Monster Beverage Corporation (MNST) Q1 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for your patience. You've joined the Monster Beverage Corporation First Quarter 2013 Financial Results Call. [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 of Monster Beverage Corporation, Mr. Rodney Sacks. Sir, you may begin.

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 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 March 1, 2013, including the sections contained therein entitled Risk Factors and Forward-Looking Statement, 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 measure 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 May 8, 2013. A copy of this information is also available on our website, www.monsterbevcorp.com, in the Financial Information section. Once again, we reiterate that our products are safe based on both our and the industry's long track record and the scientific evidence supporting the safety of our ingredients. We estimate that about 50 billion cans of energy drinks have been sold and safely consumed worldwide over the past 25 years, including more than 9 billion Monster Energy drinks over the past 11 years. In 2012, we sold some 2 billion cans of Monster Energy drinks in approximately 90 countries. Put it in another way, more than 5 million cans of Monster Energy drinks are sold and safely consumed around the world everyday. To the best of our knowledge, the FDA's position is that it continues to believe that there is a long history of safe use of products containing caffeine in the U.S. and that the average amount of caffeine consumed by the U.S. population has not increased in spite of the entry of energy drinks into the marketplace. The FDA has stated that available studies do not indicate any new previously unknown risks associated with caffeine consumption. The FDA has announced that it intends to convene a third-party review panel to help determine whether energy drinks pose particular risks to teenagers or people with underlying health problems, which we anticipate will take place later this year. The FDA has also announced last week that it will investigate the safety of caffeine in food products, particularly its effects on children and adolescents, in response to a trend in which caffeine is being added to a growing number of products such as gum. Unfortunately, inaccurate, speculative and biased articles continue to be published in the media regarding energy drinks and, in particular, the caffeine levels therein. The simplest and most effective way of addressing those comments is to compare the caffeine levels in Monster Energy drinks from all sources to the caffeine levels of coffeehouse coffees, such as, for example, Starbucks or Caribou, as this comparison is easily understood by and is meaningful to consumers. Coffee has been and continues to be extensively and safely consumed everyday in the U.S. by many tens of millions of consumers, many of whom are teenagers. In making such comparison, we believe it is appropriate to use Starbucks' 16-ounce medium-sized brewed coffee, which is the same size as a regular 16-ounce Monster Energy drink. A Starbucks 16-ounce brewed coffee contains approximately 330 milligrams of caffeine, which is double the approximate 160 milligrams of caffeine in the same sized Monster Energy drink. A 16-ounce Caribou brewed coffee contains between 305 and 370 milligrams of caffeine. Based on statistics provided by the research firm, NPD, we believe that coffee consumption in the U.S. by teens under 18 is significantly higher than their consumption of energy drinks. With respect to the Fournier case, which we are continuing to vigorously defend, discovery is proceeding. At this time, we do not have any further update to provide on that case. In October 2012, the city attorney of San Francisco wrote to the company, requesting information concerning the advertising and marketing of its Monster Energy drinks and specifically concerning the safety of its products for consumption by adolescents. In December 2012, the company provided a detailed response to that letter. In March 2013, the city attorney of San Francisco sent a demand letter to the company, in which he threatened claims against Monster, unless Monster agreed to reformulate its products to lower the caffeine content, provide additional warning labels, cease promoting over consumption in marketing, cease the alleged use of alcohol and drug references in marketing and cease allegedly targeting minors. From that demand letter and other correspondence, it appeared that he had disregarded the established body of authoritative literature that had previously been submitted to him and other facts and information in the company's December response. The demand letter also made bold, unsubstantiated allegations against the company. While Monster, nevertheless, was willing to meet with the city attorney and his staff to discuss ways in which we could genuinely seek agreement on a number of issues of concern, in preparation for the meeting that had been scheduled, the city attorney presented the company with a proposed stipulated injunction that would have imposed a wide range of onerous, unfounded and unacceptable limitations on the company's ability to market and sell its products. After receiving the proposed injunction, the company concluded that notwithstanding the active involvement of the FDA and the clear delegation by Congress to the FDA of the power to deal with issues involving food safety and labeling, neither evidence-based discussions nor statutory or constitutional limitations on the city attorney's jurisdiction were likely to dissuade the city attorney from his misguided crusade against the company. Therefore, we determined that court intervention was necessary. Consequently, the company filed a complaint against the city attorney in federal court in the United States District Court Central District of California, Eastern Division, seeking, among other remedies, declaratory and injunctive relief to protect the company's interests. In response, on 6th of May, 2013, the city attorney of San Francisco filed a complaint against the company in state court in San Francisco, in which he claims that the company has engaged in unfair and unlawful business practices under the California Consumer Protection Law Section 17200 and requests an injunction against the company restoration of moneys [ph] to consumer and penalties. The company intends to vigorously defend against that action. The company continues to deal with various clause-action [ph] complaints that have been received by it over the past few months regarding the labeling and/or safety of our energy drink products but which the company believes to be without merit. The company intends to vigorously defend against those claims. The company assumes no obligation to update any statements made with respect to ongoing litigation and regulatory matters, including with respect to the foregoing disclosures, whether it's new information, future events or otherwise, other than as required by law. Given the current litigation and pending regulatory requests, we will refrain from answering questions or commenting further on these specific subjects. We are happy, of course, to answer questions you may have about our products in general or about the first quarter results as best as we can after we have concluded our discussion on the business. Turning to the business. In the first quarter of 2013, the beverage market continued to experience softness in general. In particular, the 3 major soft drink companies in the U.S., in connection with their respective quarterly reports, reported that the CSD volumes in the U.S. were down in the first quarter of 2013. The softness in the energy drink market that I alluded to in my previous conference call on February 27, 2013 continued through the first quarter of 2013, we believe, partially due to the ongoing negative publicity that continues to appear in the media, questioning the safety of energy drinks and suggesting limitations on their ingredients, including caffeine and/or the levels thereof and/or minimum age restrictions for consumers. In some of our international markets, the energy drink category also appears to have slowed in the quarter. The successful launch of Monster Ultra Zero in the third quarter of 2012, while contributing to the increase in sales of the company, resulted in some cannibalization generally across existing SKUs. According to the Nielsen report for the 13 weeks through April 27, 2013, in the convenience and gas channel, Zero Ultra has become our second best-selling SKU after our Original Monster Green. During the first quarter, our operating income was negatively affected by costs incurred by us to terminate certain of our prior distributors in parts of New York and San Diego amounting to $8.3 million. Such costs were expensed in full in the quarter. The amount that will be received from our new distributors for those areas will be approximately equal to such costs. However, such amounts are required to be accounted for as deferred revenue and may only be recognized as revenue, ratably, over the anticipated life of the respective distribution agreements, generally 20 years. On a cash flow basis, however, those transactions are, in fact, neutral to the company. During the quarter, we incurred foreign currency transaction losses of $4.7 million, primarily related to our operations in Japan and South Africa. Additionally, during the quarter, we incurred increased professional service costs of $4.9 million, net of insurance reimbursements, of which $3 million is related to regulatory matters and related to litigation concerning the company's Monster Energy brand energy drinks, which, we believe, are extraordinary in nature. The net effect of all of these items on the operating income of the company amounts to approximately $16 million. We're already seeing the benefits of the distributor changes in New York and San Diego and are hopeful that our sales and market shares in those respective territories will increase during the remaining quarters of 2013. The company continued to make progress in the first quarter and achieved record first quarter gross sales up 7.3% to $555 million, with net sales up 6.5% to $484.2 million. Operating income was down 15% to $107.3 million. Our tax rate was slightly lower this quarter at 39.8% versus 39.9% in the same quarter last year. Diluted earnings per share decreased 10.4% from $0.41 per share in the first quarter of 2012 to $0.37 per share in the first quarter of 2013. While we are pleased with the results we achieved in the first quarter, our revenues were affected by less robust growth for the energy category as a whole and Monster Energy in our principal market, United States, as well as in Canada and Mexico, in the first quarter. Sales of our new Monster Zero Ultra, which did result in some cannibalization generally across our existing SKUs, sales of Worx Energy Shots were also lower. Relatively flat sales in our Warehouse division, less robust growth of the energy category overall in Europe, Middle East and Africa. Despite such slowdown, Monster was still able to achieve 34% growth in dollars in that region. As discussed on previous conference calls, we will be reporting on Nielsen's extended sample of outlets, which includes Wal-Mart; dollar stores, such as Family Dollar, Dollar General and Fred's; DeCA military stores; and club stores, namely Sam's and BJ's, but excluding Costco. According to the Nielsen report for the 13 weeks through April 27, 2013, for all outlets combined, namely convenience, grocery, drug and mass merchandisers, on an expanded basis I just described, sales in dollars in the energy drink category, including Shots, increased by 2.8% versus the same period a year ago. Sales of Monster grew 7.1% in the 13-week period, while sales of Red Bull increased by 9.5%. Sales of Rockstar decreased by 2.5%, and sales of 5-Hour decreased by 13.1%. Sales of AMP were down 20.8%. NOS increased 7.3%, and sales of Full Throttle decreased 3%. According to the Nielsen report for the 4 weeks ended April 27, 2013, sales of energy drinks in the convenience and gas channel, in dollars, increased by 3.5% over the comparable 4-week period in 2012. Sales of Monster increased by 6.5% over the comparable period last year, while sales of Red Bull increased by 13.7% over the same period. Rockstar was down 2.8%, while 5-Hour was down 14.7%. According to Nielsen, for the 4 weeks ended April 27, 2013, Monster's market share of the energy drink category in the convenience and gas channel, including energy shots, in dollars, increased by 1 point over the comparable period a year ago to 32.9% against Red Bull's share of 35.9%, Rockstar's share of 7.4%, 5-Hour share of 10.2% and AMP's share of 3.1%. According to Nielsen, in the 13 weeks ended April 27, 2013, sales of energy plus coffee drinks, in dollars, in the convenience and gas channel increased 7.8% over the same period last year. Java Monster was 18.3% higher than in the comparable period last year, while Starbucks Double Shot Energy was down 1.9%. Sales of Java Monster exceeded sales of Starbucks Double Shot Energy drinks. According to Nielsen, in the convenience and gas channel in Canada, for the 12 weeks ended April 6, 2013, the energy drink category grew 7%. Monster sales increased 6%. Our market share is 24.8%, which is point -- 2 points lower than in the comparable period last year. Red Bull sales increased 11%, and its market share increased 1.3 points to 37.6%. Rockstar sales increased 7%, and its market share remained flat at 16.3%. According to Nielsen, in the convenience and gas channel in Canada, for the 5 weeks ended March 30, 2013, sales of energy drinks grew 9%. Over this period, sales of Red Bull increased 15.4%, sales of Monster decreased of 2.6%, while sales of Rockstar increased 28.6%. According to Nielsen, in all outlets combined in Mexico for the month of March 2013, the energy drink category grew 6.8%. Monster sales increased 1.2%, but our market share decreased 1.9 points to 33.8% from the comparable period last year; while Red Bull sales increased 10%, and its market share increased by 1.1% to 37.6%. Boost's sales increased 20.3%, and its market share increased 1.3 points to 12%; and Gladiator sales increased 1.8%, and its market share decreased by 0.7 points to 13.4%. Net sales for the company's DSD segment increased 6.7% to $460.2 million for the 3 months ended March 31, 2013 from $431.2 million in the same period in 2012, and contribution margin decreased from $149.1 million to $139 million. Net sales for the company's Warehouse segment increased to $24 million for the 3 months ended March 31, 2013 compared to $23.4 million for the same period in 2012, but contribution margin decreased to $0.4 million this quarter from $2.2 million in the same quarter last year. For the 3 months ended March 31, 2013, gross sales to retail, grocery, specialty chains and wholesalers represented 3% of gross sales, down from 4% in 2012. Gross sales to club stores, drug chains and mass merchandisers represented 10% of sales, the same as in 2012. Gross sales to full-service distributors represented 62% of sales, down from 65% in 2012. Gross sales internationally increased to 23% from 19% in the same period in 2012. Other sales were 2% for the 3 months ended both March 31, 2013 and 2012. Gross sales to customers outside the United States in the first quarter of 2013 amounted to $130.7 million compared to $100.6 million in the same quarter in 2012. Included in such sales were sales to the company's military customers which are delivered in the United States and transshipped to the military and their customers overseas. Net sales in Europe, Middle East and Africa in the first quarter of 2013, in dollars, was -- were 34% higher than in the same period last year. Monster is continuing to gain momentum and market share in Europe and South Africa. In particular, the U.K., Germany, Spain, and South Africa all experienced substantial sales and market share gains. We are continuing with our expansion strategy into new international markets. We launched Monster Energy in Romania and Albania in April 2013 and are planning to commence sales in India shortly. We are planning to launch Monster in additional countries in Central and Eastern Europe later this year. Sales in Japan in the first quarter continued to exceed our expectations. Although product damage has been substantially reduced, the weaker yen negatively affected our gross margins in Japan during the quarter. Our plan to commence local production in Japan, Korea and India is progressing satisfactorily. Sales in Brazil through Ambev commenced at the end of January. In the results, sales in the first quarter in Brazil were substantially higher than in the comparable quarter last year. Sales of Peace Tea ready-to-drink iced tea has continued to progress. Gross sales increased by 11.3% over the same period in 2012. We recently launched certain flavors of Peace Tea in 8.4-ounce cans in 12-unit multi-pack containers and 64-ounce multi-serve PET plastic bottles. We are continuing to sell Worx Energy, although sales levels have decreased substantially. In the Warehouse division, sales of Hubert's Lemonades in glass bottles continue to make good progress, although sales of sodas were weaker. Gross profit margins achieved in the first quarter of 2013 was 52.1% versus 53.1% in the comparable quarter in 2012, but higher than the gross profit margin achieved in the fourth quarter of 2012 of 51.7%. The decrease in gross profit as a percentage of net sales was partially attributable to geographic mix. Gross margins achieved for international sales, other than those sold from the United States, were lower in the first quarter of 2013 than in the comparable quarter in 2012. Gross margins achieved in the quarter in North America in 2013 were slightly higher than in the comparable quarter last year. We have now covered a significant portion of our anticipated requirements for aluminum cans in 2013, as well as a significant portion of our anticipated requirements for apple juice and sugar. We did experience cost increases in certain raw materials in the first quarter of 2013 and expect to continue to experience limited increases during the remainder of the year. However, we do not believe that, at current levels, the increases in the cost of raw materials will have a material negative effect on our margins. Distribution expenses as a percentage of net sales in the first quarter were 4.6% versus 4.3% in the comparable quarter in 2012, primarily due to excess freights incurred in North America, as a result of the temporary cessation of production at a plant in Texas which resulted in product being shipped into that state from California and elsewhere. Selling expenses as a percentage of net sales increased to 13.5% from 12.3% in the same period in 2012, primarily due to increased social media and Internet marketing costs, premiums, sponsorships and point of sale. Additionally, costs of trade development programs to supplement our distribution partners' sales forces to service and merchandise a small independent store channel, particularly in Europe, were substantially higher in the first quarter than in the comparable period last year. The cost of trade development, personnel and sampling teams are included as part of our selling expenses and do not form part of our payroll costs. The increase in general and administrative expenses was primarily attributable to increased payroll expenses and, in particular, increased professional service costs for legal, accounting and other professional costs. These costs, net of insurance reimbursements, were $4.9 million higher than in the comparable quarter of 2012. Additionally, travel costs were substantially higher in the first quarter than in the comparable quarter last year. Many of the increases in SG&A spending were planned based on increased budgeted sales, which did not fully materialize. Operating income was negatively affected by combined operating losses of $2.1 million for the quarter ended March 31, 2013 from our operations in Europe, the Middle East, Africa, Australia, South America and Asia, as compared to operating losses of $4.3 million for the same period last year. As I mentioned earlier, the increase in operating expenses was partially attributable to increased expenditures for terminating existing distributors and professional service costs. In addition, the increase in operating expenses was due to increased payroll expenses of $2.9 million, increased outbound freight and warehouse costs of $2.6 million, increased expenditures of $2.4 million for other marketing expenses, increased expenditures of $2 million for premiums, increased expenditures of $1.9 million for sponsorships and endorsements and increased expenditures of $1.7 million for allocated trade development. Our effective tax rate in the 2013 first quarter was 39.8% compared to 39.9% in the 2012 first quarter. The decrease in the 2013 first quarter effective tax rate was primarily the result of establishing a full valuation allowance against the deferred tax assets of our foreign subsidiary established during the first quarter of 2012. The decrease in the effective tax rate was partially offset by the establishment of a full valuation allowance against a tax capital loss recognized on the sale of certain available for sale auction rate securities, as well as the higher effective tax rate in certain foreign jurisdictions. Turning to the balance sheet. Cash and cash equivalents amounted to $242.5 million compared to $222.5 million at December 31, 2012. Short-term investments were $102.1 million compared to $97 million at December 31, 2012. Long-term investments comprised entirely of auction rate securities decreased from $21.4 million at December 31, 2012 to $13.6 million. Trade accounts receivables are now presented on a gross basis, as are promotional allowances owed to those customers that the company does not allow a net settlement, such as our full-service distributors. We continue to present that portion of the promotional allowances owed to those customers that the company allows net settlement on a net basis. Trade accounts receivables increased to $308.7 million from $236 million at December 31, 2012. Days outstanding for receivables, consistent with the above treatment, were 50.4 days at March 31, 2013 and 39.2 days at December 31, 2012 compared to 44.8 days at March 31, 2012. As sales outside the United States continued to increase as a proportion of our overall sales, days outstanding for receivables are expected to increase due to the different terms generally granted to customers internationally in accordance with local practices in their respective countries. Inventories increased to $215.3 million from $203.1 million at December 31, 2012. The average days of inventory were 83.5 days at March 31, 2013, which is higher than the 80.3 days of inventory at December 31, 2012 and 75.5 days at March 31, 2012. At March 31, 2013, the company had auction rate securities with a face value of $19.5 million worth $27.8 million at December 31, 2012, with an amortized cost basis of $17.4 million. Gross sales in April 2013 were approximately 5.7% higher than in April 2012. We caution again that sales in a single month and 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 and the timing of promotions in retail stores and should not necessarily be imputed to or regarded as indicative of results for the full quarter or any future period. During the 2013 first quarter, the company purchased an additional 0.3 million shares of its stock at an average purchase price of $51.99 per share, which exhausted the availability under the then current repurchase plan. Subsequent to quarter end, the Board of Directors approved a new repurchase plan of $200 million. The company has not repurchased any of its shares pursuant to the April 2013 repurchase plan. In March, the company launched a new Monster Ultra Blue line extension, as well as a Kona Cappuccino line extension to the Java Monster line. Additionally, in March, the company launched a new line of 3 energy shakes called Muscle Monster that contain 25 grams of protein in 15-ounce cans, as well as the new Tea + Pink Lemonade + Energy Monster Rehab line extension. Additionally, the company launched Monster mini take-home 12 packs, containing 8-ounce cans, as well as Peace Tea take-home 12 packs containing 8.4-ounce cans. In conclusion, I would like to summarize some recent positive points. One, North American gross margins remain healthy. Our 2013 first quarter gross margins for North America were actually higher than in the comparable quarter in 2012 and in the fourth quarter of 2012. U.S. Nielsen market statistics show that Monster Energy's growth is still outpacing the growth of the category as a whole. Three, new distribution arrangements with Big Geyser for the Greater New York area and Anheuser-Busch distributors for the San Diego areas have been implemented, and the initial results from both areas have been positive. Four, new product line extensions that have been launched are receiving good reception from both the trade, as well as from consumers. Five, turning to international markets, we are satisfied with the performance of our international expansion and investments, particularly in the United Kingdom, Germany, Spain, South Africa, Japan and Brazil. Six, even though the energy drink category has been in existence in Europe for over 25 years, our EMEA markets are still, on average, experiencing solid growth, and the Monster brand continues to grow well in excess of the category. Seven, according to Nielsen, for the 4 weeks ended March 23, 2013, Monster's market share in Great Britain increased to 10.3% from 7.4% in the same period last year. In Spain, Monster's market share in the 4 weeks through February 28, 2013 increased to 18.5% from 12.9% in the same period last year. In Germany, in the 4 weeks through February 28, 2013, Monster's market share grew to 9.3% from 5.9% in the same period in the previous year. And in South Africa, Monster's market share in the 4 weeks through February 28, 2013, grew to 16.8% from 11.9% in the same period last year. Sales of Monster in Japan remain encouraging, and the brand has achieved substantial value share in the market in the modern convenience trade channel. Nine, we have launched Monster Energy in Korea, and the commencement of sales of Monster in India is anticipated shortly and which we view as an exciting future growth opportunity for Monster. Finally, ten, Southern Brazil, through our new distribution partner, Ambev, has been strong since they commenced distribution at the end of January. I'd like to open the floor to questions about the quarter. Thank you.

[Operator Instructions] We'll go to the next question, which comes from Kaumil Gajrawala of UBS.

Your trends have tracked Nielsen much more closely in the quarters and years in the past, yet, that wasn't the case in this quarter. Was there something unique going on in this quarter on why trends in the U.S. were -- seemed to be materially different from what was in the Nielsen data?

Yes. We just don't -- we don't know.

Okay. Could it be something maybe tied to inventory levels or, particularly, with the change in the distributor in New York?

We don't think so. I mean, we did take back some inventory from our previous distributors. That came back in. But we don't think those would have materially affected the numbers. So we just don't have a -- we just don't have any reason for the differences.

Okay. As you look at the Nielsen data that you cited on the call earlier today, it did feel like, as you went country-by-country, that the current data seems to be in line with how your trends are doing?

Generally, the -- our sales out [ph] just seemed to be lagging a little bit in North America, but not by much. But they do seem to be generally in line.

Okay. Understood. And then, finally, on Zero Ultra, is the shelf space incremental, or is it coming from maybe pruning some of the brands in your portfolio?

It's very difficult to tally. it varies from store to store. In order to get the product on shelf quickly, obviously, a lot of our distributors cut into existing shelf space because we had -- we have a certain number of shelves that we've agreed, and we have the shelf space so they would have cut into that to get a single facing. And then, because of [indiscernible] two facings. But as we continued to get shelf programs for 2013, we have continued to expand and take that into account. So in some cases, it's -- we've had to sort of juggle the shelf space because there's only so much space available on the shelves. In other cases, in other chains, we have picked up some incremental space through that and other -- the other sort of line extensions. So it's mixed. I don't have any express answer.

Our next question comes from John Faucher of JPMorgan. John A. Faucher - JP Morgan Chase & Co, Research Division: I just want to talk a little bit about the cadence within the quarters. Most companies, we get concerned when we feel like, okay, trends are better in the last month of the quarter because they're struggling to make the numbers. You guys have had sort of the opposite situation, where the first month of the quarter starts out really strong and then maybe not as strong as we go through the quarter. Do you guys have any thoughts in terms of maybe what's causing that type of shipment pattern? Is it new product launches? Is it new distributors starting in the beginning of the quarter? Any color, so we can get a better handle in terms of why the trend seemed to decelerate through the quarter?

We really don't have any explanation. It changes from quarter-to-quarter. They simply are what they are and sometimes quarters end stronger and sometimes they don't. The trends just change from month to month. We really do have a volatile set of numbers from month-to-month, and that's why we continue to caution that these numbers are single months. And we just -- they just are what they are. As you indicated, they change from quarter-to-quarter. John A. Faucher - JP Morgan Chase & Co, Research Division: Got it. And then, with Red Bull launching their first flavored new products in a long time, you're getting a sense from your retail customers, it seems though there's an opportunity that, that could bring more news to the category and potentially reaccelerate the category. I realize it's still early days from that standpoint. Are you seeing any impact to the category trends from these competitive launches?

Not really. The -- I think that Red Bull has got a lift in their sales, as you can see from some of the Nielsen numbers, and we think that, that is largely due to the introduction of these new additional flavors. A lot of that is trial. A lot of that is -- they're different for the first time. The first time they've had a new flavor for a long time. There are other flavors. Even the Total Zero is very similar to their -- the profile of their existing Red Bull. So this was a complete change. And so, ultimately, you're going to get trial extra shelf space from -- there's a lot of promotion going around the 8 oz. We can see the promotional activity in the Red Bull sales numbers and dollar sales they have -- they are promoting quite heavily, their 8 oz. quite heavily. So it's too soon to tell where it's going to go. In Europe, generally, they've not really succeeded in driving incremental sales and even shelf space. But certainly, incremental sales on a longer-term basis, but we are seeing some trial. And so, we've just got to wait a little while. I think it's just premature. And so, that -- overall, I think that it may help the category to basically bring in additional consumers. I think that will be so. But the extent of that, we don't know.

Our next question comes from Bill Chappell of SunTrust.

This is Sarah Miller on for Bill. I was just wondering if we could get a little bit more color around the local manufacturing that you're setting up in Japan and Korea and kind of how that's going to affect the cadence of gross margin trends for the rest of the year?

Well, as soon as we are able to get those production facilities up and running, we will -- we believe, we will achieve substantially improved margins in those areas. We'll also eliminate, we believe, a lot of the -- or a large portion of the damages we're incurring in shipping beverages those long distances. In the case of Japan, it's been necessary for us to contract with a can manufacturer to actually make the specific can sizes we are using in Japan, as they're not otherwise available. And at the same time, we are working with 2 production facilities to qualify them to run those cans for us. And so, it is taking some time, but we're making good progress in that regard, particularly in the light of the -- that being the largest volume area for us in that region. We're, obviously, looking to try and get that production up and running as soon as possible. We're hoping to -- towards the middle of the year to start looking at being able to do a test run and produce. We are also probably a little more behind that in Korea and in India. But in those -- both of those countries, it may be easier to get cans less complicated because of the fact that we do have and can buy certain cans in those countries, but those will probably be a little behind that. And so, we're working on all 3 fronts, but the -- our focus is on Japan because of the larger volumes that we are doing in that country. We are also in the process this week of launching Absolutely Zero, which is a new line extension in Japan. So we are looking positively to Japan going through the rest of the year.

Okay. And then, my one follow-up question is, I remember, with Europe last year, it was pretty cold and pretty wet through the spring and summer. I'm just wondering if you have kind of an estimate of how weather might have helped you in the EMEA region this quarter and what your comps look like for the rest of the year?

We -- I'm not sure that weather has had a material impact. I think the weather hasn't been great this first quarter as well in Europe. They had some pretty cold spells until recently, particularly in Great Britain. So I just don't think that will have an impact. I think there was just -- there has been a little bit of a general slowing. Again -- but I think that the month of April was probably a little slower for us in Europe than the first quarter, but we believe that will improve as we -- going into the remainder of the quarter. But again, it's still too early to tell. I mean, there's nothing I can give you specifically on those numbers and directions.

Our next question comes from Caroline Levy of CLSA. Caroline S. Levy - Credit Agricole Securities (USA) Inc., Research Division: I wonder if you could tell us -- it looks to us, like, net sales were only up a couple of percent in the U.S. and about 30 overseas. If you could help me understand if I'm on the right track with that and also, will the professional fees will probably run at a similar rate through the year from where you sit today?

Your estimate is pretty close on the numbers. I think that on -- that's on the sales side. On the professional fees, we're not sure. It depends on a number of factors. We think that if the FDA has its scientific hearing and things, sort of, start becoming a little clearer, I think a lot of things will clear up and I think a lot of the -- there may be a falloff in the professional fees. It's -- we've had to deal with a number of challenges from different quarters. And that's just [indiscernible] the engagement of a lot of lawyers. We've also had to undertake some -- and get some other market research reports and surveys underway in order to, obviously, prepare the company for any challenges and to support our positions, which we are confident in. And those costs are all sort of incurring initially, which we don't think will necessarily be repeated. But it's very difficult to tell how long that will go on for -- I mean, we -- for example, we've engaged with many consultants to, obviously, consult with us on some of the litigious matters, but also to deal with the PR issues, and all of those costs and lobbies [ph] of things that we've not normally dealt within the past, and we believe that will settle out down, and then those costs will settle down a little more than they have been in the first quarter. But again, I just don't know. Caroline S. Levy - Credit Agricole Securities (USA) Inc., Research Division: And just a follow-up with the -- on the international losses. Could you repeat, I think there was $4.3 million in the last first quarter, what they were this one and why the change?

I think it was $2.1 million for this quarter versus $4.3 million. And so, what has happened is that I think that sales have improved. Our costs per case have gone down. But because of the increased sales, you still had a small loss. But the results are improving, and the losses are improving. As we go into the summer, we believe those results will continue to improve.

Our next question comes from Judy Hong of Goldman Sachs.

First, just -- the comment about the April trend being up 5.7%. I know it's not appropriate to really look at 1-month data, but I know you're lapping a 39% comp with the Japan sales. So can you maybe give us a little bit color of that 5.7% U.S. versus international, and how much of the drag the pipeline fell last year when Japan had on that number?

Well, Japan clearly had an effect on it because we were selling into Japan prior to our launch there. So that is the one -- clearly, the one issue, Judy, which you, obviously, have alluded to. In the quarter, all I would like to really say is that the North American numbers are up in that -- in the month compared to the quarter, and the European numbers were slightly down in that month compared to the quarter. And I think that, that was a -- we think that, that is an anomaly in the European numbers. We think they will improve again and pick up in May. But there has been an improving trend in North America in the month.

Okay. And that was the -- can you quantify if that's more representative of what we're seeing in the Nielsen data?

I'm not keen to go more in detail. I just don't have an exact amount available to you right now. But it is closer to the Nielsen data, I think.

Okay, okay. And then, just -- you've talked about some of the weakness in Canada and Mexico. I mean, they're obviously profitable margins for you within the international markets. So can you talk about what's going on in those markets? And then, if you think about the international margin progression for the rest of the year, just the weakness in Canada and Mexico...

Let me just refer to Canada. Canada, towards the end of the quarter -- and in the numbers that I referred to in the Nielsen's, part of that weakness, we believe, is due to the fact that, last year, we introduced and launched Rehab in the same period. So you -- again, you're citing off a period or a comparable period where we had an introduction, and we didn't have any comparable introductory products in Canada in that -- in this year's comparable period. In the case of Mexico, again, a short period is quite affected by the OXXO chain. The OXXO chain comprised a very big proportion of the total market and, again, depending on who is in promotion in [ph] OXXO has quite a material impact. If you looked at the number that we had for the month previously for Mexico, I think we were ahead of Red Bull. And then you look at this month, we are behind Red Bull. And in other words -- and very largely, if not all, but largely attributable to the fact that we were on promotion, I think, earlier in the year in OXXO and in sort of March, April, Red Bull were on promotion. I think March, Red Bull were on promotion. So that affects the numbers quite dramatically in Mexico. So that really accounts for a lot of the detail. So although Canada was down, Mexico has -- is up. There's also has been some price challenge in pricing from Rockstar in -- particularly in Canada where they're being quite aggressive, they've come off their pricing but there has been some pricing challenges in Canada.

Okay. And then, lastly, just Brazil, can you quantify how much of sales went through Brazil in the first quarter? And then, maybe if you can you broadly talk about what you're seeing with your partnership with Ambev, how much of the improvement do you expect to see as you continue....

You've got less than 5 weeks of sales within the quarter under the Ambev stewardship. But what we are seeing is that we're getting -- it's a large organization. We're getting a large sales force behind the brand. We're getting substantial, additional new listings every week. And so, we are seeing it in that way. We're seeing the momentum, and we're seeing it's sort of coming. And so, we are very positive about it. But the actual effect in the quarter was not that much, it's only 5 weeks of sales. Try -- the sales initially trending before we switched. There's a part, I don't know, we're lower than last year and then there was pickup once we switched, and we ended up with about -- just under $1 million in additional sales. But again, it's not an easy comparison because we did -- we were trending lower, and we went through a difficult period once we were actually undergoing the switch off to when we announced the deal. But we're definitely seeing improved numbers of outlets selling and the actual volume going into Ambev from us. And that's continuing through April.

Our final question of the hour comes from Wendy Nicholson of Citi Research.

Two questions. First, just following up on the international profitability, can you give us a sense sort of directionally how big of a gap the gross margin for the international business is for the -- compared to the U.S. business? In other words, assuming the international business continues to outgrow the U.S., how is the gross margin pressure going to continue to be an ongoing impact?

Yes, it will be. We think if the margins are closer to the 40% level, where the North American margins are north of 50%. So there is a differential.

Got it. Okay. And then, just second question, with the sort of prolonged potential slowdown in the category -- I know part of what's driven the category growth over the last few years has been increased sort of a linear shelf space at a lot of convenience stores and other retailers in the U.S. Do you see any of the stores talking about now going the other way and taking shelf space away from the energy drink category and giving it back to other sectors of the LRB market, or is that static at this point?

We don't see that. We see this category as still being profitable for retailers. We still see better growth in this category than in the other -- in other categories with better margins and better dollar rings -- substantially, better dollar rings per SKU. So we see no reason for retailers to restrict the space. On the contrary, we think that, in fact, space is continuing to expand. If you want, for example, to go look at the space being allocated last year and this year and going forward at -- like Wal-Mart, which is pretty much the biggest retailer in the country, you will see that they're allocating, we believe, more space to energy, and we believe that will continue. We believe there has been a dampening of the category due to all of the media and publicity. But we think that, that is the major factor that has been affecting the category. We believe that, that will eventually start becoming, and indeed we are starting to see less and less impact of that, as consumers just continue to see the same stories being repeated over and over in different ways but without really having any real substance to them, and we believe that eventually, that we'll be able to overcome that and that the growth will resume. But it has taken a toll in the meantime.

But is it fair to say that, in the near term, your promotional spend are going to be -- I see it's gone up a fair bit in the first quarter. But is it fair to assume that you'll continue to spend more not only because of Red Bull being a little bit more competitive, but to offset some of those, sort of, whatever PR headwinds that you're facing?

I don't think so. I think the -- those sort of headwinds are headwinds. I don't think that's going to change the way we spend. I think that, just on the spending side, we're obviously going to look at our spending. Our spending -- increase in spending as a proportion of CMAs [ph] and allowances is very much in line with last year. We think we're going to continue within that range. Where we did have additional spending is in the marketing and size. Obviously, we anticipated -- we felt that our increase would be higher than in fact, it has been -- come through in the first quarter. So we're going to look at where we can, obviously, address this upfront and balance our expenses a little more carefully. But other than that, I don't think we're going to change the way we're doing business. We think that it is a near-term headwind. And we think that it will ultimately settle down and normalize again. And when it normalizes, we believe we will be able to see additional growth resume. But obviously, we are looking to try and manage our expense lines a little better and to try to improve our bottom line going forward.

And at this time, I'd 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 support for the company. We remain confident in the safety of our products and our growth strategy and are committed to developing and differentiating our brands and expanding the Monster brand, both domestically and internationally. Again, we reiterate that our products are safe and are properly labeled. The caffeine content in Monster Energy is approximately 10 milligrams per ounce, which is less than half the milligrams per ounce of caffeine contained in coffeehouse brewed coffee. I cannot continue to underemphasize that point, which is -- which are the facts. And the naysayers just continue to ignore the facts, and we need to stick to the facts. And we believe that, ultimately, we will get through the headwinds we have encountered in recent months. Thank you very much.

Thank you, sir, and thank you, ladies and gentlemen, for your participation. That does conclude Monster Beverage Corporation's First Quarter 2013 Financial Results Call. You may disconnect your lines at this time. Have a great day.