Monster Beverage Corporation

Good afternoon, everyone, and welcome to the Monster Beverage Company's second quarter 2024 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one using the touchtone telephone. To withdraw your questions, you may press star and two. Results of this event is being recorded. At this time, I'd like to turn the floor over to co-CEOs, Rodney Sachs and Hilton Schlossberg. Please go ahead.

Thank you. Good afternoon, ladies and gentlemen. Thanks for attending this call. I'm Rodney Sachs, Hilton Schlossberg. Our Vice Chairman and Co-Chief Executive Officer is on the call, as is Tom Kelly, our Chief Financial Officer. Tom Kelly will now read our cautionary statement.

Before we begin, I would like to remind listeners that certain statements made during this call may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities 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. 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 February 29, 2024, and quarterly reports on Form 10-Q, including the sections contained therein, entitled Risk Factors and Forward-Looking Statements, for 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.

Thanks, Tom. The energy drink category in the United States and in certain other countries experienced lower growth rates in the second quarter. Retailers have reported a reduction in convenience store foot traffic, and we have seen a shift at retail towards more mass and dollar channels. Other beverage and consumer packaged product companies reported have also seen a tighter consumer spending environment and weaker demand in the quarter. The energy category globally continues to grow and has demonstrated resilience, as we believe that consumers view energy drinks as an affordable luxury. We believe that household penetration continues to increase in the energy drink category. Growth opportunities in household penetration, per capita consumption, along with consumers' need for energy are positive factors for the category. We continue to expand our sales in non-Nielsen measured channels. The company achieved record second quarter net sales of $1.9 billion in the 2024 second quarter, or 2.5% higher than net sales of $1.85 billion in the comparable 2023 quarter, 6.1% higher on a foreign currency adjusted basis, 4.3% exclusive of Argentina's impact. Net sales on a foreign currency adjusted basis excluding the alcohol brands segment increased 7.4% in the 2024 second quarter. Gross profit as a percentage of net sales for the 2024 second quarter was 53.6% compared with 52.5% in the 2023 second quarter. The increase in gross profit as a percentage of net sales for the 2024 second quarter as compared to the 2023 second quarter was primarily the result of decreased freighting costs, pricing actions in certain markets, and lower aluminum can costs, partially offset by production inefficiencies. On a sequential quarterly basis, growth margins were half a percent below 2024 first quarter margins, primarily as a result of higher allowances, certain of which we believe are non-recurring, as well as production inefficiencies. Operating expenses for the 2024 second quarter were 492.3 million, compared with 450.4 million in the 2023 second quarter. The increase in operating expenses were primarily the result of increased sponsorship and endorsement expenses, increased payroll expenses, and increased storage and warehouse expenses. As a percentage of net sales, Operating expenses for the 2024 second quarter were 25.9% compared with 24.3% in the 2023 second quarter. Distribution and warehouse expenses for the 2024 second quarter were 87.4 million or 4.6% of net sales compared to 82 million or 4.4% of net sales in the 2023 second quarter. Operating income for the 2024 second quarter increased 0.6% to $527.2 million from $523.8 million in the 2023 comparative quarter. The effective tax rate for the 2024 second quarter was 22.9% compared to 23.2% in the 2023 second quarter. Net income increased 2.8% to $425.4 million as compared to $413.9 million in the 2023 comparable quarter. Diluted earnings per share for the 2024 second quarter increased 5% to $0.41 from $0.39 in the second quarter of 2023. As previously reported, we will be taking an approximately 5% price increase on our core brands and packages effective November 1, 2024, in the United States. We are continuing to monitor opportunities for further pricing actions. The company continues to have market share leadership in the energy drink category for all outlets combined in the United States for the 13-week period ended July 20, 2024. According to the Nielsen reports for the 13 weeks through July 20, 2024, for all outlets combined, namely convenience, grocery, drug, Mass merchandisers, sales in dollars in the energy drink category, including energy shots, increased by 0.6% versus the same period a year ago. Sales of the company's energy brands, excluding bank, were down 2.5% in the 13-week period. Sales of Monster declined 3%, sales of Rain were down 0.5%, sales of Noz increased 4.1%, and sales of Full Throttle decreased 6.9%. Sales of Red Bull increased 1.7%. According to Nielsen, for the four weeks ended July 20, 2024, sales in dollars in the energy drink category in the convenience and gas channel, including energy shots in dollars, decreased 2.2% over the same period the previous year. Sales of the company's energy brands, excluding bank, decreased 4.8% in the four-week period in the convenience and gas channel. Sales of Monster decreased by 5.4% over the same period versus the previous year. Rain sales decreased 3.8%. NAS was up 2.6%, and Full Throttle was down 8.6%. Sales of Red Bull were up 0.7 of 8%. According to Nielsen, for the four weeks ended July 2020-2024, the company's market share of the energy drink category in the convenience and gas channel, including energy shots in dollars, decreased 4%. from 35.7% to 34.7%, excluding Bang. Including Bang, the company's market share is 36.7%. Monster's share decreased from 29.4% a year ago to 28.5%. Rain's share decreased 0.1 of a share point to 3%. Nasr's share increased 0.1 of a share point to 2.6%. Full Throttle's share remained at 0.7 of a percent. Bang's share was 1.9%. Red Bull share increased one share point to 35.9. Market share of certain competitors were as follows, Celsius 7.9%, C4 3.5%, Five Hour 3.3%, Rockstar 3%, and Ghost 3%. According to Nielsen, for the four weeks ended July 20, 2024, sales in dollars in the coffee plus energy drink category, which includes our Java Monster line, in the convenience and gas channel, decreased 11.2% over the same period the previous year. Sales of Java Monster, including Java Monster 300 and Java Monster Nitro Cold Brew, was 5.6% lower in the same period versus the previous year. Sales of Starbucks Energy were 17.9% lower. Java Monster's share of the coffee plus energy drink category for the four weeks ended July 20, 2024, was 57.4%. up 3.4 points, while Starbucks Energy's share was 42.2%, down 3.5 points. According to Nielsen, in all measure channels in Canada, for the 12 weeks end of July 30, 2024, the energy drink category increased 6.8% in dollars. Sales of the company's energy drink brands increased 2.1% versus a year ago. The market share of the company's energy drink brands decreased 1.8 points to 40.2%. Monsters sales decreased 1.2% and its market share decreased 2.8 points to 34.7%. Nasdaq sales increased 17.4% and its market share increased 0.1 of a point to 1.3%. Full throttle sales increased 66.9% and its market share increased 0.2 of a point to 0.5 of 8%. According to Nielsen, for all outlets combined in Mexico, The energy drink category increased 20.3% for the month of June 2024. Monster's sales increased 18.1%. Monster's market share in value decreased 0.5 of a point to 28.2% against the comparable period the previous year. Sales of Predator increased 21.8% and its market share increased 0.1 of a share point to 6%. 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 OXO convenience chain, which dominates the market. Sales in the OXO 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, for all outlets combined in Brazil, the energy drink category increased 19.1% for the month of June 2024. Monster sales increased 29.1%. Monster's market share in value increased 3.7 points to 48.1% compared to June 2023. In Argentina, due in part to the impact of inflation-related local currency price increases, The energy drink category increased 301.3% for the month of June 2024. Monster's sales increased 320.2%. Monster's market share in value increased 2.6 points to 58.1% compared to June 2023. In Chile, the energy drink category increased 0.8% for the month of June 2024. Monster's sales increased 1.4%. Monster's market share in value increased 0.2 of a point to 41.1%. Monster Energy remains the leading energy brand in value in Argentina, Brazil, and Chile. I'd 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 months referred to from country to country. According to Nielsen, in the 13-week period ending July 14, 2024, Monster's retail market sharing value, as compared to the same period the previous year, grew from 16.1% to 16.4% in Belgium, from 30.8% to 33.5% in Great Britain, and from 5.5% to 6.8% in the Netherlands. According to Nielsen, in the 13-week period ending July 14, 2024, Monster's retail market share in value as compared to the same period the previous year declined from 32.6% to 31% in France, from 31% to 29.5% in Norway, and from 40.8% to 40.6% in Spain. According to Nielsen, in the 13-week period ending June 30, 2024, Monster's retail market share in value as compared to the same period the previous year declined grew from 16.4% to 17.3% in Germany. According to Nielsen, in the 13-week period ending June 30, 2024, Monster's retail market share in value as compared to the same period the previous year declined from 31.5% to 30.6% in Italy and from 18.2% to 17.7% in South Africa. According to Nielsen, in the 13-week period ending June 16, 2024, Monster's retail market sharing value, as compared to the same period the previous year, grew from 30.4% to 30.9% in the Republic of Ireland. According to Nielsen, in the 13-week period ending June 16, 2024, Monster's retail market sharing value, as compared to the same period the previous year, declined from 22.1% to 21.4% in the Czech Republic and from 16% to 14.3% in Sweden. According to Nielsen, in the 13-week period ending May 31, 2024, Monster's retail market share in value as compared to the same period the previous year grew from 18.8% to 18.9% in Poland. According to Nielsen, in the 13-week period ending May 19, 2024, Monster's retail market share in value as compared to the same period the previous year declined from 28% to 27.3% in Denmark and from 37.5% to 34.7% in Greece. According to Nielsen, in the 13-week period ending May 31, 2024, Predator's retail market share in value as compared to the same period the previous year grew from 32.3% to 37.2% in Kenya and from 19.6% to 21.9% in Nigeria. Combining our markets in EMEA for the last 13 weeks, the energy category has grown 10.5%. Of note, for the same period, the category in Great Britain grew 1.9%, in Germany 9.9%, in France 11.4%, in Ireland 6.1%, in Spain 2.4%, and in South Africa 4.6%. According to the IRI for all outlets combined in Australia, the energy drink category increased 10.8% for the four weeks ending July 14, 2024. Monster's sales increased 24.9%. Monster's market share in value increased 2.2 points to 19.1% against the comparable period the previous year. Sales of Mother increased 7.2%, and its market share decreased 0.4 of a share point to 10.7%. According to IRR, for all outlets combined in New Zealand, the energy drink category increased 6.1%, for the four weeks ending July 7, 2024. Monster's sales decreased 3.7%. Monster's market share in value decreased 0.3 of a share point to 14.6, against the comparable period the previous year. Sales of Mother increased 12.8%, and its market share increased 0.3 of a share point to 5.7%. Sales of Live Plus decreased 1.9%, and its market share decreased 0.4 of a share point to 5.2%. According to Intage, in the convenience channel in Japan, the energy drink category decreased 5.2% for the month of June 2024. Monster's sales increased 4.2%. Monster's market share in value increased 5.5 points to 60.6% against the comparable period the previous year. According to Nielsen, for all outlets combined in South Korea, The energy drink category increased 16.6% for the month of June 2024. Monster's sales increased 5.4%. Monster's market sharing value decreased 5.6 points to 52.1% against the comparable period the previous year. We again point out that certain market statistics that cover single months or four-week periods may often be materially influenced positively and or negatively by for promotions or other trading factors during those periods. Net sales to customers outside the U.S. was 746 million, 39.3% of total net sales in the 2024 second quarter, compared to 715.4 million, 38.6% of total net sales in the corresponding quarter in 2023. foreign currency exchange rates had a negative impact on net sales in the U.S. dollars by approximately $67.7 million in the 2024 second quarter, of which $34 million related to Argentina. In EMEA, net sales in the 2024 second quarter increased 2.8% in dollars and increased 8.7% on a currency-neutral basis over the same period in 2023. Gross profit in this region as a percentage of net sales for the 2024 second quarter was 34.7% compared to 34% in the same quarter in 2023. Net sales in EMEA decreased by approximately 3.2% in the 2024 second quarter due to supply chain issues in Germany caused by production capacity and distribution constraints. We continued to execute our strategic initiative across EMEA in the second quarter with the launch and rollout of Monster Zero Sugar, which is now in 32 markets. We are also pleased that in 2024 second quarter, Monster gained market share in Belgium, Germany, Great Britain, the Netherlands, Poland, and the Republic of Ireland. In Asia Pacific, net sales in the 2024 second quarter decreased 1.2% in dollars, and increased 5.8% on a currency neutral basis over the same period in 2023. Gross profit in this region as a percentage of net sales for the 2024 second quarter was 45.4% versus 42.4% in the same period in 2023. Net sales in Japan in the 2024 second quarter decreased 11.8% in dollars and increased 0.4% on a currency neutral basis. In South Korea, net sales in the 2024 second quarter decreased 16.9% in dollars and decreased 14.3% on a currency-neutral basis as compared to the same quarter in 2023, largely due to the timing of production schedules this year. Monster remains the market leader in Japan and South Korea. In China, net sales in the 2024 second quarter increased 25.6% in dollars and and increased 31.2% on a currency-neutral basis as compared to the same quarter in 2023. We remain optimistic about the long-term prospects for the monster brand in China and are excited about the recent launch of Predator, which is being rolled out to additional markets in China over this year and 2025. In Oceania, which includes Australia, New Zealand, Tahiti, French Polynesia, New Caledonia, Papua New Guinea and Guam, net sales increased 2.9% in dollars and increased 4.7% on a currency-neutral basis. In Latin America, including Mexico and the Caribbean, net sales in the 2024 second quarter increased 14.1% in dollars and increased 39% on a currency-neutral basis over the same period in 2023, 14.9% exclusive of Argentina's impact. Gross profit in this region as a percentage of net sales was 45.8% for the 2024 second quarter versus 30.9% in the 2023 second quarter. In Brazil, net sales in the 2024 second quarter increased 33.2% in dollars and increased 37.4% on a currency neutral basis. Net sales in Mexico increased 22.6% in dollars and increased 13.7% on a currency-neutral basis in the 2024 second quarter. Net sales in Chile decreased 28.1% in dollars and decreased 14.7% on a currency-neutral basis in the 2024 second quarter due to challenging economic conditions in the country. Our market share in the quarter increased to 41.3% plus 0.2 of a share point In June, our share was 41.1%. Net sales in Argentina decreased 29.5% in dollars and increased 172.9% on a currency-neutral basis. In the 2024 second quarter, we remained the market leader in Argentina at 57.7% share and gained 2.4 share points in the second quarter. Monster Brewing had a challenging second quarter. Net sales for the alcohol brand segment were $41.6 million in the 2024 second quarter, a decrease of approximately $19.5 million or 31.9% lower than 2023 comparable quarter. We have recently appointed a new president of Monster Brewing and are continuing to consolidate production facilities to maximize efficiencies. During the quarter, we took a write-down of approximately $8.1 million relating to certain brewery closures. The Beast Unleashed is now available in 50 states through a network of beer distributors after the launch in the state of Utah in July. We expanded the Beast Unleashed into 24-ounce single-serve cans in the first half of the year. We are currently launching a second variety pack of the Beast Unleashed in a 12-pack of slim 12-ounce cans in four flavors, Mean Green, Pink Poison, Gnarly Grape, and Killer Sunrise. Nasty Beast, our new hot tea line, was launched in the 2024 first quarter and is now available in 49 states. In the United States, we are preparing for the launch of Monster Energy Ultra Weiss Guava in October 2024. In Canada, during the month of April, we launched Nozzero Sugar and Rainstorm in four flavours. Additionally, in the month of June, we launched Bang Energy in four flavours. In Latin America, during the second quarter of 2024, we launched Monster Zero Sugar in Argentina, Ultra Paradise in Colombia, Monster Juice Pipeline Punch in Guatemala, Ultra Paradise in Ecuador, and Reserve White Pineapple in Nicaragua. In New Zealand, during the month of April, we launched Monster Energy Ultra Strawberry Dreams, and in May, we launched Monster Energy Zero Sugar. In EMEA, in the second quarter of 2024, We launched Monster Juiced Aussie Lemonade, Juiced Bad Apple, Ultra Golden Pineapple, and Ultra Peachy Keen, Ultra Rosa, and Ultra Strawberry Dreams in a number of countries. In the MEA, in the second quarter of 2024, we also launched Relentless Punch, Burnt Guava, Burnt Punch, Rain Mango Matic, and Nalu Yuzu Rosemary Lemonata in a number of countries. We launched our new clean energy brand, Rainstorm, with three SKUs, Valencia Orange, Kiwi Blend, and Peach Nectarine in Great Britain and Sweden in the second quarter. Additional launches are planned across all brands throughout EMEA in 2024. During the second quarter of 2024, we launched Monster Ultraviolet and Papillon in Japan, and Peach Akeen and Aussie Lemonade in Korea. In China, Predator Gold Strike, which was launched in selected provinces of China at the end of April 2024, continues meeting expectations, being incremental to Monster and will be launched in additional provinces by year-end. In India, Predator Gold Strike in a PET format, which was launched as a test in one region at the end of 2023, is also meeting expectations. We are planning to launch that pack format next format in additional regions in India later this year. We remain optimistic about the long-term prospects for the Monster brand in China and India and are excited about the expansion of Predator in these two countries. On June 10, 2024, the company announced the final results of its modified Dutch auction tender offer, which expired on June 5, 2024. The company accepted for purchase approximately 56.6 million shares of common stock, at a purchase price of $53 per share for an aggregate purchase price of approximately $3 billion, excluding fees and expenses related to the tender offer. In addition, during the three months ended June 30, 2024, the company repurchased approximately 2.2 million shares of its common stock at an average purchase price of $49.55 per share for a total consideration of approximately $107.7 million, excluding broker commissions. Subsequent to June 30, 2024, the company repurchased approximately 3.9 million shares of its common stock at an average purchase price of $49.59 per share, for a total consideration of approximately $192.2 million, excluding broker commissions. As of August 6, 2024, Approximately $342 million remained available for purchase under the previously authorized repurchase program. We estimate that July 2024 sales were approximately 5.9% higher than the comparable July 2023 sales and 6.1% higher than July 2023, excluding the alcohol brand segment. We estimate that on a foreign currency adjusted basis, including the alcohol brand segment, July 2024 sales were approximately 9.4% higher than the comparable July sales and 9.6% higher than July 2023, excluding the alcohol brand segment. July 2024 had two more selling days compared to July 2023. 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 timing of price increases and 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. In conclusion, I would like to summarize some recent positive points. The energy category continues to grow globally. We believe that household penetration continues to increase in the energy drink category. Growth opportunities in household penetration, per capita consumption, along with consumers' need for energy are positive factors for the category. We continue to expand ourselves in non-Nielsen measure channels. We are pleased to report that our pricing actions have not significantly impacted consumer demand. As reported earlier, we are planning a price increase in the United States on our core brands and packages effective November 1, 2024. We continue to review opportunities for price increases internationally. 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. We are in the process of constructing a juice facility at our AFF flavour facility in Ireland, which we anticipate will be completed later this year. We're excited for the launch of Monster Energy Ultra Vice Guava in October 2024. Monster Brewing continues to provide opportunities within the alcohol brand segment. We are excited about the opportunities that the acquisition of the Bang Energy brand presents to us and believe that the brand fits well within our broader portfolio of energy drink brands. We are pleased with the rollout of Predator and Fury, our affordable energy drink portfolio, in a number of markets internationally. We are proceeding with plans for further launches of our affordable energy brands. I would like to now open the floor to questions about the quarter. Thank you.

Ladies and gentlemen, we'll now begin the question and answer session. To ask a question, you may press star and then 1 on your touch-tone telephones. If you are using a speakerphone, we do ask that you please pick up the handset before pressing the keys. To withdraw your questions, you may press star and 2. In the interest of time, we do ask that you please limit yourselves to a single question. Once again, that is star and then 1 to join the question queue. We'll pause momentarily to assemble the roster. Our first question today comes from Dara Moshenian from Morgan Stanley. Please go ahead with your question.

Hey, good afternoon, guys. The commentary on the U.S. category was helpful. Could you just put the recent slowdown you're seeing maybe in context versus other soft patches if you go back in history just in terms of drivers, magnitude, et cetera, just to give us some insight on how long you expect this to last? And also within that, maybe you can just touch on the promotional environment and how that might impact your plans to maybe cushion some of the pending U.S. price increase with promotion and how you guys think through that.

So, you know, Dara, historically, we've seen declines in quarterly year-over-year volumes really only during the financial crisis and COVID lockdowns in the U.S. and they particularly significantly impacted foot traffic. The current situation in the US is actually relatively unprecedented. And we've not seen inflation rates and we haven't seen inflation levels, I'm sorry, and interest rates for one heck of a long time. And we believe that those have contributed to the slowdown. If you look internationally and those markets traditionally have a longer history of energy drinks. We saw and have seen slowdowns in certain European countries over the periods. And in each case that we've seen them, the levels have, in fact, rebounded. So at the end of the day, when you look at the positive factors, we believe that Energy drinks certainly are a need state. Consumers want energy drinks. And household penetration is growing. All the things we spoke about really on this call. And we, like other consumer products companies, we see this decline primarily driven by a reduction in consumer spending and the lower foot traffic in businesses. the convenience channel. We've seen reports of foot traffic convenience channel being down by as much as 3%, 3.5%. And then a swing towards more grocery mass online purchasing. So it's kind of a situation where we are a blue-collar brand. And I've consumers are more hard-pressed than consumers in other categories. And that's why maybe we have seen a larger reduction than other competitive products in the space. But at the end of the day, some of those competitive products have had price increases which we have not had yet, and we will have later this year.

Our next question comes from Andrea Teixeira from JP Morgan. Please go ahead with your question.

Thank you and good afternoon. I was hoping if you can talk basically about the channels. You did discuss the mass channels and discounts being one and how you'll be able to shift for those consumers who are looking for basically more affordable energy. And you did a reference to production challenges internationally. Is that a way to think about it and the impact? And if it's temporary, how we should be thinking about those? Thank you.

Well, the production challenges which were in Germany have largely been resolved now. It was a situation where there was lack of capacity in a particular plant. We set up facilities in other manufacturing entities, and then the plants in Germany, the distribution points in Germany were unable to accept product because they had challenges getting product in because we have a very large market in Germany. So it was a mix of factors, but at the end of the day, we're back and running and we don't anticipate a recurrence of that issue in Germany this quarter.

Just to give colour on the German issue, you must appreciate that in the second quarter they had the European soccer championships and there was a lot of extra demand, a lot of unusual things happened and that's why we ended up with this challenge which we think was unusual and it's not likely to occur again in the future and we've taken steps to to address it in the future and have more visibility.

Our next question comes from Hamil Gozerwala from Jefferies. Please go ahead with your question.

Hey, guys. Can you try to just kind of reconcile the idea of still taking a price increase with the slowdown in the category? The commentary on who your core consumer is, they're being a little bit more careful, doesn't seem to align with the idea to take a price increase later. Thanks.

Yeah, Camille, you know, if you look at our pricing, where we are relative to other beverages that we would regard as, you know, kind of comparative, those other beverages, they've dramatically expanded their price. We've, you know, passed the price index to our monster products. And we still see it as an opportunity. The extent is not that significant. We still will retain a very competitive price for consumers, both within the energy category and the ready-to-drink beverages as a whole. And we've discussed it with most of our major distributors and customers. And we've absorbed significant increases. As you know, we had one increase in the last two years. And our competitors in the ready-to-drink beverage space have had multiples. So we still see it as an opportunity, and we think it is something that we should pursue and move forward with.

Our next question comes from Peter Grom from UBS. Please go ahead with your question.

Thanks, Operator. Good afternoon, everyone. So I was hoping to get some thoughts on the quarter-to-date trends just when you know, backing out the benefits from selling days, it doesn't apply a ton of growth on the underlying basis, if at all. So can you maybe just talk about category trends in July, maybe unpack it from a U.S. versus international perspective? And just, you know, going back to Dara's question, just any thoughts in terms of how you see growth kind of progressing from here to the balance of the quarter? Thanks.

You know, we look at Nielsen like, you know, the rest of the group. And you can really see in Nielsen, if you look at U.S. convenience and you look at all measured channels, that the situation is actually getting worse in July, and it's not getting better. So we've always spoken about our non-measured channels, and our non-measured channels have continued to be a significant part of our of our activities and continue to grow. But, you know, look at the Nielsen numbers, and I'm sure you've seen them, Peter. The July numbers are, you know, show a, you know, it's not a dramatic, but it is a worsening trend.

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

Hi, how are you guys?

Bonnie, we never thought you'd come on this call. We've been waiting for you.

Well, you didn't pick me early enough. I've been here waiting.

We don't do the picking, unfortunately.

Yeah, okay. Well, I did want to circle back, of course, to the slowdown that you guys did report in the quarter versus your expectations. I guess I'm I am still trying to reconcile a few things. Could you maybe help us understand where bottler inventory levels are? I mean, is there any timing impact by chance, especially internationally, that might have impacted Q2? And then second, maybe help us understand your innovation pipeline. I know you talked about a lot, but any shipment timing impact that you saw you know, with the rollout of innovation, you know, whether it was in Q1 or in Q2, and then how do we think about the second half? You know, do you possibly have more innovation rolling out in the back half versus what you did in the first half? Thanks.

Well, let me talk about, answer your first question, and Rodney will talk about innovation. You know, we haven't heard of any bottling inventories that are challenged or have changed significantly this period. We are in summer, and we haven't heard anything. I know and I read, obviously, one of the competitors mentioned that they had bottler inventory issues, but we have not seen that. The only thing we spoke about is this German issue for a million cases, which has been rectified.

But, you know, I think we always, every quarter, we have choppy issues with botters because, as we said earlier in the call, it depends on when they produce and sometimes they may be producing just before or at the end of the period. That does have some effect. Again, we've not really looked and gone into it because it's just part of the way our business is done, and we've just got to live with it. We haven't called it out specifically, but these things do continue to occur.

If we hear something significant, obviously we call it out, but we haven't just called it.

With regard to innovation, innovation has been fine. We've had two good products. The Fantasy Ruby Red has done very well, and we've got out a little later with the Rio Punch. They've both done very well. If I look at the innovation, the sales per point of those two items are pretty strong. They're ahead of sales per point of competitive new product launches like Red Bull, their sugar-free 12 ounces this year. In fact, the sales per point of those two new items that we launched are actually ahead of sales per point of the very top Celsius sort of SKU. So I'll just give you some sort of perspective. One of the perhaps challenges this year was perhaps a little lower than others. If you look at the distribution levels we achieved on the innovation, they're perhaps a little lower. They've been in the 60s, mid-60s, and perhaps we think that In a perfect world, they should have been closer to 75 or 80. So that's something we are addressing with our bottling partners and with the industry. And obviously, I think we could probably improve on that. But that is probably one of the issues that perhaps didn't deliver as much in dollars on the innovation as one of the reasons that innovation was maybe a little lower. But ultimately, the innovation is still doing pretty well when I look at even the latest weekly figures. Also, we do have this planned innovation. We have a really large company focus on the launch of Ultra Vice Guava. We think it's really exciting. It's a great package. It's a great flavor. But we are, in fact, galvanizing our own team and the bottlers. And we're going to go out and have, we believe, a real good launch of this product towards the end of this year, in the end of the third quarter, beginning of the fourth quarter. So we see that. as being really positive, and I think that give us something to execute against. We also got some good innovation coming in next year, but that will start shipping at the end of this year, part of it, and some of it at the end of January, and we've got a good plan going through for spring of 2025. So we remain encouraged. by our innovation. In fact, one of the other innovation items we launched was Zero Sugar in EMEA, which has done really nicely. We also launched Juice Bad Apple, which we hadn't launched in the U.S., and that has been rolled out, and that is also getting some really good reception. So that is something that we'll be looking at to maybe expanding in other areas, but we tested it first in EMEA. So we do have some pipeline coming and newer products So we are positive going forward that we'll be able to address consumer trends and look at the industry will be positive going forward.

And one other thing I just wanted to mention, Bonnie, was that if you look at 2023, remember we launched Zero Sugar, which was the analog to Monster Green, and that was a very, very significant launch. So when you compare 2024 to 2023, Zero Sugar was really a major push as indeed with Strawberry Dreams, the great flavors. So, you know, 23 was really incredible with regard to launches. 24 was great, but obviously not at the same level as 23.

We'll also, just as a matter of interest, we've got some great innovation we're looking to launch for Bang, because that's been a new brand to our portfolio. We have our own sort of innovation launch for early next year, and we have another launch in conjunction with All Means Possible. And their social media response and presence, you know, on their channels and for the brand has been we are seeing some really positive signs. So we are sort of quite positive about also being able to take Bang and to start to sort of, you know, start to get that brand more focused with new innovation now, which we haven't had until now. We've been consolidating and just getting relistings.

And our next question comes from Filippo Filorni from Citi. Please go ahead with your question.

Hey, good afternoon. I wanted to ask about gross margins. You mentioned in the release that you are 50 basis points below the first quarter because of higher allowances that you think are not recurring and some production efficiencies. Should we think those go away starting in Q3? And then maybe you can talk about the commodity environment. It seems aluminum is still favorable year over year. Is it going to be still favorable in the balance of the year or just any color on the commodity environment as well? Thank you.

Let me talk a little bit about what you're referring to. Yes, indeed, we do believe that the high allowances and the production inefficiencies will take care of themselves. I'm not sure whether The production inefficiencies will take care of itself in the third quarter, but certainly it will over time. The production inefficiencies relate to the two plants that we have up and running. We opened Norwalk for production in April, and we're gearing up production in Norwalk, which is one of the reasons for the production inefficiencies, because we're gearing up that plant to full production. And then on the other hand, we have our facility in Phoenix that we acquired as part of the bank transaction, which is at present only producing bank products, but we're gearing it up to produce Monster Both the ultra versions of Monster and Rain, which are the non-sugar varieties, and then ultimately the sugar varieties, because they don't have sugar tanks. We've had issues with water that we've been dealing with to ensure that we deliver the best Monster flavors possible. So that's where the production inefficiencies are coming from, and they will resolve themselves over time. The allowances absolutely will resolve themselves. We believe by this next quarter they should be gone. So that's where we are on that. Now, on the commodities environment, we hedge aluminum. So how we hedge aluminum is we use a ladder. So we purchase aluminum according to a prescribed formula and we have certain amounts at our discretionary, we re-evaluate aluminum on a weekly basis. And we take advantage, of course, of pricing when pricing falls, but there are instances where we may have purchased aluminum at higher prices to ensure that our latter strategy is properly executed. Because there was a time when aluminum, as you know, was up, And everyone was scurrying to purchase aluminum, and now it's back down. So it's a, you know, there are pluses and minuses. But I do believe that we're in good territory with aluminum, and aluminum, we should be able to see reductions over time.

And ladies and gentlemen, at this time, I'd like to turn the floor back over to Rodney Sachs for closing remarks.

Thanks. On behalf of the company, I'd like to thank everyone for their continued interest. 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, capitalizing on our relationship with the Coca-Cola bottling system. We believe that we're well positioned in the beverage industry and continue to be optimistic about the future of the company. We hope that you remain safe and healthy. Thank you very much for your attendance.

And ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for attending. You may now disconnect your lines.