Monster Beverage Corp (MNST) — Q2 2024 Earnings Call Transcript

Thank you. Good afternoon, ladies and gentlemen. Thanks for attending this call. I'm Rodney Sacks. Hilton Schlosberg, 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 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 Sacks.

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 in retail towards more mass and dollar channels. Other beverage and consumer packaged product companies 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 ourselves in non-Nielsen measured channels. The company achieved record second-quarter net sales of $1.9 billion in the 2024 second quarter, which is 2.5% higher than net sales of $1.85 billion in the comparable 2023 quarter, and 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 compared to the 2023 second quarter was primarily the result of decreased freight-in costs, pricing actions in certain markets, and lower aluminum can costs, partially offset by production inefficiencies. On a sequential quarterly basis, gross margins were 0.5% below 2024 first-quarter margins, primarily due to higher allowances, certain of which we believe are nonrecurring, 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 was 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 to 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 2, 2024. According to the Nielsen reports for the 13 weeks through July 20, 2024, for all outlets combined, namely convenience, grocery, drug, and 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 Bang, were down 2.5% in the 13-week period. Sales of Monster declined 3%. Sales of Reign were down 0.5%. Sales of NOS increased 4.1%, and sales of Full Throttle decreased 6.9%. Sales of Red Bull increased 1.7%. According to Nielsen, for the 4 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 Bang, decreased 4.8% in the 4-week period in the convenience and gas channel. Sales of Monster decreased by 5.4% over the same period versus the previous year. Reign sales decreased 3.8%, and NOS was up 2.6%, and Full Throttle was down 8.6%. Sales of Red Bull were up 0.7% or 0.8%. According to Nielsen, for the 4 weeks ended July 20, 2024, the company's market share of the energy drink category in the convenience and gas channel, including energy shots in dollars, decreased 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%. Reign's share decreased 0.1 of a share point to 3%, NOS's share increased 0.1 of a share point to 2.6%, and Full Throttle's share remained at 0.7%. Bang's share was 1.9%, and Red Bull's share increased 1 percentage point to 35.9%. Market share of certain competitors were as follows: CELSIUS 7.9%, C4 3.5%, 5-hour 3.3%; Rockstar 3%, and GHOST 3%. According to Nielsen, for the 4 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 were 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 4 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 measured channels in Canada, for the 12 weeks ended 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%. Monster's sales decreased 1.2%, and its market share decreased 2.8 points to 34.7%. NOS' sales increased 17.4%, and its market share increased 0.1 point to 1.3%. Full Throttle sales increased 66.9%, and its market share increased 0.2 or 2.5 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 sales increased 18.1%, Monster's market share in value decreased 0.5 points 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 ourselves in the OXXO convenience chain, which dominates the market. Sales in the OXXO convenience chain 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%, and 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 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 sales increased 1.4%, and Monster's market share in value increased 0.2 points 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 month referred to from country to country. 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 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 ended 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 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 share in 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 share in 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 of 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, Monster's retail market share in value as compared to the same period of 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 IRI, for all outlets combined in Australia, the energy drink category increased 10.8% for the 4 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 share points to 10.7%. According to IRI, for all outlets combined in New Zealand, the energy drink category increased 6.1% for the 4 weeks ending July 7, 2024. Monster sales decreased 3.7%, and 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+ 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 sales increased 4.2%, and 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%, and Monster's market share in 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 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 $746 million, 39.3% of total net sales in the 2024 second quarter compared to $715.4 million, 38% 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. 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 the 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% compared to 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 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, and 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 the month of June, and 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 remain 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 brands segment were $41.6 million in the 2024 second quarter, a decrease of approximately $19.5 million or 31.9% lower than the 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 Unleased is now available in 50 states through a network of beer distributors after the launch in July. Additionally, we expanded the Beast Unleased into 24-ounce single-serve cans in the first half of the year. We are currently launching a second variety pack of the Beast Unleased in a 12-pack of slim 12-ounce cans in 4 flavors: Mean Green, Pink Poison, Nali Grape, and Killer Sunrise. Nasty Beast, our new HeartTline, 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 vice Guava in October 2024. In Canada, during the month of April, we launched NazerSugar and Rainstorm in 4 flavors. Additionally, in June, we launched Bang Energy in 4 flavors. In Latin America, during the second quarter of 2024, we launched Monster Zero Sugar in Argentina, Ultrapar in Colombia, Monster Juice Pipeline punching in Guatemala, Ultrapar 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 Juice Bad Apple, Ultra Gold, and Pineapple and Ultra Peach, Ultra Rosa and Ultra Strawberry Dreams in a number of countries. Additionally, we launched Burn Graver, Burn Punch, Raiman Matic, and Nalu Yuzu Rosemary Lemonade in several countries. We launched our new clean energy brand, Reign Storm, with 3 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 Ultra Violet and Papillon in Japan. And Peachy Keen and Aussie Lemonade in Korea. In China, Predator Goldstrike, which was launched in selected provinces of China at the end of April 2024, continues to meet expectations and will be launched in additional provinces by year-end. In India, Predator Gold Strike in a PET format was launched as a test in one region at the end of 2023 and is also meeting expectations. We are planning to launch that pack 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 2 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 3 months ended June 30, 2024, the company repurchased approximately 2.2 million shares of 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 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 brands segment, July 2024 sales were approximately 9.4% higher than the comparable July sales and 9.6% higher than July 2023, excluding the alcohol brands segment. July 2024 had 2 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 in 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 our sales in non-Nielsen measured 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 flavor 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're 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 several 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.

The commentary on the U.S. category was helpful. Could you just put the recent slowdown you're seeing in context versus other soft patches if you go back in history, just in terms of drivers, magnitude, etc., 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?

Sure. 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 U.S. is actually relatively unprecedented. And we've not seen inflation rates and interest rates for quite some time, and we believe that those have contributed to the slowdown. If you look internationally, those markets traditionally have been the ones with 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. What we like other consumer products companies, we see this decline primarily driven by a reduction in consumer spending and the lower foot traffic in the convenience channel. We've seen reports of foot traffic in the convenience channel being down by as much as 3% to 3.5%. Additionally, there is a swing towards more grocery and mass online purchasing. So it's kind of a situation where we are a blue-collar brand. Our consumers are more hard pressed than consumers in other categories. 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 will have later this year.

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

The production challenges in Germany have largely been resolved now. There was a lack of capacity in a particular plant; we set up facilities in other manufacturing entities, and the plants in Germany that had distribution points were unable to accept product due to challenges receiving product because we have a very large market in Germany. So it was a mix of factors. 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 provide context 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. We think it was unusual and it's not likely to occur again in the future, and we've taken steps to address it.

Can you try to just reconcile the idea of still taking a price increase with the slowdown in the category? The commentary on who your core consumer is; they are being a little more careful doesn’t seem to align with the idea of taking a price increase later.

Yes. Kaumil, if you look at our pricing, where we are relative to other beverages that we would regard as comparable, those beverages have dramatically expanded their prices. We've passed the price index to Monster products. We still see it as an opportunity; the extent is not that significant. We still will retain a competitive price for consumers, both within the energy category and the ready-to-drink beverages as a whole. We've discussed it with most of our major distributors and customers. We've absorbed significant increases, as you know, we had one increase in the last 2 years, while our competitors in the ready-to-drink beverage space have had multiple. We still see it as an opportunity, and we think it is something that we should pursue and move forward with.

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

We look at Nielsen like the rest of the group. Looking at metrics for U.S. convenience, and all measured channels, the situation is actually getting worse in July; it’s not getting better. Our nonmeasured channels have continued to be significant in our activities and continue to grow. But looking at the Nielsen numbers, and I’m sure you’ve seen that, Peter, the July numbers are not dramatic, but it’s a worsening trend.

I thought...

Bonnie, we haven't thought to come on this call; we've been waiting for you.

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

We don't see the picking, unfortunately.

Yes. Okay. Well, I did want to circle back, of course, slowdown that you guys did report in the quarter versus your expectations. I guess 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 with the rollout of innovation, whether it was in Q1 or in Q2? And then how do we think about the second half? Do you possibly have more innovation rolling out in the back half versus what you did in the first half?

Let me address your first question. We haven't encountered any significant challenges with bottler inventories this quarter. It's summer, and we haven't received any updates indicating issues. While a competitor mentioned having inventory problems, we have not experienced that. The only matter we've discussed is the German issue concerning one million cases, which has now been resolved.

But I think we always every quarter, we have choppy issues with bottlers because, as we said earlier in the quarter, 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. But again, we've not really looked and gone into it because it's really just part of the way our business is done, and we just got to live with it. And so 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.

Innovation has been progressing well. We launched two strong products, Fantasy Ruby Red and Rio funds, which have performed admirably. Their sales figures are robust and surpass the sales per point of competitive new launches such as Red Bull's sugar-free variant this year. In fact, the sales per point of these two new items exceed those of the leading Celsius SKU. One challenge this year was slightly lower distribution levels for innovation, which were around 60%. Ideally, we believe this should have been closer to 75% or 80%. We are working on this issue with our bottler partners and the industry, as it likely impacted our dollar performance from innovation. However, current weekly figures show that innovation remains strong. We also have upcoming innovations planned, including the exciting launch of Ultra Vice Guava, which boasts a fantastic package and flavor. We are committed to executing this launch, which we anticipate will be well-received by the market in the third quarter of this year. Additionally, we have promising innovations lined up for next year, with some products set to ship at the end of this year and others in late January. Our strategy for spring 2025 is solid, and we remain optimistic about our innovation efforts.

One other thing I wanted to mention, Bonnie, was that if you look at 2023, we launched Zero Sugar, which was the analog to Monster Green. That was a very significant launch. When you compare '24 to '23, Zero Sugar was really a major push, along with Strawberry Dreams, which were incredible launches. So 2024 was great overall, but obviously not at the same level as '23.

As a matter of interest, we have some great innovations we’re looking to launch for Bang because that’s been a new brand to our portfolio. We have our innovation launch for early next year, and we have another launch in conjunction with all means possible. Their social media response and presence on their channels and for the brand has seen some really positive signs. We're quite positive about taking Bang to more of a focus with new innovation now.

I wanted to ask about gross margins. You mentioned in the release that you were 50 basis points below the first quarter because of higher allowances that you think are nonrecurring 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? Just any color on the commodity environment as well?

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 resolve themselves. I can't say for certain when they'll take care of themselves in the third quarter, but certainly they will over time. The production inefficiencies relate to the 2 plants that we have up and running. We opened Norwalk for production in April, and we're gearing up production in NOC, which has caused production inefficiencies. On the other hand, we have our facility in Phoenix that we acquired as part of the Bang transaction, which is currently only producing Bang products. We’re gearing it to also produce both the Ultra versions of Monster and Reign, as well as the sugar varieties. This culminates in resources to ensure we deliver the best Monster flavors possible. The allowances absolutely will resolve themselves, we believe, in this next quarter. Regarding the commodities environment, we hedge aluminum. We procure aluminum according to a prescribed formula and take advantage of pricing when prices fall. There are pluses and minuses, but we're in good territory with aluminum and should be able to see reductions over time.

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 continuing to innovate, develop, and differentiate our brands and to expand the company both at home and abroad, particularly 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.