Monster Beverage Corporation (MNST) Q2 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Hansen Natural Corporation Second Quarter 2011 Financial Results Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, August 4, 2011. I would now like to turn the conference over to our host, Mr. Rodney Sacks, Chairman and CEO of Hanson Corporation. Please go ahead, sir.

Good afternoon, ladies and gentlemen. Thank you for attending this call. I'm Rodney Sacks. Hilton Schlosberg, our Vice Chairman and President is with me today, as is Tom Kelly, our Senior Vice President of Finance. 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 Exchange Act of 1934, as amended, and which 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 management's 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 herein. 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, 2011, and our most recent 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 obligation to update any forward-looking statements whether as a result of new information, future events, or otherwise. An explanation of the non-GAAP measures of gross sales and certain expenditures, which may be mentioned during the course of this call, is provided in the notes designated with asterisks in the condensed consolidated statements of income and other information attached to the earnings release dated August 4, 2011. A copy of this information is also available on our website at www.hansens.com in the Investor Relations Section. Overall, the company had a good second quarter with record sales up 26.4% and with earnings per share increasing to $0.90 from $0.69 in the same quarter last year. In fact, we are pleased to report another memorable milestone for the company in the second quarter, namely the achievement of the company of gross sales in excess of $0.5 billion in a quarter. Despite difficult economic environment in our major markets, the United States and Europe, the energy drink category has continued to show growth. This is quite remarkable in the face of general consumer weakness and higher gas prices, which appear to be driving reduced traffic in key retail channels, and speaks to the resilience of the energy drink category. Not only is the energy drink category continuing to show growth, but sales of Monster Energy continue to show growth in excess of the category. Sales of Peace Tea also showed growth. According to the Nielsen reports, for the 13 weeks through June 25, 2011, all outlets combined, namely convenience, grocery, drug and mass merchandises, excluding Wal-Mart, sales in the energy drink category, including Shots, increased 15.8% versus the same period a year ago. Sales of Monster grew 22.3% in the 13-week period, while sales of Red Bull increased by 14.6%. Sales of Rockstar increased 20.3%. Sales of 5-Hour increased 33.4%. Based on Nielsen data in recent months, it appears that the growth rate for 5-Hour is continuing to slow. Sales of Amp decreased 5.3%, sales of NOS increased 10.7% and sales of Full Throttle decreased 14.2%. According to Nielsen reports for the 5 weeks ended June 25, 2011, sales of energy drinks in the convenience and gas channel increased by 16% over the comparable 5-week period in 2010. Sales of Monster increased by 21.4% over last year, while sales of Red Bull increased by 15.3% over last year. Rockstar was up 25.7% while 5-Hour was up 29%. Amp was down 4.7%, NOS was up by 10.2% and Full Throttle was down 11.7%. According to Nielsen for the 5 weeks ended June 25, 2011, Monster's market share of the energy drink category in the convenience and gas channel, including energy shots in dollars was 29.2% against Red Bull share of 31.7%, and Rockstar's share of 10.3% and 5-Hour share of 11.1%. According to Nielsen in the 13 weeks ended June 25, 2011, for all outlets combined, sales of energy plus coffee drinks increased 6.7% over the same period last year. Java Monster was 8.6% higher than last year and Starbucks Double Shot Energy was up 15.1%. However, our net sales over Java Monster line to our customers in the second quarter were approximately 11% higher than in the comparable quarter in 2010. Java Monster sales and market share continue to show improvement and Java Monster remains the leading brand in this category. On new non-carbonated Monster Rehab energy drink with electrolytes and additional supplements, which we launch in the first quarter, continues to do well and has already become one of our better-selling items in the convenience and gas channel. We are very pleased with consumer response to this product and we plan to introduce additional products in the Monster Rehab line later this year. We continue to see improvement in Monster's market share and sales numbers in Canada. According to Nielsen, in the convenience and gas channel in Canada, for the 12 weeks ending June 4, 2011, the energy drink category grew 8%. Monster sales increased 41% and its market share increased 5.7 points over the same period last year to 24.7%, while Red Bull sales increased 6% and its market share decreased by 0.7 points to 37.6%. Rockstar's sales decreased 7% and its market share decreased by 2 points to 12.3%. According to Nielsen, sales in the energy drink category in Mexico grew 9.5% in May 2011 over last year. Sales of Monster Energy in Mexico in May 2011 grew 49% over last year, while sales of Red Bull were 10.7% lower. Monster's market share in Mexico in May 2011 increased by 9.3 points to 35.2% over the same period last year. This excludes Java Monster. Sales continue to progress satisfactorily in United Kingdom and Continental Europe. Net sales in Europe in the second quarter of 2011 in dollars were approximately 102% higher than in the same period last year. Monster continues to gain momentum in Europe. Both cost of goods and selling and general expense and administrative expenses in Europe were lower in the second quarter of 2010, on a per-case basis in local currencies, although higher when converted into U.S. dollars. While the maturity of the countries in Western Europe are now operating profitably, we still incurred operating losses in the majority of the countries in our newer markets in Central and Eastern Europe in the second quarter, although we believe our brand is becoming more established in those countries. We are pleased to report that we launched Monster Energy in Greece, Cyprus, the Baltic States, Lithuania, Latvia and Estonia, Ukraine and Portugal during the first half of 2011. We also launched Monster Energy in Colombia, South America in July. We are planning launches in additional countries in Central and Eastern Europe, South America and Asia in the second half of 2011. As previously reported, both gross and net sales for the comparative first 6-month period of 2010, were negatively impacted by advanced purchases made by customers in the 2009 fourth quarter. Due to our announcement of a new per-case marketing contribution program for Monster Energy distributors, which commenced on January 1, 2010, as well as to avoid potential interruptions in product supply due to our announcement to transition to the SAP enterprise resource planning system in January 2010. If sales attributable to the 2009 fourth quarter volume have been included in the 2010 first quarter, which the company previously estimated at approximately 4% to 6% of 2009 fourth quarter sales, such sales would have moderated the increase in net sales that we achieved in the first 6 months of 2011 from 35.6% to 31.3%. The volume had no effect on the results for the 2011 second quarter that we are now reporting on. During the second quarter of 2011, we continue to add TV advertising to promote our Worx Energy brand, which increased selling expenses, as a percentage of net sales by approximately 1% in the quarter. We continue to see improved response to our Worx Energy brand from consumers and remain confident for the brand. As previously reported, we had a focus period with Coca-Cola refreshments with Worx Energy and achieved increased distribution levels, and consequently continued our TV advertising. We have created a new TV commercial, which we intend to continue to air, but it's slightly lower levels than in the second quarter of 2011. In addition to advertising during the second quarter, costs incurred by us for sponsorships, samples, premiums and merchandise displays were higher than last year, which contributed to higher selling expenses in the second quarter, as a percentage of net sales as compared to last year. We're continuing to monitor our expenditures in these areas. Our trade development costs and cost of our sampling programs in Europe also contributed to higher selling expenses in the second quarter as a percentage of net sales. As an operating update, gross sales in July 2011 are approximately 15% higher than in July 2010. We caution again that sales in the single month are often disproportionately impacted by various factors, such as for example, selling days, days of the week in which holidays fall and the timing of promotions in retail stores, and should not necessarily be imputed to or regarded as indicative of, results for the fourth quarter. For example, many of our promotions this year are set for August and September, whereas many took place over May, June and July last year. For the first 3 months ended June 30, 2011, sales to retail grocery, specialty chains and wholesalers represented 4% of gross sales, down from 5% last year. Sales to club stores, drug chains and mass merchandisers represent a 10% of sales, down from 13% last year. Sales to full-service distributors represented 64% of sales, which is the same as last year. Sales outside the United States increased to 19% from 16% in the same period last year, and other sales were approximately 3% compared with a 2% last year. Gross sales to customers outside the United States in the second quarter of 2011 exceeded $100 million for the first time, $100 million is the first time, and amounted to $102.6 million compared to $66.6 million in the same quarter last year, increasing 54% over the same period last year. Included in such sales are sales to the company's military customers, which are delivered in the U.S. and then tranship to the military and their customers overseas. Our PC line of ready-to-drink iced teas continues to be well received by consumers, and is gaining traction. Gross sales of Peace Tea were 33% higher in the quarter than in the comparable quarter last year. Gross profit margin achieved in the second quarter was 52.8% this quarter versus 52.9% in the same quarter last year. We continue to believe that cost of goods will remain higher throughout the remainder of 2011 than in 2010, primarily due to increased costs of aluminum cans, PET containers, freight and a number of our ingredients. As previously indicated, our sugar and apple juice concentrated costs have largely been covered for this year. We do not believe that raw material cost increases at the current levels will have a material negative effect on our margins. Distribution expenses as a percentage of net sales in the second quarter were lower than the same period last year. We continue to benefit from efficiencies in this area even though cost of freight and gas have continued to increase. Selling expenses as a percentage of net sales increased to 12.9% in the quarter compared to 10.4% in the same period last year. We are continuing to invest in the Monster Energy brand internationally, including increasing the number of additional trade development sales personnel and sampling stock in Western, Central, and Eastern Europe and Australia, to merchandise and call on small independent stores in many of the countries in which our distribution partners do not offer a full-service, direct-store delivery system. We believe the increased staffing will enable us to reach small independent stores and also increase awareness of our Monster Energy product in international markets through extensive sampling activities. We also believe that these activities will play an important role in the long-term development of the Monster Energy brand and the associated costs are included in selling expenses as opposed to payroll costs. General and administrative costs for the second quarter, as a percentage of net sales decreased to 7.2% from 8.1% in the same period last year. Sucb expenses were reduced by $1.6 million related to a legal settlement and $1 million related to insurance reimbursements. Although payroll was higher than last year, in part due to the appointment by us of additional sales and marketing staffs, as a percentage of sales, payroll was lower than last year. Operating losses in the second quarter of 2011 in Europe, including the Middle East and Africa, Australia and Brazil combined were higher than in the comparable quarter in 2010, primarily due to substantially increased operating losses incurred by us in the newer launched markets in Central and Eastern Europe. The operating results for Western Europe in the second quarter of 2011 improved over the comparable quarter of 2010. Our effective tax rate for the quarter in June 30, 2011, was 36.5% compared to 42% for the second quarter of 2010 and 39.3% for the year ended December 31, 2010. The decrease in the effective tax rate was primarily the result of a lower effective combined state tax rate, an increase in the tax benefits from the exercise of stock options and the establishment of a full valuation allowance against the deferred tax assets of a foreign subsidiary, established during the second fiscal quarter of 2010. Turning to the balance sheet. Cash and cash equivalents amounted to $418.2 million compared to $354.8 million at December 31, 2010. Short-term investments were $281.2 million compared to $244.6 million at December 31, 2010. Trade accounts receivables net increased to $161.6 million from $101.2 million at December 31, 2010. Days outstanding for receivables were 30.6 days at June 30, 2011, compared to 30 days at June 30, 2010, 27.7 days at December 31, 2010; and 36.3 days at March 31, 2011. Inventories increased to $156.8 million from $153.2 million at December 31, 2010. Average days of inventory was 64.7 days at June 30, 2011, which is lower than the 89.4 days of inventory at December 31, 2010. At June 30, 2011, the company have auction rate securities with a face value of $65 million, was $79.6 million at December 31, 2010, with unamortized cost basis of $55.6 million. During the second quarter, the company exercised its put option to sell $13.6 million of its auction rate securities. Also during the second quarter, the company entered into an agreement as a result of which, the company reclassified $24.5 million of auction rate securities from available for sale to trading, similar to the company's reclassification of $54.2 million of auction rate securities from available for sale to trading in the first quarter of 2010, following an earlier but separate agreement concluded in the quarter. Both of this agreements contain put option rights for applicable auction rate securities, in favor of the company at pre-agreed intervals in the future. For the 3 months ended June 30, 2011, the company had a net expense of approximately $350,000, in respect to the company's auction rate securities and related put options. During the second quarter, we did not repurchase any shares of the company. I would now like to open the floor to questions. Thank you.

[Operator Instructions] And our first question comes from the line of Kaumil Gajrawala.

Good numbers, particularly, given the economy. Could you maybe give some context on why you haven't bought back shares, particularly given the size of your cash balance now?

I think that's something that we wouldn't like to comment on. We have the program in place, and we are going -- we'll continue to review that, and we'll continue to review that going forward now. Share price moved up quite high, and we are sort of reviewing our own decisions on what we should do and when we should go into the market and particularly, with the last couple of days, we think that's something we are likely to go into, actively go into the market again shortly.

Got it. Would you consider a dividend given where you are now in terms of consistency of earnings?

It's been our practice not to pay dividends. We are looking -- we have considered it. We will be considering it again at a board meeting. But I think that our preferred route at this stage is probably going to be to look at our buyback of shares, but it's something that we will continually keep under review.

Okay. Got it. And then looking at your top line, is there -- particularly for international, are you able to break out how much of it came from new markets and rollout some new markets versus like-for-like markets year-over-year?

I think that at this stage, I don't think we'd like to break that out, because even in the results in -- we sort of generally look at sort of -- on our divisional basis but even in some of the divisions, we've got new market. So we haven't done the exercise to break it out. Obviously, what we know is that new markets, particularly Central and Eastern Europe are obviously negative on earnings and cash flow. But those are because that we are going into new markets. So as I indicated earlier, we're happy with our Western European operations now. Sales are still growing very nicely, and that is clearly the majority of our business in Europe. But the other markets are starting to get up to speed, and we just do have any risk then, so we really haven't done that analysis more accurately for the purpose of this discussion, I still want to go into it.

Got it. And then just a final question on ad expense. It picked up a bit as a percentage of sales. Obviously, rolling out into a lot of new markets and you had a lot of new products in the quarter. Is this a fair level in terms of the future markets you're rolling out in, and some of the other follow on products you're rolling out with in United States and outside?

Again, United States is more sort of stable, we're sort of more mature in the United States. A lot of these costs are -- come out of the newer markets where you would invest disproportionately as you go into market. You have to prepare with point-of-sale, you have to do all of these things as a percentage, obviously gets thrown up wrong. And because of the fact that we have been entering into a lot of new markets, it is skewed for that reason. We think that we did -- as you are aware, we've really gone into a lot of new markets in Central and Eastern Europe from the middle of last year to the middle of this year. And so we think that there would likely to be a letting up of these costs as we go forward. But again, it all depends in some ways on where we go to in new markets and at what rate. And if we slow the rate of increase in new markets, and I think it will let up, but it's something we owe -- then that's why I mentioned earlier, we are monitoring it because we don't want to obviously, not have the right equipment and assets available to our staff to go into these markets. But at the same time, it does cause us to overspend. Similar things, for example, in sampling, where you go into a new market, you're going to have a whole sampling truck and team, but yet the sales haven't come yet, and you're sort of, sometimes in advance of the sales. So we'll try and obviously, we're trying to manage that carefully but it did go high this quarter, and we're hopeful we'll be able to get it to be reduced. But again, we don't have any sort of definite plans on how to deal with it. And similar, our trade marketing staff going out, we started to go out into Europe with more guys in the field to get to the smaller stores and markets where we believe it's necessary to build our brand. And again, there's also start becoming disproportionate and then they sort of start becoming -- they'll start leveling off. So we were at a sort of the high rate during this period.

And our next question comes from the line of Judy Hong.

Rodney, just first on the category trends and your market share performance. I guess July being up 15% gross sales, do have a U.S. versus international number?

I have but we've not again, broken that up and I wouldn't like to do that at this point.

Okay. And then that just a U.S. market because it looks like the last couple of months, your sales in convenience store channel's been slowing a little bit. So I'm just wondering if there is any indications as to whether some of the recent trends have shown a little bit of a slowness, and whether that's attributable to the macro slowdown. And related to that from a market share perspective, the latest months, it does look like your share gains slowed pretty considerably. So if you can give us perspective on kind of what you're seeing more recently from a category, your brand perspective and your market share perspective?

The category seems to have probably slowed a couple of points from where it was in February, March. Our growth rate was probably pretty similar to what it was in February and March in the convenience category. It did pick a little bit in -- our growth picked up a little bit in April and May. But in our numbers on the Neilsen numbers that we have for the last 4 weeks in convenience, we were up 21.4%. So it is a little lower than we were up in the 2 previous, 4-week periods, but again, higher than what we were up in the previous 4 or 5 periods -- 4, 5 periods before that to the beginning of the year. So we are seeing the trends being very similar and but within a point or 2, a lot of that depends on -- we see, is promotions. As I indicated earlier, we sort of had some promotional cycles, which were I think more skewed to the second quarter or late in the second quarter in July. Last year, this year, some of the promotion will be done with a couple of our bigger customers, are taking place in August, September so it sort of moves it out of the June, July area. So that, I think, also has some effect on the numbers. But there is a slight slowing but we don't -- I think it's not at a point where we believe there's any trend indicative of that. But obviously, the economy itself is also going through a tough time at the moment. So we're seeing 16% increases in the category in the last 5 weeks in convenience. That's pretty exciting.

Okay. And then on Worx, can you quantify how much it added to your second quarter sales, just in terms of any color to what you're seeing in the marketplace now that you've gotten the distribution, and then finally, you talked about the advertising spending behind Worx being about a point addition to your SG&A or selling expenses as a percent of sales. So it sounds like it's going to moderate a little bit. Is there any way to quantify how much going forward?

This sales were -- gross sales, we're basically just under about $4 million in the quarter, which was up quite a bit on the first quarter. But it's not a high number in relation to where we are, but it's starting to become one of the -- obviously, one of the major players in that Shot category, although obviously, very, very far away from the 5-Hour numbers. But it's starting to gain some traction. Where we've got distribution and distribution has improved a little bit, and we are starting to see some bit of sales numbers coming back and repeat purchases. So we're going to continue with supporting the brand. We're going to continue with our TV advertising and change the type of adds to make it a little different. And continue to support it and merchandise it in stores, and we think that we still think that there is -- this brand has an opportunity of being a competitive brand, and being sustainable in that category.

Okay. And what's the ACV right now on that brand?

ACV on that brand? I will give you as we continue to talk, I'll find the numbers. The ACV at the moment for Worx is about 23, I'm showing in convenience and it's much, much less in grocery and drug. So it's very small. So the main positioning we've got is in the convenience channel.

Okay. And then internationally, I mean, you guys done a really great job growing in markets like Canada and Mexico and Europe. I think you said it was up 102%. Are there any markets where you're seeing some weakness. Your total international sales were up 54%. So that implies maybe some of the markets aren't really seeing as strong a growth as Canada, Mexico and Europe. So are there any markets that are seeing some weakness? And if so, why is that happening?

It's not so much markets, it's basically individual countries are up and down. There are odd countries with reasons and often, it's expandable due to the distributor or the partner or some economic conditions in the country itself, or sometimes, the actions of our competitors or sometimes in one case, one country store brand, a very, very powerful store introduced a private label at EUR 0.29. That's through the entire market into a -- out, because that's a 25% of what the cost of the main leading brands, which are Red Bull and ourselves are. So obviously, that's going to have a big effect on the whole of the marketing and the market generally in that -- in that country where it's a big player, and so, you got to deal with this. It takes time to obviously address this and then, things will stabilize and then move back up again. So we are seeing that in different markets. So -- but by and large, the markets are all responding pretty well to the brand. We have some operational issues in some countries, we've addressed them with our own staffing and basically, our partners. We had some issues in Brazil as I think I've alluded to on earlier, the summer production issues, and those are sort of starting to turn around. We're starting to get into it. But the results do follow. And sometimes, there's a lag time. So in some markets, it's taken some time to turn things around. And there are many markets, I mean, we're obviously -- or we sell this throughout the Caribbean, we sell throughout Central America, we sell into a number of other countries in South America. So Australia, so there are many markets. It's a very mixed bag, Julie, I just don't have it analyzed on a -- and I don't think it would be appropriate for me to go into it on a regional basis. They're still too new and still too volatile to really be looking in and taking any trends away from them. I think the main issue is that the brand is generally being relative to each, and pretty much, throughout all the markets as a brand. The take is accepted, the concept is accepted. We're very excited by South America, for example, we start going into places where we've never been. And we are finding guys who are competing in local races and events cause, having get-up their entire cars and Monster-sponsored car, but yet we don't even know who they are. We've never seen them or heard of them. It's a bigger issue for us. But I think what it shows is that there is an awareness for the brand, and an affinity for the brand and the claw. Even in markets we haven't got to yet, where maybe an independent guy may have brought in a container or something. But they're seeing it on the Internet, they're seeing it on our website and on TV, et cetera, and there isn't affinity on the brand as a general rule in all off the markets we're going into. So I think that is the better takeaway as a general rule, rather than looking at specific markets.

And our next question comes from the line of Imran Ali. Imran Ali - Jefferies & Company, Inc.: This is Imran Ali for Jeff Farmer. I think most of my questions were addressed. But I just have a quick follow-ups. Just regarding your International sales, could you remind us what drove the $30 million or roughly $30 million sequential jump in international sales in the second quarter of 2010, and a similar $30 million jump this year?

What you're getting in 2010, what you're getting there is just the -- is a lot of it's seasonal, which is more dramatic in Europe and then also in new markets that we launched going into spring and April because those are the better times to go into those markets. Also, again, you get a market like Canada, which is very cold in winter. So you do get quite a big, what we call, bell curve going into the summer, which is far greater than you would get in the tempered markets in the Western states in the U.S., et cetera. Imran Ali - Jefferies & Company, Inc.: Okay. I got you. And then sort seeing on the international expansion part. I think you mentioned earlier that you're planning on launching in Asia in the second half of this year. And I was just wondering, can you talk a little bit about which countries you're focusing on first as a priority and second to that -- I'm sorry go ahead.

I think that it's probably premature for a number of reasons, including competitive ones for us to get into some of the markets. But we are looking, probably initially a little more in some of the Northern Asian countries. We're really are in pretty advanced negotiations, and with distribution partners in those countries. And it's just premature for me at this stage to actually go to disclose either the identities of the countries or the proposed partners. But hopefully I think that we're hopeful that by the next conference call, by the end of the third quarter, we would have already signed up some of those countries where we're very advanced with them and we'll be ready to launch. We're also in the process of going through the regulatory issues now to have our products approved and passed for sale in those countries. And some within there also takes quite a bit of time. So we're in the throes of all of that at the moment with planning. As I previously indicated, we have appointed a senior person to head up our Asia region, and who's based in Hong Kong. And he's been active full-time in securing these representations and distributors. So we are, we're pretty confident that we will be going ahead in Asia. We will be able to announce it hopefully on the next call.

And our last question comes from the line of Bill Chappell.

You talk a little bit about I think in your remarks that you saw, 5-hour Energy growth slowing, and I just didn't know what we should read into that? Do you see the Shot market kind of plateauing in the U.S. and has that kind of altered your plans for Worx or is it just the comment of -- you think you're gaining some market share and maybe that market share has peaked?

No. I think that by and large -- there maybe many reasons. I think shots were perhaps tried by many of the traditional energy drink, consumers who had energy drinks for many, many years. And probably went to shots for a while, maybe that come back to the energy drinks. I think that -- but there is a slightly, we believe there is a different consumer that is the principal consumer of energy shots, as opposed to energy drinks. But I think there is, again, there is a sort of a limitation on how many people are going to try or be regular energy shot users, and I think there is a more finite universe. I think one of the other things is that as the category grows bigger, as 5-hour grows bigger, they are trading off bigger numbers. So obviously, just from the law of returns, they're going to see the very large increases they were experiencing this time last year, and it's going to reduce substantially, just by virtue of the share numbers. So while the dollars, the percentage increases are dropping off quite substantially, the dollar sales are probably still pretty healthy, and it's showing growth in that category. But I'm just trying to put it in perspective, because we're obviously putting it together. The category, we're looking at the percentage numbers, and I thought that it was appropriate to -- in looking at their number versus the more mature and established energy drink numbers to try and put it in perspective. Because their sales increases going from the end of last year, beginning of the year, were in the 70s and 60%. And what we've seen is a gradual drop off into the 50s, the 40s, the 30s and the last 5-week period, touched 29. But the market is a large-sized market. There is room for a good competitor, there is room at a size for a good competitor that would be, which we believe would be important to us, and would be contribute to healthy volume and sales and bottom line to us if we could establish ourselves as a credible competitor. And we believe there is a good opportunity to do so. There are -- the margins are good, and so we believe there is still good and valid reasons for us to persist in trying to find the formula that will work to be a credible competitor in that category, as we say, which is I think, is slightly different consumer to the mainstream energy consumer, and we believe that we'll obviously then, be accretive to us in the long-term. So we are going to persist with our brand in that category.

Okay. And just switching gears. I think last quarter, and I forgot the exact number you gave but I mean, initial sales in the month of April were a little bit lower than what you ended up reporting for the full quarter. I can't remember if that was timing of promotions or just timing of shipments. And were your promotions more weighted towards June or May? I'm just trying to put that in perspective.

As we've indicated, we're giving you the raw numbers as they come out. We always, and we always say this, you guys have got to understand that, that becomes, because people all ask for that update, but it's a 1-month number. That number is affected by the number of days you happen to be shipping and delivering that month. It's affected by public holidays in the dates on which they fall. Now with the Fourth of July, on what day. Where do you get the Memorial Day. Where did that fall? Those are where the people order for that. Those are important factors. Where you do promotions. If you're doing a promotion in May instead of April, April and May and as we said now July or August, those have quite a big impact when you do promotions with big customers. We have some very big convenience chains. We do promotions with you, we've got 7-Eleven, Gustav [ph] which is Circle K. They're all extensive chains, there's Wal-Mart, the club stores. And depending on your promotional calendar, these things do get swayed. So we always caution and we continue and I did say in this call to caution that the one month numbers are really very, very difficult to get a read on it and you should not read into that, into a one month. In the quarter, you're going to find very substantial jumps from month-to-month in where we come out at the end of the quarter, and there's no trend that one month is higher or lower, that's the second month in the quarter can be low, and then the third month higher or vice versa. There's just no pattern to it.

Okay. And then just final question on cost, I assume where you'd be running through your hedges on both apple juice and sugar as we near in -- gets close to year end. I mean kind of update on what you're looking at in 2012 in terms of are you starting to hedge or lacking cost there? Or do we need price increases to kind of offset that as we move into next year?

We pull[ph] those results, and we are looking at our costs for 2012 as we would in the ordinary of course. It's quite interesting that apple contract prices seem to be coming off somewhat, but we still have significant inventories in our facilities. And the sugar, we are actually -- have already taken the position on sugar for the early part of 2012. Aluminum, we're watching and you've probably seen what's happened with aluminum, and will probably come off even more in the days and weeks ahead, and we'll evaluate what we should be doing with aluminum. But as we've always said on our calls, the extent of increases that we've seen, and some of the increases resulted in aluminum have been substantial in dollars per pound terms. But in our business, because of the high margins that we have on our energy products, the impact is not that significant, as it would be in an ordinary beverage company.

So just to clarify, I mean is there a chance going 2012 that your input cost could be flat to actually down year-over-year?

I'm not prepared to speculate on that now. It's just too early even to comment, and we don't give guidance.

I would now like to turn the call back over to Mr. Sacks for any closing remarks. Please continue, sir.

Thanks. In closing, I would just like to reiterate the fact that -- and point to the fact that the actual growth in the energy category in -- particularly in the convenience category, is still in the mid-to upper teens. So it still is very, very encouraging. Particularly, in the uncertain times where we're facing at the moment in the last few weeks as we've all -- have seen and become aware of. So we are fortunate to be in an industry that is continuing to grow, and we are even more fortunate in that we believe we're continuing to grow ahead of that industry. So the same applies in Europe. We are continuing to grow, and we are continuing to establish a strong beachhead for our brand in Europe. It's starting to gain traction and establish itself, and so we are very positive for the rest of the year, for the company and for the category. And thank you for your support. We have to see what happens. We had a very rocky day today on the stock market, everybody, so we'll have to see what -- and we all go forward as the economy and the world economies actually do. I mean we're in very uncharted waters now, but we are positive that we're in a good position financially from a cash flow point of view and we're strong. So obviously, we're going to manage ourselves through this. Thank you very much for your support and we'll report back to you at the end of the next quarter. Thanks very much.

Ladies and gentlemen, this concludes the Hansen Natural Corporation's Second Quarter 2011 Financial Results Conference Call. Thank you for your participation. You may now disconnect.