Hansen Natural Corporation Q2 2009 Earnings Call Transcript

| About: Monster Beverage (MNST)

Hansen Natural Corporation (HANS) Q2 2009 Earnings Call August 6, 2009 5:00 PM ET


Rodney Sacks - Chairman and CEO

Hilton Schlosberg - Vice Chairman and President

Tom Kelly - VP, Finance


Judy Hong - Goldman Sachs

Jeff Hans - Citi

Mark Astrachan - Stifel Nicolaus


Ladies and gentlemen, thank you for standing by. Welcome to the Hansen Natural Corporation Second Quarter 2009 Financial Results Conference Call. During today’s presentation, all parties will be in a listen-only mode and following the presentation the conference will be opened for questions. (Operator Instructions).This conference is being recorded today Thursday, August 6th of 2009.

I would now like to turn the conference over to Rodney Sacks, Chairman and Chief Executive Officer. Please go ahead.

Rodney Sacks

Thank you for attending this call. My name is Rodney Sacks; Hilton Schlosberg, our Vice Chairman and President, he is with me today as is, Tom Kelly, our Vice President of Finance.

Before we begin, I’d like to remind listeners that certain statements made during this call may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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 2, 2009, and our most recent quarterly reports on Form 10-Q, including the sections contained therein entitled risk factors and forward-looking statements for discussion on specific risks and uncertainties that may affect our performance.

The company assumes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. An explanation of the non-GAAP 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 6, 2009. A copy of this information is also available on our website at www.hansens.com in the Investor Relations section.

As indicated by me on recent conference calls and at the shareholder meeting the beverage markets throughout the world in general and in the United States in particular has shown and continues to show softness. Coca-Cola and Pepsi recently reported drops in North American retail volumes. Although we have seen positive signs, in the US economy the housing market is still suffering from record foreclosures and the absence of new building activities, job losses continue to hamper the spending power of US consumers which we believe disproportionately affects our consumers discretionary spending.

Accordingly to the Nielsen reports for the 13 weeks through June 27, 2009, all outlets combined namely convenience, grocery, drug and mass merchandisers excluding Wal-Mart. Sales in the energy drink declined 1.7% versus a year ago. According to the Nielsen reports sales of Monster grew 0.9% in the 13 week period concerned while sales of Monster’s main competitor Red Bull decreased by 2.2%.

Accordingly to the Nielsen reports sales of Rockstar dropped 8.4% and sales of Amp dropped 8.6% so though Amp had been increasing but appear to have stumbled. In actual dollar volume, the energy drink category sale decreased by a total of 21.2 million in the 13 week period concerned. Sales of Monster however increased by 3.2 million as compared to sales of Red Bull which decreased 9.4 million.

Sales of Rockstar were decreased by 11.6 million and sales of Amp was decreased by 8.3 million. Sales of Full Throttle decreased by 6.9 million. One of the few brands to have increased in sales was NOS, its sales increased by 10.9 million. According to Nielsen reports for the 13 weeks concerned all outlets combined Monster’s market share increased by 0.8 points to 28.4 while Red Bull’s markets share dropped 0.2 points to 35. Rockstar’s market share was down 0.8 points to 10.7; Amp’s market share was down 0.6 points to 7.3. Full throttle’s market share dropped 0.5 points to 4.3 and NOS’s share increased one point to 3.6.

These figures exclude the emerging energy shot category which is reported separately. If the energy drink and energy shot categories were combined. The overall category would have grown 3.2% in the 13 week period concerned. According to Nielsen, sales of Java Monster represented approximately 13.4% of the sales of the Monster brand over the 13 weeks through June 27.

The decrease in the percentage of our sales represented by Java Monster contributed to the increase in gross margin achieved by us during the quarter. While sales of Java Monster were lower in the previous year -- than in the previous year, the decline is primarily attributable to Starbucks entering the category in the middle of the second quarter of 2008. With its new line of DoubleShot energy plus coffee drinks in 16 ounce cans is direct competition with Java Monster. In the 13 weeks ended June 27, 2009 sales in the energy plus coffee category all outlets combined, excluding Wal-Mart increased 38% to 89.3 million over the comparable period last year.

Consequently while sales of the energy plus coffee drinks category are higher than last year, the category is being split between more major participants. Sales of Starbucks DoubleShot energy plus coffee drinks in the 13 weeks period concerned amounted to 29.8 million as compared to sale of Java Monster at the same period which amounted to 45.2. Consequently Java Monster is out selling Starbucks coffee plus energy products by a large margin. Sales of our other competitor's products namely Rockstar Roasted and Full Throttle coffee drinks also substantially lower.

According to Nielsen for the five weeks ended June 27, 2009 sales in the convenience and gas channel decreased by 3.5% versus the same period last year. During the five weeks period concerned Red Bull sales decreased by 2.8% versus the same period last year while Monster sales decreased 5.6% versus the same period last year.

Rockstar was down 11.2%. Amp was down 16.3%, Full Throttle was down 8% while [NOS's] rate increased flow to 25.6%.

Monster share of the convenience and gas channel has increased continuously in each of the four/five week periods from 28% at the beginning of this year to 29.6% during the five week period ended June 27, 2009. Red Bull share is up slightly from 33.8% beginning of the year to 34.4, while Rockstar share decreased from 11% to 10.2 and Amp’s share decreased from 7.5 to 7.1 from the beginning of the year.

Despite the extensive marketing programs and support provided by Pepsi, the Amp’s brand appears to [have plateaued] and continues to loose market share. In the five week period ending June 27, 2009 sales in the grocery channel were down 2%. Monster sales in this channel were up 6.6%, while Red Bull sales were flat and Rockstar's sales were down 11.4%. Amp’s sales were also lower by 23.6%, while Full Throttle sales were down 10.9%, NOS's sales were up 25.2%. Since the beginning of the year, Red Bull's market share in this channel has decreased from 38.8% to 37.2%. Monster share is up from 22.1% to 24.5%, Rockstar's share decreased from 13% to 12.4%, Amp’s share increased from 7.2 to 6.9 while Full Throttle share has remained flat to 3.5 and NOS's share increased from 1.9 to 2.2.

I am pleased to report that our market share in Florida has improved in both the convenience and grocery channels and is now higher than what it was prior to the transition to the current system. Atlanta is also improving, Monster's market share is now higher in grocery and that is returned to pre-transition levels in convenience. Although CCE has made substantial progress in Dallas, we are not quite back to the pre-transition share levels once the share in San Antonio is higher now than it was before the transition in both convenience and grocery.

In Houston, our market share in grocery has improved and is higher than it was before the transition. However, our market share in the convenience channel in Houston is lower. Houston is a large independent market and also -- and this has also contributed to the decline in our market share in Houston.

Interestingly one of the other markets in which our market share has dropped is Detroit which is also a large independent market although we are still the leading energy drink in that market. The transition to certain of the new AB Distributors has also had its challenges. We have addressed and are continuing to address those markets in which we have lost market share.

Nationally, we have gained market share. Since the transition in November of last year, Monster's market share in the convenience and grocery channels nationally has increased to 29.6% and 24.5% respectively from 28.7% and 23%. We believe that we will continue to benefit from our alignment with the two strongest distribution systems in the United States. We continue to see improvements in sales and gains in market share in Canada. In the convenience and gas channel in Canada for the 13 weeks ended July 4, 2009 despite sales of energy drinks being down 3% overall, Monster’s market share has increased by 4.2 points over the same period last year to 18%, while Red Bull share increased by 1.4 points to 38.8%. Rockstar's market share decreased by 2.3 points to 11.5%.

Progress is being made across Canada by the code system. Sales in Mexico also continue to be satisfactory. Sales are progressing well in continental Europe and although we were off to a slower start in the United Kingdom, distribution level of sales they have continued to improve. We are continuing to work with CCE in the United Kingdom to improve distribution levels and sales during the second half of the year. We are engaged in discussions with new potential distributor for Ireland. Sales of Monster energy commenced in Australia last week with Schweppes Australia Pty Ltd. Initial response from both customers as well as consumers in Australia has been positive and we are excited about the prospect for the Monster brand in Australia.

We are continuing with our plans to produce and launch Monster in Brazil later this year. For the three months ended June the 30th, 2009, sales through retail grocery specialty chains and wholesalers represented 6.6% of gross sales, down from 7.2% last year. Sales to club stores, drug chains and mass merchandisers represented 12.1% of sales down from 14.2% in the previous year. Sales to full service distributors represented 67.4% of sales, down from 67.8% in the same period last year. Other sales were flat at 2.6%.

Sales outside the US increased to 11.4% from 8.2% in the same period last year. Gross sales to customers outside the US amounted to 39.4 million compared to 27 million in the same quarter last year. Sales to Monster Energy in the United Kingdom and Europe were promising. Included in such sales are direct sales to the company's military customers that we deliver to such customers in the US.

In periods prior to the third quarter of 2008, sales to these customers were classified as domestic sales due to the fact that the products we delivered to such customers in the US Since that quarter, sales to these customers have been classified as outside of the US, because the company recognized that products sold to such customers were in fact being transshipped to the military and their customers overseas, and were therefore included in the classification of sales to customers outside of the US during the periods concerned.

As a result, 2nd quarter 2008 comparative figures had been adjusted by 7.5 million from the amounts previously reported. We believe that we will continue to benefit from reductions in the cost of certain raw materials including certain containers and packaging materials as well as juice concentrates, particularly apple juice concentrate although we had have started to see hardening in the process of aluminum.

We are continuing to expand the distribution of Vidration enhanced water drinks through our distributors and are also continuing with the rollout of the Monster Hitman Line of Energy Shooters in three-ounce containers. Although Monster's market share of the energy shot market is relatively small, we are ahead of Amp’s, NOS, Rockstar and Full Throttle energy shots and our share is continuing to grow. Red Bull recently entered the energy shot category with a two-ounce energy shot.

Of the new product introduced by the recently in the gross sale in the second quarter of Monster import which is a 550 ml of 18.6-ounce resealable can and is manufactured in Europe and imported into the United States in a month to approximately 3.3 million. While sales of X-Presso Monster and new non-carbonated diary-based espresso energy drink which was launched early -- shortly before the end of the second quarter with minimal. Sales of unused Nitrous Monster Energy line of carbonated energy drinks which are packaged in resealable 12-ounce sleek can and come in three versions, Extra Dry, Anti Gravity and Killer-B commenced in the third quarter.

Package in the Monster range that has been hit hardest by the economic downturn is up 24-ounce size package which is consistent with our belief that the weak economy has disproportionately affected blue-collar workers who make up a large portion of our consumer base and to all the principle purchasers of our 24-ounce size packages. In this regard I will point out that sales of Monster Energy in 16-ounce size cans in the United States increased in the second quarter of 2009 over the same period last year, while sales of Monster Energy in 24-ounce size cans in United States decreased from the same period last year. We are currently preparing for the launch of a number of products sweetened with Stevia for the Hansen and Blue Sky brand lines.

Turning to the balance sheet, cash and cash equivalents amounted to 283.3 million compared to 256.8 million at the end of December 2008. Short-term investments were 30.8 million compared to 29.1 million at the end of December 2008. Investments primarily auction rate securities decreased from 89.6 million to 87.9 million.

Trade accounts receivables increased to 101.9 million from 45.2 million at the end of December and distribution agreement receivables decreased to 24 million from 19.7 million at December 31, 2008. Days outstanding for receivables was 30.5 days at June 30, 2009, compared to 16.9 days at December 31, 2008, 36.9 days at the end of March, 2009 and 28.4 days at June 30, 2008.

Inventories increased to 117.3 million from a 116.3 million at December 31, 2008. Average days of inventory were 76 days at June 30, 2009 lower than the 90 days of inventory at December 31, 2008 and the 86.7 days at the end of March, 2009. Now, 10-K for the fiscal year ended December 31, 2008, we've provide a certain financial information regarding terminated and new distribution agreements.

We explained the impact of the termination payments made to terminated distributors to the income statement, i.e. the full amount was expensed in 2008 including those distributors where we commenced distribution in 2009 in Mexico and Canada. We also explained that while we received non-refundable contributions from newly appointed distributors which covered a significant portion of the costs of terminating certain distributors. Such contributions are accounted for as deferred revenue. Such deferred revenue will be recognized as revenue right to be over the anticipated 20 year life of the distribution agreements.

Deferred revenue recognized was 1.8 million in the quarter compared to 0.5 million in the comparable financial period last year. This explains the accounting treatment relating to the above from a cash flow point of view, the above described transactions are expected to remain largely neutral to the company as we anticipated that we would receive payments for the contributions that approximate the payments to be made by us to terminated distributors.

For the 2009 second quarter we recorded 0.7 million in termination obligations to prior distributors. Termination obligations were minimal in the second quarter of 2008. During the three months ended June 30, 2009 the company redeemed 1.5. million of its auction rate securities [at par]. At June 30, 2009 the company held auction rate securities with a face value of 100.5 million, 102 million at March 31, 2009 and 112.5 million at December 31, 2008.

The company determined that a cumulative impairment of 12.3 million had occurred at June 30, 2009. It was 15.5 million as of March 31, 2009 and 14.9 million as of December 31, 2008. Of which 8.3 million was deemed temporary and 4 million was deemed other than temporary. As a result; included as a commencement of other comprehensive loss is 5 million net of taxes as of June 30 2009. No other than temporary impairment charges were recorded for the third months ending June 30, 2009. Included in other income expense other than temporary impairment of 3.5 million for the six months ended June 30, 2009, the auction rate securities will continue to accrue interest at contractual rates until the respective auctions succeed or they are redeemed.

During the second quarter, the company did not repurchase any shares of common stock. The unaudited, unadjusted gross sales in July 2009 were approximately 127.1 million, up approximately 13.6% over July 2008. Unaudited, unadjusted gross sales of the Monster sales brand including Java Monster and Hitman were approximately 17.5% higher than last year including the UK and Australia. As I have indicated in the past, these are unaudited, unadjusted gross sales figures and we have take the decision to discontinue our practice of providing such unaudited, unadjusted gross sales figures for the first month of the current quarter starting with the third quarter. I would like to open the floor to questions. Thank you.

Question-and-Answer Session


We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from the line of Judy Hong with Goldman Sachs. Please go ahead.

Judy Hong - Goldman Sachs

If I look at your sales growth in the quarter and if I back out International, US looks like it was up about two to 3%? Is that math correct?

Rodney Sacks

I would have a look. I don't know. Off my head, we will get that figure.

Judy Hong - Goldman Sachs

The 17.5% improvement that you saw in July, how much was that International versus US also?

Rodney Sacks

I don't have the break-up of those figures. We will try and get them to you before the end of the call.

Judy Hong - Goldman Sachs

As you think about the category trends, obviously it looks like the shots category has had some impact. What is -- your view of how sustainable the shots category itself is? Is this more trial? Are the consumers really migrating from traditional energy drinks into shots and why is Monster Hitman not a bigger brand in that category?

Rodney Sacks

I really don't know what the prospects or the longevity for the shot category are. We do know that the leader of the category, we believe has developed a strong lead in the category but has both the brand we would believe largely on unsustainable facts and representations as to the brands attributes and performance. We don't believe that they are -- that they are able to substantiate -- that the brand provides energy for five hours as the name indicates. We also don't believe that there is a credible crash concept that they -- simply a figment of their own invention.

Of their imaginations as to what a crash is, but they have spent a lot of money representing that their product has this miraculousability to deliver five hours of energy despite the fact that it has no calories and no sugars in it. It also doesn't result or deliver a crash as opposed to all energy drinks and all energy contain sugar which is clearly factually untruthful because there are low carb and sugar free versions of energy drink on the market. That all energy drinks produced a crash where -- which again we believe is again an untruthful and misrepresentative statement.

We believe that brand has really gotten ahead based on the fact that it's based on a deception and untruthful statements. That really is quite -- we think important because we believe that consumers have been misled and duped into the believing that they do get this energy boost -- this extraordinary boost from that product as opposed to energy drinks and so, that does complicate the issue as to what is a sustainability of that category as they have the lion share of that category.

We think that that is one of the major reasons why all -- most of the energy drinks have found it difficult to compete in that category and really inroads just because they've been a large major marketing and promoting their brands with one hand tied, so to speak tied behind their back, because they haven’t gone out and made this misrepresentations that the leader in the category has.

Again we just don't know when those facts really become more -- ingrained in consumer's mind what will the consumer do, will the consumer divide the tension amongst the other players in the category, will it go back to energy drink. We think there has been some -- basically some sales diverted from the energy category and that's why in the report, I do refer to the fact that the energy category as we defined it has -- is slightly negative.

We think that if you combine it with the shot category which has taken some of the energy consumers over that category, it's still up -- it's continuing to grow. We believe that ultimately, we think there will be a migration of some of the users back to energy drinks or that the energy shots from the energy drink players which have credibility will continue to make inroads in that category. As you have Red Bull that’s now entering that category –[we are in the queue]; we believe that with time we will obviously be able to increase our presence. We are hopeful we will increase our presence in that and our percentage share of that category, so therefore it's really very uncertain as to where things will turn out in the end in that category, Judy.

Judy Hong - Goldman Sachs

Secondly just in terms of your international market, I mean obviously you are getting a pretty good list in terms of sales as you are entering these new market. Can you give us the color in terms of what you are seeing at the consumer level and sort of assess the [brand holds] the trial. The repeats --

Rodney Sacks

Are you talking -- are you referring to international?

Judy Hong - Goldman Sachs

Yes, International.

Rodney Sacks

International, we think we have been getting some good growth. We are sort of getting in to markets that have been established for many years and we are competing against the current brands. In most of the markets in which we've entered we've pretty quickly become the number two brand. We've overtaken almost all the competitors in all the markets other than the UK where Relentless has quite a strong footing.

We've had some issues and challenges in obviously in working through the -- with the CCE system which also the Relentless brand in that one market. In the other markets we've pretty much overtaken all of the competitors to Red Bull pretty quickly and we are the number two brand in France, in Belgium, in Holland, in Sweden, et cetera. We have as I indicated -- we are a little bit disappointed with our distributor in Ireland and we are taking steps to address that, so that has its own issues. We think we are off to a good start but it’s too early to tell how we will do in Spain.

So the sales are continuing to sell through which is really a repeat. We are continuing to maintain and slowly increase our market share, so, we think those markets are good and we will continue to grow in those markets as we develop because our brand is very young there.

The launch in Australia we were very encouraged by I mean got good distribution, we are hearing very anecdotally that -- very good sell through but it’s very isolated and in it's very early days and -- but we think that the Australian consumer does relate to our type of product and the marketing and they're are an outdoor, very sporting orientated society, so, we believe all of the sports that we have whether it is surfing, skating, skateboarding, BMX riding, motorcycle and motor racing all play well in Australia.

It’s a highly competitive market where you've got the leading player is actually "V" which is ahead of Red Bull. There has been a brand called [Milo] which is the Coke brand that’s been unsuccessful on our number of launches. They re-launched it in a large format literally trying to pretty much play of our brand marketing and positioning and it sort of seemed to be pulling, so we've got quite a bit of pull in the re-launch but we've actually started to make quite aggressive inroads against that brand at the offset in our launch.

We believe that while it is a market that has been split between three players. Rockstar is a very, very weak player in that market. We believe we will be able to succeed and become a recognizable brand in Australia. In South Africa, the brand is also continuing to do well. Distributor is smaller there and so slowly we are continuing to make inroads there as well, so overall the brand is translating very well overseas and it is taking time -- as we've indicated the brand is doing well in Canada.

It's quite clear by far number two brand in there. We are working through transitional issues with our new distributor in Mexico, but the brand is also up nicely on last year, so we are continuing to grow in all of these areas including Central America, so, that's -- obviously the -- with everything else the North American market has been a little more challenging, but International has been positive. We just (inaudible) going to give you the numbers for you the answer to your earlier question, Judy.

Judy Hong - Goldman Sachs



Our next question is from the line of Greg Badishkanian with Citi. Please go ahead.

Jeff Hans - Citi

This is Jeff Hans actually on for Greg. You guys had a nice margin against this quarter. As we look at for the back half of the year what type of run rate that -- I know I think in the first quarter you mentioned comps are getting a little more difficult but are commodities a little bit lower than you had thought at that point or what can we kind of look out for?

Rodney Sacks

Sorry can you repeat that question?

Jeff Hans - Citi

Sure. Just in terms of margins and kind of the run rate going forward, I know in 1Q you guys had mentioned that your comps are getting little bit more difficult in terms of margins but -- commodities are a little bit lower than you maybe had expected at that point. Just want to get a sense of what we can expect for the back half?

Rodney Sacks

I think commodities have been lower and so, we have been able to basically -- to buy in commodities reasonably well. We really don’t -- we don’t know how it will go -- going forward there has been some firming of some process like (inaudible). We bought some of the [main] side. I don’t want to give any indication of where we'll be and we are just not – [it is fact] is not to give that forecast, but -- one of the principal reasons we've had the increased margin, we've been able to sustain this -- clearly we have had some benefits on the cost side and we've also had some benefits on our product mix. That really, those have been the drivers historically.

At this stage we know they may well be -- similar to how we got forward. We certainly -- I just don't want to get drawn into any forecast of where we are going to or where we are likely to be going forward on our margins. As you can see, we actually had some margin improvement from both of those areas. Just to get back to Judy's question. We were -- on domestic we were actually up about 4%, closer to -- roughly the 4% mark in North America and in the July numbers, again they are very, very rough numbers, Judy. We are up just under 7% in the US, so those are the numbers. There is a sort of split between US and International.

Jeff Hans - Citi

Then, actually Rodney, what was the total number in July, if you have that?

Rodney Sacks

What do you mean the total number?

Jeff Hans - Citi

The total sales number. I think you said up seven in the US?

Rodney Sacks

I gave you the same -- I gave you the number. The total -- the total number in July was about 127.1 million that’s the unaudited, but that’s unadjusted gross, not the gross we normally report which has some adjustments in it.

Jeff Hans - Citi

Got you.

Rodney Sacks

This is a raw number 127. What we are saying is that in that number, roughly -- say just under 7% was the domestic increase in sales, domestic in the US.

Jeff Hans - Citi

Just one quick one. I know you guys recently announced the partnership with CKE Restaurants. Do you feel the restaurant channel is something that you may continue expanding into forward? I know there has been some speculation that you were talking to McDonald's or McDonald's may consider the Monster brand. Is that a challenge you may really focus on going forward?

Rodney Sacks

Yes, [I can't say] -- because I don't know where the talk came from about McDonald's that was talk. Clearly, we see the food channel as an opportunity. It's a little more difficult because most of the fast food outlets really make their money and have some very big margins on the their fountain business and that's very much not a finished product business. That’s a model as you know, so, there are lot of logistical challenges, margin challenges and issues that we face in going into and getting additional distribution in the food channel.

We believe as an energy drink we shouldn't be in the fountain business, we don’t think that does the brand and the image of the brand any good. We obviously don't want to do that, so, we are obviously looking at the channel as an opportunity to expand into additional outlets for additional sales. There is a lot of additional channels available to us in the US that we really haven't yet touched or if we've touched it we've hardly scratched the surface of them in the US and those are opportunities that we will continue to focus on just as an ongoing business, but clearly the cause relationship is a good relationship.

We think that's a very good -- particularly because of the positioning we think that's a great chain to be associated with. We think that gives us good sampling and its incremental because those are sales that wouldn’t have got anyway, it would have gone to a fountain drink and so obviously we are looking to -- basically be able to secure additional business in those channels going forward. I don't want to say any more at this point about them. We have made some inroads into the nontraditional channels; we've been sold in a number of Home Depots now.

We've managed to secure distribution in Disneyland and Disney World which we think is a premium account. We're also been able to go into and getting to the nontraditional channels in not all of the country because of the different distribution systems we have but in many parts of the country in chains like Best Buy and Blockbuster Video which as we continue to go up these are channels that we will continue to focus on and see if there are additional volume opportunities in these channels as we go forward.


Our next question is from the line of Mark Astrachan with Stifel Nicolaus. Please go ahead.

Mark Astrachan - Stifel Nicolaus

Question on just kind of how to think about some housekeeping things in the quarter. You touched on some of the new products and benefit you said import was about 3.3 million. What was Hitman's contribution to sales in the quarter?

Rodney Sacks

These -- we given these numbers -- initially we gave these numbers when we just first sort of launched the product going forward same as we did with the import just to say where we are with it but going forward we don’t want to -- as a policy we are not going to break out, continue to break out all these sub categories in the Monster brand.

Mark Astrachan - Stifel Nicolaus

Is it fair to say that the Hitman's contribution was similar to what we've seen in previous quarters?

Rodney Sacks

I don't know, I haven’t focused on the number. I don’t have it available to me now Mark and I just -- we just are not going to [and look to] where it because we usually get started to macro manage the Monster brand which we're just not going to do.

Mark Astrachan - Stifel Nicolaus

What about International. Can you talk about that a little bit in terms of what selling in terms of getting into your new distributors international? Can you talk about that a little bit in terms of what selling; in terms of getting into your new distributor was versus what the actual the sales contribution was, if you talk about that?

Rodney Sacks

No, we've given you the International figure and we are just not going to break it down further at this point. As we go further, we establish ourselves in different continents it might be something we look at -- later breaking it down in more detail. Really we are just not going to do that. It becomes micromanaging there are [different continents]. There are sales, there is pipeline full in the initial full to new distributors then they sell in the market. It just becomes long explanations for each and every country, each and every area definitely which becomes too complicated and it’s just something we think that isn’t appropriate to go into, so as a company we're just not going to -- not going to that sort of detail.

Mark Astrachan - Stifel Nicolaus

Then let's try it like this. Can you talk a little bit about?

Rodney Sacks

Any way you want.

Mark Astrachan - Stifel Nicolaus

Well, we will ask a more broad question then, so, if you just think about what the sales look like in terms of the difference between what you see in the scanner data in the US which is obviously the your biggest market and what you are reporting that includes the strong results in July. I guess I am just trying to get a sense of what the difference is between -- kind of how the business is humming along at a stronger rate on the top line versus what we are seeing in terms of just limited channels. Is it the unmarked channels the club store, the Wall Mart, incremental distribution in Europe I mean what is really contributing through this outside growth versus what we are seeing in new track channels?

Rodney Sacks

Well I think you've got the first factor is you have different growth trends in the USA versus Europe even versus in Canada and Mexico. You are at different stages of the development, so it really is, it very to say what are the stages because you've got UK which is very different to France which is very different to Australia.

I mean it’s all over the map. What I can say is that the very market generally experienced quite a lot of softness and that’s I think something that was commonly felt by most of the people we've talked to -- many of the people we've talked to -- that in the end of May early June the beverage market generally in the US somehow was soft and not sure anybody really knew why? And it sort of started to pick up towards the end of June. That was something that was commented on by industry experts guys like Mark (inaudible) everybody was sort of not sure why that was and we feel we have seen a some sort of a more positive sign later in June going into July.

Europe is sort of just very different because we are at unusual stages. I mean we've got product going into as you know when launching this product obviously you're selling into your distributor. He is selling into the market. You are getting pipeline full, you are getting a trial. We just -- it’s too early a stage to really know. We don’t have enough information quite frankly from our own distributors to really -- have a really serious handle on each country and some of these statistics. We do know that our market share in the countries in which we've got into hasn’t really dropped substantially or at all since we launched and we continue to make, keep, retain market share increase, so we've been very encouraged by that fact on sell through.

But it is very early and I can't really give you more color on it. Other than we are pretty happy with where we are in Europe. I think its all going well to been able to overtake brands that have been there for years and years already within months. I think it’s a great achievement, so we are happy, but our market share in Europe is obviously still substantially lower than our market share in the US. As you can see in Canada, we are now up in the very high teens from being in the very low teens couple of months back. We are in the mid 20s in the Mexico, so our market share is different, but it is making inroads and the brand is obviously pulling and clearly we think sustainable in these other countries.

The US is the -- United States as I said had its softness, it's a much more mature market, but it is starting to -- we are seeing some signs of improvement end of June, early July and whether that's consistent with the economy, we don't know. I am not an economist and we don't know where the economy is going to go, but it has been little stronger but not sufficiently strong for us to really perceive any real trend.

Mark Astrachan - Stifel Nicolaus

Finally on the promotional allowances it seems like that went up a little bit sequentially versus the first quarter and I think directionally different than what it was expected. What was kind of going on in that number that as it led to the increase versus what we have seen?

Rodney Sacks

I just think some of the chain accounts seem to have, some of the -- the annual programs just seem to have hit little higher in this quarter than the first quarter. We did sign some programs, we did few things that were sort of hadn't been budgeted for things like Jenson Button sponsorship, that's the formula one driver who was head of the championship. We had a unique opportunity right as the season -- season started to get a sponsorship with him for the rest of the season and he was heading the -- still is heading the world championship. He hasn't won the last couple of races, but we've got enormous exposure overseas and around the world because Formula 1 is probably the premium motor sport internationally. These are the things that we decided to get in to -- on an ad hoc basis. I just don’t know that what else was happening -- we did some coupon programs with Java Monster in the period which we were probably a little higher. On the other hand we also went into a program which is -- we've taken the share of -- basically off road truck racing series and we are involved in the series which is again its another strategy we have on some of our marketing to be able to basically turn the control ongoing participation and costs in marketing in the series and so we're still just sponsoring the drivers in the series. This is the -- tracks is of (inaudible) which is been race at the moment and is being shown on TV, so, we have a stake in the actual series now and so that cost came into the second quarter, so that was one of the other costs that was higher that hadn’t been probably budgeted for initially in the first early part of the year to something we only -- decided to go into the opportunity arose during the course of the year.


That concludes our time for today's question-and-answer session. I would like to turn the call back to Mr. Sacks for any closing comments at this time.

Rodney Sacks

We have been seen a lot of tough times in the beverage industry in the last -- for this year. As we said that we have seen sort of some signs of better -- our sales seemed to be better going into July. We have new products that we are really -- only really now getting into the force of getting out into the market, so, they really had no real impact in the second quarter. We are hopeful they will have some impact for us going forward. As with all new products, you don't know what they are -- how they are going to turn out. We are very hopeful for them.

We've also -- to help us expand and also manage our business more closely, we've taken on a new Chief Operating Officer for the Monster brand, Nick Gagliardi who has come with a lot of industry experience both from consumer product side and from managing from a -- a brand in the beer industry from the brand starts from the best and he got also lot of experience in managing and running, operating actual distributorships.

So, we think he got a lot of good round of experience and he is going to be a great asset to the business and to helping us manage the brand going forward. We are starting to see some good results in the non-traditional beverage categories. As of indicated the Home Depots, Best Buys, Carl's Jr. and we think that those are also going to be positive. In the UK, we've been very fortunate to have been able to tied up a long-term supply -- exclusive supply arrangement with Wetherspoon which is one of the largest on-premise pub operators in the UK, certainly in sales and volume they are one of the most aggressive, so, this is pretty much the -- I would the premiere on-premise chain account we could have got in the UK. We've managed to secure that from Red Bull and we have that going forward for some years. We think that's going to be a very important account for us as just -- as an indicator for the on-premise channel in the UK and also for sampling and exposure and image in the UK market as we continue to getting to the market and secure additional distribution and we think sales volumes.

So we think we do have some positive things going on, going for the brand going forward and for the company. We all looking forward to a positive second half of the year. Thank you very much for your attendance.


Thank you. Ladies and gentlemen, this concludes the Hansen Natural Corporation second quarter 2009 financial result conference call. We thank you for your participation. You may now disconnect.

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