Chief Executive Officer at Monster Beverage
Thank you, Tom. The company achieved record third quarter net sales of $1.62 billion in the 2022 third quarter, 15.2% higher than net sales of $1.41 billion in the 2021 comparable period and 20.2% higher on a foreign currency adjusted basis. Since the beginning of the COVID-19 pandemic and the subsequent increased demand for the company's energy drinks, the company prioritized ensuring product availability for its customers and consumers. This strategic direction has remained in place throughout the global supply chain challenges and disruptions, despite adversely impacting the company's profitability.
The company continues to stand by its strategy to ensure product availability and solidify the continued long-term growth of the company's brands. During the 2022 third quarter, the company experienced a significant increase in cost of sales relative to the comparative 2021 third quarter, primarily due to increased ingredient and other input costs, including secondary packaging materials and increased co-packing fees, increased logistical costs, increased aluminum can costs and geographical and product sales mix.
We continue to believe that some of these increased costs we are experiencing are likely to be transitory. The depletion of our higher cost imported cans will continue over the next few quarters. However, our main promotion in the third quarter was executed with lower-cost, locally sourced cans in the United States and globally.
We estimate that of the increasing cost of sales in the 2022 third quarter, approximately $84.2 million was comprised of approximately $40. 1 million due to increased ingredient and other input costs, including secondary packaging materials and increased co-packing fees to approximately $24.4 million due to increased freight rates and fuel costs, including costs relating to the importation of aluminum cans; 3, approximately $11.5 million due to increased aluminum can costs attributable to higher aluminum commodity pricing; and 4, approximately $8. 2 million due to geographical and product sales mix.
We continue to air freight quantities of certain ingredients internationally, particularly to EMEA, Asia Pacific and Latin America at additional costs and inefficiencies to enable timely innovation launches. We continue to experience significant increases in distribution expenses, primarily as a result of increased warehousing expenses as well as other logistical expenses, which adversely impacted operating expenses. The company continues to address the challenges in its supply chain as it navigates through the uncertainty of the current global supply chain environment.
Gross profit as a percentage of net sales for the 2022 third quarter was 51. 3% compared with 55.9% in the 2021 third quarter, and 47.1% for the 2022 second quarter. The decrease in gross profit as a percentage of net sales for the 2022 third was partially offset by pricing actions, including the implementation of our general price increase in the United States effective September 1, 2022, price increases in certain international markets and reductions in promotions. Such pricing actions positively impacted gross profit margins in the 2022 third quarter.
Operating expenses for the 2022 third quarter were $415.8 million compared with $344.7 million in the 2021 third quarter. As a percentage of net sales, operating expenses for the 2022 third quarter were 25.6% compared to 24.4% in the 2021 third quarter and 24.5% in the 2019 third quarter pre-COVID.
Distribution expenses for the 2022 third quarter increased to $83 million, which is an increase of 27.1% or 5.1% of net sales compared to $65.3 million or 4. 6% of net sales in the 2021 third quarter and 3. 3% of net sales in the 2019 third quarter pre-COVID. The $17.7 million increase in distribution expenses was primarily due to higher warehouse expenses of $11.7 million as a result of higher raw materials and finished product inventories in the United States and EMEA as well as increased freight out expenses of $4.8 million as a result of higher outbound freight rates and fuel, increased volume and out-of-orbit freight.
The increase in other operating expenses was primarily due to increased payroll expenses, increased expenditures for sponsorships and endorsements and increased expenditures for travel and entertainment. Certain of these increases were the result of the company's return to activities consistent with pre-COVID-19 levels. We have decreased our reliance on imported cans and are currently purchasing aluminum cans from local sources globally. We have seen a reduction in cost of sales through increased use of domestic cans as we continue to cycle through existing inventories of imported cans over the next few quarters.
We have rebuilt and increased finished product inventory levels across the United States and the EMEA to reduce the excessive cost of long distance freight, satisfy demand and to return to our strategy of producing in closer proximity to our customers. The cost of repositioning finished products to distribution centers are included in the freight in costs.
Operating income for the 2022 third quarter decreased 6% to $417.9 million from $444.5 million in the 2021 comparative quarter. Net income decreased 4.4% to $322.4 million as compared to $337.2 million in the 2021 comparable quarter. Diluted earnings per share for the 2022 third quarter decreased 3.9% and to $0.60 from $0.63 in the third quarter of 2021. Through pricing actions, the company was able to achieve positive pricing appreciation in the United States and in EMEA. Due to continued cost pressures, the company implemented a net sales price increase in the range of 6% market-wide in the United States, effective September 1, 2022.
In addition to price increases or pricing actions taken earlier this year in order to mitigate inflationary cost pressures, the company implemented price increases in the second half of 2022 in certain international markets and will be implementing additional price increases early in 2023 in a number of international markets. The company will continue to review further opportunities for price increases and pricing actions in order to mitigate inflationary pressures.
According to the Nielsen report for the 13 weeks through October 22, 2022, all outlets combined, namely convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category, including energy shots, increased by 11. 2% versus the same period a year ago. Sales of the company's energy brands, including Reign, were up 11.2% in the 13-week period. Sales of Monster were up 11.2%. Sales of Reign were up 2.9%. Sales of NOS increased 17.2%. And sales of Full Throttle increased 1.7%. Sales of Red Bull increased 6.6%. Sales of Rockstar increased by 6. 1%. And sales of 5-Hour decreased 1.8%. VPX Bang sales decreased 22.6%.
The company has regained market share leadership in the energy drink category in the United States for the 13 weeks ended October 22, '19 -- sorry, 2022. According to Nielsen, for the 4 weeks ended October 2022, sales in dollars in the energy drink category in the convenience and gas channel, including energy shots, in dollars increased 10. 4% over the same period the previous year. Sales of the company's energy brands, which include Reign, increased 11.8% in the 4-week period in the convenience and gas channel. Sales of Monster increased by 11.4% over the same period versus the previous year. Reign sales increased 12%, NOS was up 13. 9% and Full Throttle was up 7.1%. Sales of Red Bull were up 6. 2%, Rockstar was up 8.1%, and 5-Hour was down 2.2%. VPX Bang sales decreased 27. 3%.
According to Nielsen, for the 4 weeks ended October 22, 2022, the company's market share of the energy drink category in the convenience and gas channel, including energy shots, in dollars increased 0. 5 point to 36.9%. Monster share increased from 30.8% a year ago to 31. 1%, Reign share remained at 2.4%, NOS share increased 0.1% to 2.5%, and Full Throttle share remained at 0.7%. Red Bull share decreased 1.4 points from 37.5% a year ago to 36. 1%. VPX Bang share decreased 2.5 points to 4.8%, 5-Hour share was lower by 0. 5 point at 4%. Rockstar share was down with 0.1 to 3.7%. CELSIUS' share is 2. 6%, Alani new share is 0.6%, and GHOST's share is 1.8%.
According to Nielsen, for the 4 weeks ended October 22, 2022, sales in dollars of the coffee plus energy drink category, which includes our Java Monster line in the convenience and gas channel increased 11.4% over the same period the previous year. Sales of Java Monster, including Java Monster 300 and Java Monster Nitro Cold Brew, were 10.4% higher in the same period versus the previous year. Sales of Starbucks Energy were 17.4% higher, Java Monster share, including Java Monster 300 and Java Monster Nitro Cold Brew of the coffee plus energy category, which primarily includes Java Monster, Java Monster 300, Java Monster Nitro Cold Brew, Starbucks Doubleshot and Tripleshot, Rockstar Roasted and Bang Keto Coffee for the 4 weeks ended October 22, 2022, was 52.1%, down 0.5 point, while Starbucks Energy share was 46.9%, up 2.4 points.
According to Nielsen, in all measured channels in Canada, for the 12 weeks ended October 8, 2022, the energy drink category increased 15.8% in dollars. Sales of the company's energy drink brands increased 14.9% versus a year ago. The market share of the company's energy drink brands was 40.9%, down 0.3 point. Monster sales increased 17. 3%, and its market share increased 0. 5 point to 36.6%. NOS' sales decreased 11.6%, and its market share decreased 0.4 point to 1.3%. Full Throttle's sales decreased 8% and its market share decreased 0.1 to 0.05%.
According to Nielsen, for all outlets combined in Mexico, the energy drink category increased 26% for the month of September 2022. Monster sales increased 36.4%. Monster's market share in value increased 2. 2 points to 28.6% against the comparable period the previous year. Sales of Predator increased 94% and and its market share increased 1.5 share points to 4.4%.
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 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 September 2022 compared to September 2021, Monster's retail market share in value increased in Argentina from 47.9% to 51.7%, and in Brazil from 37.7% to 41. 8%. Monster Energy continues to be the leading energy brand in value in both Argentina and Brazil. In Chile, Monster's retail share for the month of September 2022 decreased from 42.2% to 41. 7%. I would like to point out that the Nielsen numbers in EMEA 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 October 9, 2020, Monster's reach or market share in value as compared to the same period the previous year grew from 13. 5% to 15.5% in Belgium; from 26.6% and to 31% in France; from 28.9% to 29.9% in Great Britain; from 20. 7% to 31.6% in Norway; and from 36.9% to 40.3% in Spain.
According to Nielsen, in the 13-week period ending September 11, 2022, Monster's retail market share in value and as compared to the same period the previous year grew from 27.4% to 27. 9% in Denmark; from 27.5% to 28.1% in the Republic of Ireland; and from 13. 6% to 15. 5% in Sweden. Monster's market in value as compared to the same period the previous year declined from 7.8% to 5% in the Netherlands.
According to Nielsen, in the 13-week period until the end of August 2022, Monster's retail market share in value as compared to the same period the previous year grew from 15% to 18.1% in the Czech Republic; from 15.3% to 15.6% in Germany; from 28. 8% to 31.6% in Italy; and from 19. 3% to 19.4% in Poland. Monster's retail market share in value as compared to the same period the previous year declined from 38.6% to 38.4% in Greece; and from 20.1% to 19.6% in South Africa.
According to Nielsen, in the 13-week period until the end of August 2022, Predator's retail market share in value as compared to the same period the previous year grew from 17.4% to 29.6% in Kenya; and from 11.9% to 17% in Nigeria.
According to IRI in Australia, Monster's market share in value for the 4 weeks ending October 16, 2022, increased from 14.2% to 14.8% as compared to the same period the previous year. Monster's market share in value increased from 11.2% to 11.7%. According to IRI in New Zealand, Monster's market share in value for the 4 weeks ended October 9, 2022, increased from 12.8% to 12.9% as compare to the same period the previous year. Live+ 's market share in value decreased from 6.4% to 6%, and Mother's market share in value decreased from 6.3% to 5. 9%.
According to INTAGE in Japan, in the month ending September 2022, Monster's market share in value in the convenience store channel as compared to the same period the previous year grew from 53.9% to 55%.
According to Nielsen in South Korea, in the month ending September 2022, Monster's market share in value in all outlets combined as compared to the same period the previous year increased from 60.4% to 61.5%. We again point out that 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 $610.6 million, 37. 6% of total net sales in the 2022 third quarter compared to $527.4 million or 37. 4% of total net sales in the corresponding quarter in 2021. Foreign currency exchange rates had a negative impact on net sales in U.S. dollars by approximately $71.3 million in the 2021 third quarter. 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 EMEA, net sales in the 2022 third quarter increased 14.1% in dollars and increased 30.4% in local currencies over the same period in 2021. Gross profit in this region as a percentage of net sales for the third quarter was 34.7% compared to 37.7% in the same quarter in 2021, and compared to 26.7% in the second quarter of 2022. The company is continuing to address the controllable challenges in its supply chain in EMEA. We're also pleased that in the 2022 third quarter, Monster gained market share in Belgium, the Czech Republic, Denmark, France, Germany, Great Britain, Italy, Norway, Poland, the Republic of Ireland, Spain and Sweden.
In Asia Pacific, net sales in the 2022 third quarter decreased 13.9% in dollars and decreased 1.5% in local currencies over the same period in 2021. Gross profit in this region as a percentage of net sales was 37. 4% versus 43.5% over the same period in 2021, due in part to a product supply issue with an ingredient that impacted a number of our products in Japan, but which has now been resolved, net sales in the 2022 third quarter decreased 35.8% in dollars and decreased 21.2% in local currency. Sales in the 2022 third quarter remain impacted by COVID in certain channels.
In South Korea, net sales decreased 8% in dollars but increased 4.4% in local currency as compared to the same quarter in 2021. Monster remains the market leader in Japan and in South Korea. In China, net sales decreased 6% in dollars and 1.8% in local currency as compared to the same quarter in 2021, largely impacted by COVID-related lockdowns. We remain optimistic about the prospects for the Monster brand in China.
In Oceania, which includes Australia, New Zealand, Tahiti, French Polynesia, New Caledonia, Papua New Guinea and Guam, net sales increased 30.7% in dollars and 41.5% in local currencies. In Latin America, including Mexico and the Caribbean, net sales in the 2022 third quarter increased 63.8% in dollars and increased 74.7% in local currencies over the same period in 2021. Gross profit in this region as a percentage of net sales was 34.7% for the 2022 third quarter versus 41% in the 2021 third quarter.
In Brazil, net sales in the 2022 third quarter increased by 139. 4% in dollars and 142.9% in local currency. Net sales in Mexico increased 17% in dollars and 18% in local currency in the 2022 third quarter. Net sales in Chile decreased 4.4% in dollars and increased 15.1% in local currency in the 2022 third quarter. Net sales in Argentina increased 97.8% in dollars and increased 166.2% in local currency in the 2022 third quarter.
We will now provide an update on our litigation with Vital Pharmaceuticals, Inc., which will be referred to as VPX, the maker of Bang Energy Drinks. We previously discussed the April 2022 final arbitration award, which the arbitrator found in favor of Monster Energy Company, or MEC, and Orange Bang Inc., and against VPX on all claims. The arbitrator awarded MEC and Orange Bang $175 million to remedy VPX' past misconduct as well as attorney's fees and costs, which amounted to nearly $9.3 million. The arbitrator also ordered VPX to pay MEC and Orange Bang an ongoing 5% royalty on all future sales of VPX Bang's energy drinks and other Bang-branded products.
Pursuant to the terms of the agreement between MEC and Orange Bang, the award and future royalties will be shared equally between MEC and Orange Bang.On September 29, 2022, the United States District Court for the Central District of California entered final judgment confirming the award. On October 28, 2022, VPX filed a notice of appeal of the District Court's final judgment confirming the award. The company will not recognize the award or royalties until such time as they are realized or realizable.
Additionally, on 29 September 2022, a jury in the United States District Court for the Central District of California, returned a verdict awarding MEC approximately $293 million in damages on its claims against VPX for false advertising, misappropriation of trade secrets and interference with Monster's contracts over shelf space with certain key retailers. MEC will not recognize the jury award until such time as the award is realized or realizable.
On October 10, 2022, VPX, along with certain of its domestic subsidiaries and affiliates, filed for protection under Chapter 11 of the bankruptcy code in the Southern District of Florida. VPX initiated the bankruptcy action before the District Court could decide certain remaining issues. At this -- as this litigation and other pending proceedings with VPX are subjudicate, we will not be answering any questions on those matters on today's call.
Our first alcohol-based product line to leverage Monster's brand equity is scheduled to launch in the first quarter of 2023. The Beast Unleashed will be a full bodied flavored malt beverage with 6% alcohol by volume and will come in 4 bold flavors, mean green, white haze, peach perfect and scary berries, all of which are based on Monster's well-known and popular flavor profiles.
CANarchy Kanok will introduce The Beast Unleashed through certain beer distributors in the United States, utilizing a phased approach launch, with the goal of being national by the end of 2023. Our alcohol innovation pipeline is robust. In addition to The Beast Unleashed, we will relaunch Wild Basin Hard Seltzer with new packaging and great new flavors and taste profiles. The Dale's beer family will get a refresh, including the introduction of Dale's American Light Lager, an easy-drinking lager with 4.2% alcohol by volume, 95 calories and 2.5 carbs per 12-ounce serving. We also have several additional innovative alcohol beverage products under development and look forward to sharing use of those products at a later date.
In the U.S., in September, we began shipping Monster Reserve Orange Dreamsicle to distributors for an October launch at retail. We are excited about the planned launch of our new Monster Energy Zero Sugar energy drink initially in the United States at retail in January of 2023. Monster Energy's Zero Sugar was specifically developed as an indistinguishable zero sugar analog of our original unique Monster Energy Green flavor. We are excited about the opportunities that this product will provide to our Monster consumers who have come to enjoy the unique taste profile of our original Monster Green flavor, which remains our leading flavor.
We are planning to launch Monster Tour Water in the United States, in still and sparkling variants in 19.2 ounce cans in the first half of 2023. Monster Tour Water is a pure unflavored water product. In the first half of 2023, we are also planning to launch Rainstorm in 4 flavors in 12-ounce slim cans to compete directly with certain competitive new entrants in the energy drink category in the United States.
In Puerto Rico, during July, we introduced our first 16-ounce 12-pack ultra variety packs. And in August, we launched Monster Reserve Watermelon and Reserve White Pineapple. In Mexico, we expanded our juice portfolio and launched Monster Juice Monarch in August. We launched Monster Dragon Tea Lemon in August in Honduras and El Salvador, and in September in Guatemala. In Australia, during the month of July, we expanded our Mother portfolio and launched Mother Lava Guava.
In EMEA, in the third quarter of 2022, we launched Monster Assault and Monster Reserve White Pineapple in a number of countries. In certain countries, we also launched Juiced Monarch, Juiced Chaotic, Ultra Rosa and Ultra Watermelon during the 2022 third quarter. During the 2022 third quarter, we also launched additional SKUs of Burn, Predator and Rain in certain countries.
We are excited about the planned launch at retail of our new Monster Energy Lewis Hamilton Zero Sugar Energy Drink initially in select EMEA markets late in the fourth quarter of 2022, followed by an additional 20 markets in the first quarter of 2023.
During the third quarter of 2022, we launched Predator in Kazakhstan, Malaysia and Jordan, and we continued the national rollout of Predator in India. We are planning to introduce the Predator brand in additional countries in APAC in the last quarter of 2022 and the first half of 2023. We also launched Monster Super Cola in a can in Japan in August and Monster Rehab Tea Plus Lemonade in October. We estimate October 2022 sales, including CANarchy to be approximately 6. 5% higher than in October 2021 and 5% higher than in October 2021, excluding CANarchy.
On a foreign currency adjusted basis, including CANarchy, October 2022 sales would have been approximately 12. 9% higher than the comparable October 2021 sales, and 11.4% higher than October 2021, excluding CANarchy. October 2022 had the same number of selling days as October 2021. The company had sufficient can capacity and co-manufacturing filling capacity across all regions to address demand for October.
We would like to remind listeners that we took a general price increase in the United States effective September 1, 2022. In this regard, we caution again that sales over a short period are often disproportionately impacted by various factors such as, for example, selling days, days of the week in which holidays fall, timing of new product launches and the timing of price increases, promotions in retail stores, distributor incentives as well as shifts in the timing of production.
In some instances, our bottlers are responsible for production and determine their own production schedules. This affects the dates on which we invoice such bottlers. Furthermore, our bottling and distribution partners maintain inventory levels according to their own internal requirements, which they may alter from time to time for their own business reasons. 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.
If the COVID-19 pandemic and related unfavorable economic conditions continue in certain regions, our new product innovation launches in those regions could be delayed.
Turning briefly to share repurchases. During the 2022 third quarter, the company purchased approximately 3.1 million shares of common stock, and as of November 3, 2022, approximately $182.8 million remained available for repurchase under the June 2022 repurchase program. The Board of Directors also authorized a new share repurchase program for the repurchase of up to an additional $500 million of the company's outstanding common stock.
In conclusion, I would like to summarize some recent positive points. One, consumer demand remains solid, even with the pricing actions that have been taken in 2022; two, the company has increased its raw material and finished product inventories to better service its customers and ensure availability of its products; three, 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; four, we are pleased with the new additions to the Monster Energy portfolio; five, we are particularly excited for the launch of Monster Energy Zero Sugar in January 2023 in the United States.
As I mentioned previously, Monster Zero Sugar is an analog of our original unique Monster Energy Green flavor. Six, we are planning to launch rate auto body fuel high-performance energy drinks in additional international markets and countries. We are also pleased with the rollout of Predator and Fury, our affordable energy drink portfolio internationally. We are proceeding with plans to launch our affordable energy brands in an additional number of international countries.
We are enthusiastic for the planned launch of The Beast Unleashed, our first flavored malt beverage alcohol product and for the opportunities that the CANarchy acquisition presents. We are also enthusiastic for the planned launches of the Monster Tour Water and Rainstorm lines in the first half of 2023 in the United States.
Ten, we believe that we will be able to address many of the challenges we have experienced in our supply chain. Eleven, we consider that certain of the increased costs that we have experienced in the quarter may well be transitory. For example, the LME price for aluminum has reduced materially from its recent March highs, and we are beginning to see a reduction in freight costs as well as reductions in the cost of shipping containers and ocean freight.
I would like to now open the floor to questions about the quarter. Thank you.