Good day, ladies and gentlemen, and thank you for your patience. You have joined Monster Beverage Corporation's 2018 Fourth Quarter and Full-Year Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference may be recorded. I would now like to turn the call over to your host, Chairman and CEO, Mr. Rodney Sacks. Sir, you may begin.

Hi, good afternoon, ladies and gentlemen. Thank you for attending this call. I am Rodney Sacks. Hilton Schlosberg, our last Vice Chairman and President is with me today, as is Tom Kelly, our Senior Vice President of Finance. Before we begin, I'd like to remind listeners that certain statements made during this call may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended, and are based on currently available information regarding the expectations of management with respect to revenues, profitability, future business, future events, financial performance and trends. Management cautions that these statements are based on our current knowledge and expectations and are subject to certain risks and uncertainties, many of which are outside the control of the company that may cause actual results to differ materially from the forward-looking statements made during this call. Please refer to our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K filed on March 1, 2018, and our Form 10-Q filed on August 9, 2018, 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 obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. An explanation of the non-GAAP measure of gross sales and certain expenditures which may be mentioned during the course of this call is provided in the notes and designated with asterisks in the condensed consolidated statements of income and other information attached to the earnings release dated February 27, 2019. A copy of this information is also available on our Web site at monsterbevcorp.com in the Financial…

Thank you. [Operator Instructions] Our first question comes from the line of Caroline Levy of Macquarie. Your line is open.

Thank you very much, good afternoon.

Hi, Caroline.

Hi, Rodney. Just a quick question on -- a clarification if you could repeat the January sales, that would be helpful. I think I heard 2% and 4%, but just want to clarify. And then if you could just tell us a little bit more about how things are going in China. You mentioned about $3 million in losses in the quarter, how does that progress over the course of last year? Are the losses about where you expected them to be, do you think we will have another lost year next year and how do you feel about the progress in China overall?

Okay. Let's just deal with the January sales. January sales were up -- sorry, 2.7% in January and on a foreign currency adjusted basis 4.6%.

So Caroline, you got the point about January '18 sales being higher than ordinarily they should have been. So we spent a bit of time just talking about that.

Yes.

Go back to the same call we had a year ago and pick up some of those sentiments that we expressed exactly the same at that time.

Okay. Oh, got it.

And I think obviously -- and then taking that into account, we have obviously also given you the Nielsen numbers for January and you obviously February, so we do caution about this being a single month on a highly stacked January from last year. Thanks.

So Caroline, just talking very briefly about China, the loss for the quarter was very much in line with what we'd expected. We are seeing a lot of what we call green shoots in China in the major chains, our volumes per outlet are very respectable compared to what we've seen for Red Bull. And the launch of Ultra was particularly pleasing and it's growing in strength. As regards this year, we again are adjusting for a loss in China and we absolutely committed to success in that territory. So we know it'll be an investment and we know it'll take some time to realize profitability in China and our co-colleagues have expressed and shared with us similar sentiments, but we are committed and we would believe that we will be successful in China.

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And just to add that the bottlers, likewise, are excited about the opportunities that the Monster brand presents for them in China.

Thank you. Our next question comes from Mark Astrachan of Stifel. Your line is open.

Hey, hey guys.

Hello, Mark, hi.

So I guess, maybe one question broadly on gross margins. I don't want to ask you for guidance or anything like that, Hilton, but I guess, the numbers were still a little bit weaker than we or probably others would've expected. So how much of it is aluminum? I mean, I get the freight piece, I think most of it will get the freight piece, but what we don't see is how much inventory for aluminum you bought in 2008 potentially at much higher prices. So maybe if you could talk a bit about the cadence of that kind of cycling through and when kind of directionally some of that should lessen so without actually getting guidance, but just in terms of the inputs, puts and takes to how long before you start seeing lower price inventory kind of work through would be helpful.

Well, you know, as we look at aluminum, aluminum did start coming down to us a ladder quarter of last year. We from time to time execute hedges with our aluminum can companies and we had some hedges in place for the fourth quarter of last year ready to protect ourselves against Aluminum going significantly up as it had been for most of the year. So that's the picture of aluminum. Aluminum coming down, re-buying it at various processing, including one of our hedges hitting in at a higher price than the market price for a portion; not for all, but for a portion of our Aluminum. So as we head into 2019, Aluminum in our books would definitely start coming down. By how much I really can't say, and I'm not at liberty to say, but it will be coming down in 2019.

Thank you, our next question comes from the line of Andrea Teixeira of JPMorgan. Your line is open.

Thank you. Good afternoon. Hi. I appreciated your updates on the price increase internationally, and you mentioned Canada up 3% starting on February 1st. Do you think I'm just laying your comments before that your price, respect for your price elasticity in some places. So do you think we should be thinking of that being the last price increase so far given what Hilton just said about aluminum potentially coming down, or is that…

No, I think that there are some selected countries in EMEA where we are we have taken certain price increases, and will continue to take some price increases this year. But I just don't have a list of them with me and at this point we wouldn't like to expand further on that. So there will be some. But obviously, we will also take that into account when we look at the Aluminum prices in what it costs us going forward.

Thank you, our next question comes from the line of Amit Sharma of BMO Capital Markets. Your question please.

Hi, good afternoon everyone.

Hi.

A quick clarification, and then a question on -- from a EMEA -- the supply chain disruptions and production issues, how much did it cost in terms of your sales growth for that segment, right, in the quarter. And then, as we think about the gross margin in U.S., it's clearly a little bit weaker than what we were expecting, and I hear your point on the commodity, but there's also a sales mix aspect of it. Can you unpack that a little bit, provide us some clarity that how much of a headwind that is, and how it could continue even after you overcome the commodity headwinds?

Okay. So regarding EMEA, it's not a precise science, and unfortunately, I just don't want to give you a number for what the impact of these supply chain issues in EMEA were in the fourth quarter. We have made some stabs at the number. We've been reviewing it continuously since the middle of 2018, but I'd rather just stay away from giving some indication of what that number is. I don't think it would be appropriate to do so. But what I can say to you is that we believe the number was in excess of a million cases, and I'm going to stop there in the fourth quarter.

Got it. Perfect, thank you. And then gross profit impact from sales mix in U.S?

So there definitely is an impact on sales in the U.S., and if you what we try to do is on the call is prioritize the reasons for the decrease in gross profit and you'll notice from the call that number one was the increases in certain input costs such as aluminum cans, freight in and other input costs. Secondly was our geographic sales mix, where our International sales are increasing as a percentage of our total sales and our foreign operations generally have lower gross margins as you heard on the call. And the third reason was the domestic product sales mix. So, while it was definitely a factor and will continue to be a factor with the different products that the company has launched, but in the fourth quarter, it was the number, the third reason and was not the first or the second reason. And I'd also like to stop there because when you look at our new products that will be rolled out this year particularly the new Ultra Paradise and the Reign products they will all be at the more traditional launch the margins and not at the coffee margins. So they will be higher than the coffee margins.

Thank you. Our next question comes from the line of Laurent Grandet of Guggenheim. Your line is open.

Yes, good afternoon Rodney and Hilton. I do have a question on Reign. I noticed on the packaging doesn't carry any reference to Monster the clue or even on the back it says I mean the company manufacturing it is the Reign beverage company, so I'm curious to understand why you are not leveraging your brand name as it would be a bit more A&M intensive to launch a new brand from scratch, I'd like to understand also the first reaction from the trade on the Reign?

Well, let me just talk about that. We the positioning of Reign is different to the positioning of Monster and we've made the strategic decision to not in fact make Reign a line extension of Monster. It needs to we think it should be positioned have its own positioning, its own marketing, create its own personality and that we believe will give its best chance of success. We already have an extensive range of products in Monster that appeal to consumers. They have their own personality and identity. So we just felt that this was the appropriate thing for us to do. This doesn't mean that in the future depending on this performance category, its longevity and the size that it grows to what we believe it will expand the energy category. What it does, we will look to what we want to do in the Monster range. There is no limitation on us in having line extensions or maybe a subfamily of products in this performance energy range with BCAAs or whatever else we want to do with a sort of a slightly different energy formula formulation. And that's something that we're looking at and open to doing, so that doesn't preclude us. We just feel that and in fact it's better. And it does enable us to position the brands differently and get more shelf space. We think that would have been more pressure on our existing shelf space had we simply launched line extensions and we do have a number of additional line extensions which we are planning for months that we've already described a number of them to you that are being launched. We actually have additional launches and sub launches planned for Monster later in the year. So we've got quite a full plate for Monster and you can't do everything under one brand and that's the reason that we've positioned it as we have.

And I think it's also important to note that we're continuing with rollouts of Friends under the strategic brands and new flavors. So we're not neglecting the strategic brand segment either.

Just as regard to retailers again, where it's being rolled out in March. So it's premature but the acceptance from retailers and to the brand to the positioning to the taste profile that we've done in the packaging has been very positive. We're actually very happy with it and we are going to have a focused and concerted rollout in March.

Thank you. Our next question comes from the line of Kevin Grundy of Jefferies. Your question please?

Thanks. Good afternoon.

Hi, good afternoon Kevin.

Quick cleanup question I hope, I know your inclination and the pension historically has not been to guide but Hilton can you just confirm for us that given the moving parts and you understand the comments are in input cost and mix and but you have full-year pricing going in, do you expect gross margins to be higher and you could just confirm that that would be helpful. And then Rodney on pricing, can you talk about Red Bulls pricing posture. So from a U.S. perspective, they clearly haven't followed yet. Is that concerning? Is there a point at which you consider rolling back pricing or promoting it back through trade and then maybe internationally, what are you seeing from them. Do you think will be further opportunity to price beyond what you've outlined on this call? Thank you for that.

Kevin, I'll just take the last question first. Red Bull obviously has made a strategic decision once we had announced our increase to be aggressive in some of the promotions, more so that in previous years and to try and pick up some volume in share. Would that be losing for some time. We've seen that, it doesn't affect us. We've I think been successful at what we strategically intended to achieve and we're not intending to roll back any pricing at this time. We're satisfied with where we've got with pricing and we think the pricing is fine. And so we don't believe that Red Bull will continue because it's going to hurt their margins and they won't continue indefinitely. But that's -- we can't speculate as to what's in their heads but whether they do so or not. We don't believe that would be a factor for us or any materiality quite frankly and so we're moving forward with our plans.

So just to add a little bit to that, the price increase that was planned was really carefully planned in relation to Red Bulls pricing where there were significant gaps between our price on shelf and where Red Bull was at that time. And what we were able to do with our price increase was move us closer to the Red Bull pricing. So if you look at the -- at the pricing in the 4% that we implemented, the objective was to get pretty close to where Red Bull had their products priced in the market. And obviously we're only talking about the U.S. And then on your other point on gross margin, you know Kevin, I didn't have to give you guidance because we don't give guidance, but you've got all the facts, you know that aluminum is coming down. We've said that freight costs are continuing to increase. You know our geographical sales mix because we've spoken about that there and we've also spoken about our new products and that the new products are largely going to be focused on better margin products. So you can come to your own conclusion. I think you know where I'm heading, and how can I give any guidance or any discussion on margin, but I think that's enough for you to able to work it out.

Thank you. This concludes our Q&A session. At this time, I would like to turn the call back over to Mr. Sacks for any closing remarks.

Thank you. On behalf of Monster, I would like to thank everyone for their continued interest in the past. We continue to believe in this company, and our growth strategy remains committed to continuing to innovate, develop, and differentiate our brands and to expand the company both at home and abroad. And in particular, expand distribution of our products through the Coca-Cola bottler system internationally. We are also particularly excited about new opportunities that we have going forward with the portfolio of Energy Drink products throughout the world comprised of our Monster Energy Brand together with our Strategic Brands as well as Hydro, Mutant, and in particular Predator and Reign. Thank you very much for your attention and your attendance.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.