Monster Beverage Corp. (MNST)

Q3 2012 Earnings Conference Call

November 07, 2012 5:00 PM ET

Executives

Hilton H. Schlosberg – Vice Chairman, President, COO, CFO and Secretary

Rodney C. Sacks - CEO

Analysts

Judy E. Hong - Goldman Sachs Group Inc

William Chappell – SunTrust Robinson Humphrey

Mark S. Astrachan - Stifel, Nicolaus & Co

Kaumil S. Gajrawala - UBS Investment Bank

John Faucher – JPMorgan

Alec Patterson – RCM Capital

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Monster Beverage Corporation Third Quarter 2012 Financial Results Call. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Rodney Sacks. You may begin, sir.

Rodney C. Sacks

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 on February 29, 2012, 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 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 August 8, 2012. A copy of this information is also available on our website, at www.monsterbevcorp.com, in the Financial Information section.

I’m sure that you’re aware that our company as a result of certain litigation, regulatory requests and media reports, has been the subject of discussion recently. I want to take this opportunity to briefly address this. First and foremost, we reiterate that our products are safe. More than 8 billion cans of Monster Energy drinks have been sold and safely consumed in the United States and around the world since 2002. Additionally, 10 of billions of energy drinks manufactured and distributed not only by us, but by other companies, have been sold and safely consumed worldwide for 25 years.

We believe that consumers are justified based on that long track record in having confidence in the safety of our products. A principal area of attention relates to caffeine. Unfortunately, there has been some misinformation published recently regarding the caffeine content of Monster. So let me give you the facts. Monster energy drinks generally contain approximately 10mg of caffeine per ounce from all sources. By comparison, the leading brands of coffee house brewed coffee, for example Starbucks, contain on average in excess of 20mg of caffeine per ounce. In other words, a 16 ounce can of Monster Energy contains about half the caffeine of a 16 ounce cup of coffeehouse brewed coffee. Even a 24 ounce can of Monster Energy, which contains about 240mg of caffeine from all sources, has about 30% less caffeine than an average medium sized 16 ounce cup of coffeehouse brewed coffee.

So again our products are just as safe for consumers as a cup of coffee purchased at your favorite coffee house. Even an extra large size single serving of a Mountain Dew fountain drink which is readily available throughout America contains about 234mg of caffeine. In addition, the amount of caffeine per ounce in other major energy drinks on the market is comparable to or higher than the amount in Monster. There is absolutely no basis for singling out Monster in this regard.

Another area of recent media focus has been on the fact that Monster Energy drinks are labeled as dietary supplements rather than as foods. In the case of Monster Energy drinks, this is a red herring. Our products could be labeled and sold as foods if we chose to do so. As previously indicated, Monster Energy drinks, including their ingredients and labeling, comply fully with all laws and regulations in the United States and in each of the more than 70 countries in which they are sold. All of the ingredients contained in our products at current levels are either FDA approved food additives or are GRAS, which stands for Generally Recognized as Safe and are therefore permissible for inclusion in and labeling as foods,

As a result, with the Monster Energy drinks are classified as dietary supplements or as a food is a distinction without a difference. Either way, the current ingredients, none of which are secret or hidden, are fully permissible as a food and a supplement. In other words, we are confident that if we chose to do so, we could re-categorize Monster Energy drinks as a food. Apart from minor changes in form, the labels of Monster Energy as a food would be almost precisely the same and contain the same details as currently appear on our cans. In fact, all of our main competitor’s energy drinks with the labeled as foods or supplements, contain similar, if not substantially higher levels of caffeine than do our products.

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