank on all claims. The arbitrator found that BPX's Bang Energy Drinks, which VPX advertisers containing super creatine and other Bang branded products do not contain creatine and do not provide the benefits of creatine.

Speaker 2

Because Bang branded products are thus not creatine based and are not limited to nutritional channels, the arbitrator found they are being sold in breach of the settlement agreement. Arbitrator also found that BPX's Bang branded products infringe Orange Bang's trademarks. The arbitrator rewarded MEC and Orange Bang $175,000,000 to remedy VPX's past misconduct and attorney's fees and costs, which amounted to nearly 9,300,000 The arbitrator also ordered VPX to pay MEC and Orange Bank an ongoing 5% royalty on all future net sales of Bang products. Pursuant to the terms of the agreement between MEC and Orange Bank, the award and future royalties will be shared equally between MEC and Orange Bank. Under the arbitrators order, if EBX fails to pay the royalty, VPX is prohibited from using the bank mark, Subject to certain limited exceptions, MEC and Orange Bank have filed a motion to confirm the arbitrator's award.

Speaker 2

VPX has filed a motion MEC's lawsuit against VPX for false advertising, unfair competition and misappropriation of trade secrets As this litigation and other pending proceedings with VPX are sub judicay, we will not be answering any questions on those matters in today's call. In January of 2022, we introduced our first 16 ounce ultra variety 12 packs, which are being well by consumers and we are continuing to expand our multi pack portfolio in the 2022 Q1. In February of 2022, we introduced new flavor innovations with Ultra Peachy Keen, Juice Monster Aussie Style Lemonade, Rehab Watermelon and Rainbow Sherbet. In February 2022, we launched our newest brand nationally, At the end of the 2022 Q1, we launched 2 new ready to drink nitro infused coffee products, Java Monster Cold Brew Latte and Java Monster Cold Brew Sweet Black. In Canada, in January of 2022, we introduced Monster Ultragold.

Speaker 2

In February of 2022, we grew Canada's Reign portfolio by launching Reign White Gummy Bear. We successfully launched several new products across Latin America in the Q1 of 2022. In Argentina, we launched VR46, the Doctor. In We expanded our Reign line by launching Melon Mania, Lemonheads and Orange Dreamsicle. In Mexico, we launched our 2nd Predator SKU with Predator Mean Green.

Speaker 2

We also launched Monster Ultra Gold in Puerto Rico and Monster Mango Loco in Colombia. In the 2022 Q1, we launched Monster Ultra Gold and Mother Kiwi Sublime in Australia and New Zealand. We launched our 3rd super fuel flavor in tropical thunder. In EMEA, in the Q1 of 2022, we launched Monster Mule, Monster Nitro and Monster Assault in a number of countries. We also launched Ultra Fiesta, Watermelon and Gold, and Juice Monarch, Chaotic and Pacific Punch in a number of countries during the 2022 Q1.

Speaker 2

During the 2022 Q1, we also launched Predator and Reign in additional countries. During the Q1 of 2022, we Monster Pipeline Punch in Singapore. We also introduced the Predator brand in India. In April 2022, we launched Monster Mango Loco in Japan. We are planning to introduce the Predator brand in several additional countries in APAC in the course of 2022.

Speaker 2

Our co packing network is an integral part of the company's production model, which we intend to preserve. The owner of 1 of the co packing facilities with which we contracted located in Norwalk, California announced earlier this year that they would be selling this facility and ceasing its operations at this facility. To maintain adequate supply of the company's products, we have acquired the associated real property, leases and equipment of this co packing facility for a purchase price of $62,500,000 Following the purchase, the facility will be closed for a period of time before the company is able to commence production. We estimate April 2022 sales, including Kanokhi, to be approximately 6 On a foreign currency adjusted basis, excluding Kanopy, April 2022 sales would have been approximately 7.7% higher than the comparable April 2021 sales. April 2022 had one less selling day compared to April 2021.

Speaker 2

We mentioned that April 2022 sales had a challenging hurdle to meet over April 2021 sales. You may recall that in our 2021 1st quarter conference call to shareholders. We estimated that April 2021 sales were approximately 71.3% higher than in April 2020. Please keep in mind that the comparative 2020 sales were materially adversely impacted by the COVID-nineteen In our 2020 Q1 conference call to shareholders, we estimated that April 2020 sales were 20 2.2% lower than our April 2019 sales. April 2021, April 2020, and April 29 all had the The company had sufficient can capacity and co manufacturing filling capacity across all regions to address demand for April.

Speaker 2

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 on 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 a single month, The COVID-nineteen pandemic and related unfavorable economic conditions continue in certain regions, our new product innovation launches in those regions could be delayed. In conclusion, I would like to summarize some recent positive points. The company continues to address challenges in its This should enable us to improve our service levels and lower transportation costs across North America, EMEA and LATAM. Our AFF flavor facility in Ireland is now providing a large number of flavors to our EMEA region, enabling better service levels and lower landed costs to our EMEA region.

Speaker 2

We are pleased with the new additions to the Monster Energy portfolio. We are planning to continue additional launches of our Reign, total body fuel high performance energy drinks in additional international We are pleased with the rollout of Predator and Fury, our affordable energy drink portfolio internationally. We are enthusiastic about the opportunities that Kanarki presents. While we believe that we will be able to address many of the supply chain challenges we have faced,

Speaker 1

We will now begin the question and answer session. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Dara Mohsenian from Morgan Stanley. Please go ahead.

Speaker 4

Hey, good afternoon.

Speaker 2

Good afternoon, hi, Devin.

Speaker 4

Your U. S. Sales continue to come in very strong again this quarter and show a sustained decoupling versus the scanner data implying obviously very strong growth in the untracked channels. Can you just review for us what level of growth you're seeing in those on track channels? What are the key drivers behind it?

Speaker 4

And then as we think about the U. S. Going forward, Can you discuss your thoughts on potential monster top line weakness or category weakness if we do see a consumer spending slowdown

Operator

So Dara, turning To your first question, there's always a disconnect between our sales, which are sales In the main, to distributors, and as well, we sell obviously to some direct accounts, including the untracked channels. It's really difficult for us to get that information to this investor group. There will always all I can say is there will always be a disconnect. And Nielsen is not a True indication even for sales through the distributor system because there lags in the distribution system as well. And then turning to your second question about gas prices.

Operator

We've seen this before. We've seen Gas prices moving up, and we've seen sales of Energy Drinks, really staying the course. And at the end of the day, remember that we have a business that is based on a brand that is a lifestyle brand. And consumers Purchase the Monster products because it's part of what they believe to be and what they want to be. It's not Something that's necessarily that price sensitive, and that made us kind of feel confident about our decision effective September 1.

Speaker 2

The only thing I would maybe you could add just One aspect, the traditionally the convenience channel was growing more quickly for the energy category than The mainstream grocery and drug channels. And in recent quarters that has had been reversed with less Lower driving through COVID, and then you've got higher gas prices. So I mean, at the moment, if you look at the latest 4 weeks or 1 week numbers, the convenience channel is growing less than if you look at the all measured channels. But I think that's something that we've managed to achieve the results we have despite that and despite the fact that in fact Convenience is our largest channel, which I just think is positive for the future because we think that will write itself eventually when gas prices Normalize and or people just get used to the gas prices and becomes whatever the level is, people will get used to it eventually and continue to drive.

Operator

If you look, for example, at the last 2 weeks, Nielsen inconvenience, April 16th, we're seeing Nielsen sales inconvenience For the energy category, growing at 4.8%. And we're seeing the following week, which is April 23, which is what we discussed on this call, Convenience in that 1 week growing 7%. So it's the market will continue to grow. As I said earlier, Monster is an affordable luxury. And we don't anticipate at this time seeing a dramatic fall off in sales in the convenience and gas channel.

Speaker 1

Our next question comes from Andrea Teixeira from JPMorgan. Please go ahead.

Speaker 5

Thank you, operator, and good afternoon. Rodney, on the 6% price increase starting September in the U. S, I'm assuming that's on top of the 2% average that you had in Q1. And is that across upgrade and is that Across all products and channels are balanced with RGM and what are you hearing from retailers in terms of competitors following or not?

Operator

So, that price increase is in addition to the pricing actions that we took in the Q1 that we started taking in the last quarter of 2021 and will continue through this year. So We have taken passing actions. We will continue to take passing actions. September 1, there will be a market wide increase. And we said approximately 6% depending on channel.

Operator

And so far, we have not heard any runnings from competitors about what they're doing and what We haven't heard anything from retailers. But as I said on a previous call, we're running our own brand irrespective of the competitors. We believe in the power of our brand, and we have strong brands, and we believe that this pricing action is justified. And it's certainly justified in terms of all the costs that we are seeing the cost increases and no doubt our competitors are seeing the same cost increases.

Speaker 1

Our next question comes from Bonnie Herzog from Goldman Sachs. Please go ahead.

Speaker 6

All right. Thank you. Good afternoon. So you guys called out certainly many pressures this quarter impacting your business to really fill the strong underlying demand. Yet I just wanted to circle back because I thought you guys had made some progress in some of the distribution inefficiencies such as maybe already Purchasing more supply in the U.

Speaker 6

S. During the quarter as well as had started to operate back within your orbit. So maybe touch on that for us, please. And then, Rodney, can you help us understand maybe where things Stand now as it relates to some of these pressures, had they already started to ease? You mentioned a few things, but Just trying to confirm that you've already seen improvement or is it really going to take until the second half until we see improvements on your gross margins?

Speaker 6

And then finally, I'd be curious to hear how much stronger your sales might have been in the quarter if you could have supplied enough product to fill The strong consumer demand, if you could quantify that for us, that would be helpful. Thanks.

Operator

Okay. Well, let me just deal with the First part of your question, Bonnie, and then we can obviously get Rodney's input on the rest. As we look at the quarter, remember the Ukraine conflict started on February 24. So we had a dramatic increase In fuel prices, which we really didn't forecast, and we also had a dramatic increase in aluminum prices. And if you just look at aluminum prices, aluminum, the commodity went up 65% in Q1 2022 versus the previous year, Q1 2021.

Operator

So there were unexpected Issues that surfaced in the quarter, I think we said at the time that we were building up inventories and That's what we've been doing. We've absolutely been building up inventories in the quarter, and you'll see that reflected in our balance sheet. We're probably in a Good position now, better than we have been in terms of supply. And as we also said on this call, Is that April? We did not have a shortage of containers or product to any significant degree.

Operator

So we are as well placed as we have been in the past to satisfy demand.

Speaker 1

The next question comes from Kevin Grundy from Jefferies. Please go ahead.

Speaker 7

Great. Thank you, guys, and good afternoon. 2, if I could. Just to come back to the 6% pricing, which is certainly a step in the right direction, but not nearly enough cover the inflationary pressures that you've seen over the past couple of years. Maybe just comment on the magnitude of it, how you arrived at that, why you believe that's the appropriate number?

Speaker 7

And then with respect to the April sales update and not to overweight at any one given month and your point on the comparison is entirely fair, But anything that you're seeing within the business that gives you any concern about underlying demand, it certainly Sound that way, but I just wanted to ask given the step down from what we saw from very strong results in the quarter. So thank you for that guys.

Operator

Remember the hurdle we had in 2021? That was probably one of the biggest hurdles we've seen. And so I think that April, as we've always said, 1 month in isolation should not be construed It's indicative of performance for a quarter or a longer period of time. The way we got to our price increases is price increase. Remember, we're already taking pricing actions.

Operator

And we look at a whole bunch of factors and there's a whole lot of factors that we take into account in determining where we should be. And obviously, price points are a big driver. And what we believe is fair and that the consumer will bear, That becomes a very big factor in assessing the price points and then of course assessing the extent of the price increase.

Speaker 1

The next question comes from Marcus Braun from Stifel. Please go ahead.

Speaker 8

Yes, thanks and afternoon guys. I guess just a short question. So anything preventing the company from buying stock back once the Quiet period post the Q filing is complete?

Operator

No. It's a short answer. That's your answer. We probably will

Speaker 2

be recommending some buying activities.

Speaker 1

Lovely. Thank you.

Operator

That's short question, short answer.

Speaker 1

This concludes our question and answer session. Would like to turn the conference back over to Rodney Sacks for any closing remarks.

Speaker 2

Thanks very much. 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 continue to innovate, 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 believe that we are well positioned in the beverage industry and continue to be optimistic about the future of our company. We hope that you will stay safe and healthy.

Speaker 2

Thank you very much for your attendance.

Speaker 1

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
Monster Beverage Q1 2022
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