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Executives

Rodney Sacks – Chairman & CEO

Hilton Schlosberg – President & COO

Analysts

Kaumil Gajrawala – UBS

Judy Hong – Goldman Sachs

Jeff Hans – Citigroup

Alton Stump – Longbow Research

Mark Astrachan – Stifel Nicolaus

Hansen Natural Corporation (HANS) Q4 2009 Earnings Call Transcript February 25, 2010 5:00 PM ET

Operator

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the Hansen Natural Corporation’s fourth quarter 2009 financial results conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator instructions) This conference is being recorded today Thursday, February 25th, 2010.

I would now like to turn the conference over to our host, Mr. Rodney Sacks, Chairman and CEO; Mr. Hilton Schlosberg, President and Chief Operating Officer; and Mr. Tom Kelly, Senior Vice President of Finance. Please go ahead gentlemen.

Rodney Sacks

Good afternoon ladies and gentlemen, thank you for attending this call. I am 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 would like to remind listeners that certain statements made during this call may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and which are based on currently available information regarding the expectations of management with respect to revenues, profitability, future business, future events, financial performance and trends.

Management cautions that these statements are based on management’s current knowledge and expectations and are subject to certain risks and uncertainties, many of which are outside the control of the company that may cause actual results to differ materially from the forward-looking statements made herein.

Please refer to our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K filed on March 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 February 25, 2010. A copy of this information is also available on our Website www.hansens.com in the Investor Relations section.

We will go to beverage market in general in many countries throughout the world and in the United States in particular continues to show softness. We continue to see positive growth in the energy drink category in the United States. In fact, according to Nielsen, energy drink sales in the convenience and gas and grocery channels on a 2008 to 2009 and 2009 to 2010 year-on-year comparison have grown for the fifth straight month.

Sales of energy drinks in the convenience and gas channel increased by 3.2% in the four weeks ended January 23, 2010 of the comparable period in 2009. The four-week period concerned, Monster sales increased by 11.3% over last year, while Red Bull sales increased by 8% over last year. Rockstar was down 2.1%, Amp is down 3.1%, Full throttle was down 15% and NOS was up 23.6%.

Over the same four-week period, energy drink sales in the grocery channel grew by 3.8%. Monster sales in this channel were up 13.8%, while Red Bull’s sales were up 9%, and Rockstar sales were down 5.5%, AMP sales were also lower by 6.8%, while Full Throttle sales were lower about 26.5%, NOS’ sales were up 28.5%.

According to Nielsen, for the four weeks ended January 23, 2010, Monster’s market share of the convenience and gas channel stood at 30.2% against Red Bull share at 35.4%, Rockstar share 10.4%, Amp share at 7.1%, Full Throttle’s share of 4% and NOS’ share of 4.3%. According to Nielsen, Red Bull’s market share for grocery channel for the four weeks ended January 23 is 40.8%, whereas Monster’s market share is 24.3% against Rockstar’s share of 11.8%. Amp share is 6.5, Full Throttle share is 2.5, and NOS’ share is 2.3.

According to Nielsen for the 13 weeks through January 23rd, 2010 all outlets combined, the convenience, grocery, drug and mass merchandisers excluding Wal-Mart, sales in the energy drink category increased 3.7% versus the same period a year ago. Sales of Monster grew 12.2% in the 13-week period concerned, while sales of Monster’s main competitor Red Bull increased by 9.4%. According to those reports, sales of Rockstar dropped 3.3%, sales of Amp dropped 4.3%, NOS increased 26.3% and sales of Full Throttle dropped 19.8%.

In actual dollars, sales in the energy drink category increased by $40.4 million in the 13 weeks end of January 23, 2010. According to Nielsen, sales of Monster increased by $35.5 million as compared to Red Bull which increased by $35.2 million. Sales of Rockstar decreased by $4 million, sales of Amp decreased by $3.5 million. Sales of NOS increased by 9 million while sales of Full Throttle dropped by 9.8 million.

According to Nielsen for the 13 weeks through January 23, all outlets combined Monster’s market share increased by 2.2 points to 29.2%, while Red Bull’s market share increased by 1.9 points to 36.4%. Rockstar’s market share decreased by 0.8 points to 10.6, while Amp’s market share decreased by 0.6 points to 7%. NOS’ market share increased 0.7 points to 3.9, while Full Throttle’s market share decreased by 1 point to 3.6. These figures exclude the emerging energy shot category, which reports separately. If the energy drink and energy shot categories are combined, the overall category grew 6.8% in the 13-week period concerned.

According to Nielsen, sales of Java Monster represented approximately 13% of the sales of the Monster brand over the 13 weeks through January 23, which is a decrease of 1.6 percentage points as compared to 14.6% for the same period last year. The decline in the sales of Java Monster continued to be attributable primarily to the entry of Starbucks into the category in the middle of the second quarter of 2008, with a new line of Double Shot Energy plus Coffee Drinks in 15-ounce cans, which compete directly with Java Monster. In the 13 weeks ended January 23rd, 2010, for all outlets combined sales in the energy plus coffee drinks category increased 0.6% over the comparable period last year to 89.2 million.

According to Nielsen, sales of Starbucks Double Shot Energy plus Coffee during the 13-week period concerned totaled $30.4 million as compared to sales of Java Monster, which totaled $42.6 million. Monster’s market share in the smaller drug channel has continued to show moderate but steady growth since the transition to Coca Cola bottlers in certain geographies at the end of 2008.

We are taking steps to address the weakness of Monster sales in the Houston market, which includes the appointment of new representatives and a new team for that area. The Chicago market is also showing weakness in the last few months, although we are still the Number 1 brand and we are taking steps to address that market. On the other side, we are pleased to report that we have managed to reverse the softness that we experienced in the Detroit market and are recovering lost market share.

Monster’s market share continues to improve in the important New York market. We continue to see improvements in sales and market share in Canada. According to Nielsen, in the convenience and gas channel in Canada for the 12 weeks ended January 16, 2010, the energy drinks category grew 8%, Monster’s market share increased 4.1 points over the same period last year to 19.7%, while Red Bull’s share decreased 1.6 points to 36.6, and Rockstar’s market share increased by 1.3 points to 14.3%. According to Nielsen, Monster’s market share in Mexico for December 2009 is 21.4%, which includes Java Monster and is up 0.3 points from December last year.

Sales of Monster grew 34% over last year. In November, I reported that Monster’s market share in Mexico in September was 26%, although Monster’s current market share is decreased since September, its sales both in December and for the full 2009 calendar year increased in excess of a category growth for the respective periods. The monthly Nielsen numbers are often as proportionately influenced by promotions of one more brand in the influential convenience chain, which is significant in the convenience store channel in Mexico and should be demand looking at the Nielsen numbers for Mexico.

Sales continue to progress satisfactorily in the United Kingdom and Continental Europe, although costs particularly promotional and sampling costs and sponsorship expenses were higher than anticipated in relation to our sales levels in 2009. We believe that increased sales in 2010 will lower our selling costs per case that we incurred last year and improve our financial result in Europe. We are planning to commence sales in additional countries in Western and Central Europe and are also planning to open up one or more markets in the Middle East this year.

Sales of Monster are continuing to improve in South Africa, Ireland, and New Zealand, and we are pleased with the progress that we have made with the launch of Monster in Australia last year. Unfortunately, we have experienced continued delays in securing the necessary governmental authorizations to begin production in Brazil, but we have now received those authorizations as of yesterday or today, and we expect to commence production in the near future and launch distribution of our branding.

We have to expand into additional countries in South America during the course of this year. Both gross and net sales for the fourth quarter and year ended December 31, 2009 were positively impacted by bonds purchases made by customers in the 2009 fourth quarter due to our announcement of a new per case marketing contribution program for Monster Energy distributors commencing January 1, 2010, as well as to avoid potential interruptions in product supply due to our announcement to transition to the SAP enterprise resource planning system commencing January 2010. We estimate that although our gross sales, approximately 4% to 6% for the quarter ended December 31, 2009 and approximately 1% for the year ended December 2009, were due to such advance purchases.

For the three months ended December 31, 2009, sales to retail growth through specialty chains and wholesalers represented 10% of growth sales at the same as last year. So, to club stores, drug channels, and mass merchandisers represented 9% of sales, down from 14% last year. Sales to full service distributors represented 69% of sales, down from 71% in the same period last year. Other sales were flat with last year at about 2%, and sales outside the US increased to 13% from 6% in the same period last year.

Gross sales to customers outside the US in the fourth quarter of 2009 amounted to $43.3 million compared to $16.5 million in the same quarter last year. Included in such sales are direct sales to the company's military customers which are delivered in the US and then transshipped to the military and their customers overseas. We believe that we will continue to benefit from reductions in the cost of certain raw materials. Operating income for the 2009 fourth quarter includes losses of $1 million related to Xtruck Inc for the torque off-road truck racing series as well as operating losses of 5.2 million incurred in relation to our European and Australian operations.

Operating income for the 12 months ended December 31, 2009 includes proceeds of $4.7 million related to reimbursements of legal expenses as well as losses of $4 million related to Xtruck for the torque off-road truck racing series and related to Epicenter Music Festival LLC, as well as operating losses of $6.9 million incurred in relation to our European and Australian operations.

We are continuing to implement our strategy to reduce the processing of Monster Hitman energy shots to $1.99 at retail from $2.99, which we believe is more processed with energy drink pricing, although retailers have been slow to reduce their margins and implement that policy. We believe that we should persist with that strategy and we will continue to do so in 2010. We are also evaluating other opportunities in and ways of attacking the energy shot market. In December 2009, we launched our Peach Tea line of ready-to-drink ice teas in four flavors in 23-ounce cans. Initial response from consumers have been positive and we are excited about the prospects for that line.

Turning to the balance sheet, cash and cash equivalents amounted to $328.3 million compared to $256.8 million at December 31, 2008. Short-term investments were $18.5 million compared to $29.1 million at December 31, 2008. Long-term investments consisting of auction rate securities decreased from $89.6 million to $80.8 million.

Trade accounts receivables net increased to $104.2 million from $45.2 million at December 31, 2008, partly attributable to the advanced purchases made by customers. Distribution agreement receivables decreased to $4.7 million from $19.7 [ph] million at December 31, 2008. Days outstanding for receivables was 31.4 days at December 31, 2009, compared to 16.9 days at December 31, 2008. Inventories decreased to $108.1 million from a $116.3 million at December 31, 2008. Average days of inventory was 71.8 days at December 31, 2009, which is lower than the 90 days of inventory at December 31, 2008.

In our 10-K for the fiscal year ended December 31, 2008, we have provided 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 namely 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 new distribution agreements.

Deferred revenue recognized was $1.9 million in the fourth quarter compared to $12.8 million in the comparable financial period last year. This explains the accounting treatment relating to the above. From a cash flow perspective, the above described transactions are expected to remain largely neutral to the company as we anticipate payments for the contributions approximate the payments to terminated distributors.

Termination obligations recorded by us to prior distributors for the 2009 fourth quarter were $0.02 [ph] million as compared to $118.2 million for the fourth quarter of 2008. At December 31, 2009, the company held auction rate securities with a face value of $96.4 million. The company determined that an impairment of $12.1 million had occurred at December 31, 2009, of which $7.7 million was deemed temporary and $4.4 million was deemed other-than-temporary. Included in other comprehensive loss is $4.6 million net of taxes for the 12 months ended December 31, 2009. Included in interest and other income, net is $3.9 million for the 12-month period ended December 31, 2009. The auction rate securities will continue to accrue interest at their contractual rates until their respective auctions succeed or they are redeemed.

During the fourth quarter of 2009, the company purchased, repurchased 1,008,729 shares of its common stock at an average purchase price of $34.91 per share.

I would like to open the floor to questions. Thank you.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from the line of Kaumil Gajrawala with UBS. Please go ahead.

Kaumil Gajrawala – UBS

Yes, hi everybody.

Rodney Sacks

Hi.

Kaumil Gajrawala – UBS

If we could start with, what do you think the impact on the first quarter will be from some of the pull-forward on SAP and the change in the concentrate terms. And then maybe if you could also give us a little update on how the first quarter is shaping up so far?

Rodney Sacks

The numbers, I think we gave you the indication, it was in the 4% to 6% range. We feel that, that’s as close as we are able to really put at it, and then it’s about 1% for the year. So, we think that obviously it’s that level will detract from the first quarter.

Kaumil Gajrawala – UBS

Okay, and it’s not something that would stretch up further than that, likely just a one quarter issue?

Rodney Sacks

No, no.

Kaumil Gajrawala – UBS

Okay.

Rodney Sacks

I don’t think so.

Kaumil Gajrawala – UBS

And then the second thing, it looked like SG&A was a little bit higher than we had expected, was there anything in there we should know about?

Rodney Sacks

Look at the quarter – I think the – I don’t know what you guys are seeing, but it was pretty much in line with our expectations. Yes, selling expenses were pretty much lower than three months last year as a percentage and sponsorships were up. That’s the probably the largest area that saw the lights of gain, and then we had, obviously we had expenses with Xtruck. But if you look at the aggregate of total selling, as a percentage, we are pretty much in line with last year, and then in the administrative, there we had some extra illegal expenses were higher than last year. We had some, you know, quite a bit of litigation particularly regarding some intellectual property matches with the Monster Mocha [ph] folks. Monster Mocha who have tried to register – launched the product under the brand name Monster Mocha as – who we filed the complaint against. And then we also have an ongoing complaint with involving the $5 energy shot guys for false advertising and defamation of our claim.

And so that litigation is also being reasoned, quite expensively, we also go litigation regarding the auction rate securities. So, litigation in the legal accounting was up quite a bit in the last quarter versus last year. Depreciation was also quite a bit higher. We have purchased quite a number of coolers that we put into the market through the Coke and through the CCE and AB system. You know, some of the legal costs have been – I will refer to (inaudible) have been capitalized, but there is a reasonably large amount of lodge increase of illegal costs. So, those are the two areas that I think a few years is it really did increase in this last quarter or the last year.

Kaumil Gajrawala – UBS

Yes, that’s helpful. And then final question, obviously I am sure you have seen the Coca Cola news from today. In terms of how your contracts are in, does that change your view on the Coca Cola rollout, and does it give you any flexibility to maybe consider any auctions beyond just CCE.

Rodney Sacks

You know, obviously we are going to look at the whole situation. The contracts are quite complex, there are a number of individual contracts for different countries particularly as between Europe, there are different contracts for Europe, Canada and United States for CCE. They are interlinked and so, you know, our issues with all of them need to be addressed carefully. There are certain non-assignment clause, but at the same time, the awesome call outs of which provides sort of assignments are permitted to – so we need to look at that whole issue, but you know, from our point of view, at this point it appears to us that there wouldn’t be a major change. At this point, we wouldn’t be looking at changing, it may well open up additional countries in Europe to CCE, but you know, it is too premature for us to look at. We have really not seen the full terms of the transaction. We had discussion with the Kayo folk, we are going to be talking to the CCE, had a chance to talk to them. Prior to this call, probably got to talk them later today, early tomorrow. From our point of view at this point in time really much, it’s business as usual.

The whole transaction in any vein is going to take pretty close to probably year or two. To close, there are going to be incentives to CCE, obviously it’s continued to maximize their profitability in this interim period. And so, we have really done, believe it’s going to have a major impact on us. The movie changes but we don’t think that there will be major but obviously, we want to look at where we, you know, our position as an independent company about share and you know reevaluate things. But it is too premature to do so.

Kaumil Gajrawala – UBS

Okay, that’s all. Thank you.

Rodney Sacks

Thank you.

Operator

Thank you. Our next question comes from the line of John Faucher with J.P. Morgan. Please go ahead. Pardon me, John Faucher, your line is open. Our next question comes from the line of Judy Hong with Goldman Sachs. Please go ahead.

Judy Hong – Goldman Sachs

Thanks, hi guys.

Rodney Sacks

Hi Judy.

Judy Hong – Goldman Sachs

Rodney, I guess I am trying to understand your view as underlying sales trend in the fourth quarter, because if I strip out the international sales, the growth that you have had in the quarter. It looks like US is up about 4%, that I would assume includes obviously the advanced purchases that were made in the fourth quarter, and then I know that you are laughing some drags that happened last year with you buying the old inventory from the distributors. So, I guess my question is really why the underlying US number wasn’t stronger just given the acceleration in terms of the nukes and data that we have seen recently.

Rodney Sacks

I have got, I think my North American revenues up about 6%.

Judy Hong – Goldman Sachs

How much?

Rodney Sacks

In last quarter.

Judy Hong – Goldman Sachs

Okay, that includes Canada, obviously okay. Right, but that included about 4% of the advanced purchases in the fourth quarter that happened right.

Rodney Sacks

Yes.

Judy Hong – Goldman Sachs

Okay. So, underlying it looks like maybe it’s even kind of in the low-single digits, this number.

Rodney Sacks

Yes, yes American is probably reasonably reaping in couple of points out.

Judy Hong – Goldman Sachs

Yes, and I am trying to sort of figure out why there is a disconnect in terms of the scanner data that would show an acceleration to kind of a high-single digit, maybe even double-digit number in the last couple of months versus kind of what you are reporting as you US being maybe up low single?

Rodney Sacks

You know, when we say there was that increase that purchase in anticipation, one of the things we do know is that the CCE system didn’t and not to the best of our belief, participate in that volume, and in fact, they actually took their inventories down. They minimized their inventories at yearend. So, they are on business policy. And so, that we believe is probably had some influence on our shipments out as opposed to the market.

I don’t know other wide, you know, why there is that disconnect between the two. Obviously the important thing for us and that’s why we do go through the Nielsen numbers. We have done so historically. The importance for us is to what is going on and what are the – or what is the movement on a store well. And that momentum has been positive and has been continuing to actually increase. And so, that is important for us, and so that is really the – I just can’t give you any additional color on that, but the other thing I can also say that those are, bear in mind, that those are the combined numbers of the company, both DSD, allied products, non-core and warehouse, and then if you break those down which we broke down on the DSD, the DSD and the warehouse statement, in that fourth quarter, the warehouse statement was negative. Some of the other products based on year-on-year, the allied products were in fact down. And also negative where is Monster itself as a brand was actually up.

So, if you look at those numbers, in fact in the fourth quarter, we are all up into the teens. That includes internationals, all right I haven’t been able to break out that. That’s the figure for you. I am sorry – but I think that you will find that the Monster numbers in the fourth quarter were better than the 2% odd when you strip out that volume.

Judy Hong – Goldman Sachs

Okay.

Rodney Sacks

Because as I said, that is an aggregate figure I am seeing negative figures for some of these others. I just haven’t done that exercise that you are doing now; you are doing it on a gross consolidated basis for the company. So, that actually will affect, in fact result in a lesser differential between the Nielsen numbers coming out and our numbers.

Judy Hong – Goldman Sachs

Okay. Maybe taking a step back and broadly speaking, you know, seen acceleration and the category growth trend in recent months, maybe you can talk about what you think is driving that improvement as we look out over the next six to 12 months, you know, obviously consumers are still challenged by maybe in the back half, you start to lapse some of the easier comparisons particularly in the summertime. Do you think that maybe the category and your brands growth should continue to accelerate as the year progresses?

Rodney Sacks

I don’t know and we can’t obviously look into the future and we don’t give guidance. But what I can say, if you look at the Monster numbers in the – according to Nielsen in the four-week numbers, you know, we were positive earlier in ’09, we should have – May to July, we were sort of negative and then we started improving in from August on. And our growth in the convenience channel has continued to accelerate. It was slightly down in December – January versus December, but it was sort of we were up, in convenience, over that period, we were up 3, 7, 5, 8, 6, 5, 10, 5, 13, 6, and 11, 3 [ph]. So, we have seen some acceleration in our year-on-year numbers and we are talking on – but in those periods we were talking on numbers from the ’09 numbers that were although lower in the growth rate, but we are still positive year-on-year from the year before that. If you take in the last four weeks, looking at Nielsen, in fact if you take our top four items, they are actually all positive, which we think is good for the brand. Our original energy drink, our low carb, our 23.5-ounce package is actually positive in the four weeks and our low carb 23.5-ounce package is also positive, and that’s encouraging because the 23-ounce which has been slow, it has been negative over the large part of 2009. So, we do seem to be seeing some stronger numbers there, and even Java Monster, the two leading Java Monster brands were both positive in the last four-week period.

Judy Hong – Goldman Sachs

Okay. And then just finally, in terms of your marketing expenses, you know, I think earlier in 2009, just given the economy and sort of the sluggishness of the category you have filed back in terms of some of the spending and not spending, you know, sort of ahead of your sales growth and etcetera, at this point, are you still kind of adopting that strategy or with some of the improvement you are seeing, you think that you have the opportunity to maybe spend more to accelerate growth and that how should we think about the international spending as you let that happen in 2009 and now in 2010, I think you said that the level of spending on a per head basis could be lower?

Rodney Sacks

Yes, you know, level of spending, we had certainly in endorsements and sponsorships put in place last year towards late in the year. We did sign additional sponsorships which we thought were important for the longer term strength of the brand and that did lift our sort of promotional cost a little bit. Going forward to this year, we kept our spending here pretty much in line with last year, and that is why we believe we will be able to have a more effective, you know, spend per case. We also in the US, we have a marginal increase in our plan spending. We are going to be conservative. So, what we have done is going out for the first quarter, we sort of budgeted for a marginal increase in our promotional spend and sponsorships and endorsements and depending on how we see the sales come in, we will be able to ramp up you know, that. So, again we didn’t want to project too large an increase that we were overspending. So, we are sort of looking at the year prudently just because of the uncertainty, but with the positive trend, we will step that up if we start seeing the underlying sales trend improving.

Judy Hong – Goldman Sachs

Okay. Thanks.

Rodney Sacks

Thank you.

Operator

Our next question comes from the line of Greg Badishkanian with Citigroup. Please go ahead.

Jeff Hans – Citigroup

Thanks. This is Jeff Hans actually on the line for Greg. In light of some of your sales being pulled forward, have you guys been a bit more aggressive from promotions and discounts in January and February?

Rodney Sacks

No, we sort of – as part of that program, we have had more of a planned program going forward for 2010, and we are just going to see how that pans out as being too much more, you know, starting to be really done that promotions on an ad hoc basis and so we probably get more planning into it and we will see whether that’s positive or negative, we are not sure which way it will go, but we will try and do it in a more orderly fashion, but we are not trying to spend on high rates. The initial couple of months this year, particularly we haven’t been aggressive in that spend. If you look at the convenience numbers for our every sales price, you know, for the first – that’s the 13-week we are talking, the four-week number, I will pull it out, our sales price is pretty much two sales up on our regular package for the four weeks. So, we have pretty much been consistent. So, we have not overspent to become overaggressive.

Jeff Hans – Citigroup

Okay, then could you give at least a near term update or outlook on commodity costs and how those have been trending?

Rodney Sacks

I have got Hilton who could probably speak, probably closer to that than I am.

Hilton Schlosberg

Most of our aluminum cans, we are just at (inaudible) last year and got the benefit of the lower metal. We are exposed for part of the aluminum cans, sugar pricing has increased, and that has impacted certain parts of this business. Sucrose costs which we are big consumers of sucrose, sucrose cost effect has come down, and I am not sure what other commodities you would like to talk about. Juice, thank you, apple juice concentrate, we contracted earlier this year at very low pricing effect, lower than the market is today. So, we did well on our apple juice concentrate purchases as well.

Jeff Hans – Citigroup

Great, that’s very helpful. That’s all I have, thank you.

Rodney Sacks

Thanks.

Operator

Our next question comes from the line of Alton Stump with Longbow Research. Please go ahead.

Alton Stump – Longbow Research

Yes, thank you. Good afternoon.

Rodney Sacks

Hi Alton.

Alton Stump – Longbow Research

You know, it was a great result obviously on the raw international sales line, can you give us any sort of color or commentary on how much of that is Europe and then if you are seeing the same strength in Europe that you had overall outside the US?

Rodney Sacks

Our sales for the year in Europe are about just over $56 million equivalent. And you know, so that is sort of the breakup for Europe, the Mexico, Canada is about – just under 66, and the remaining international sales, which include some military use about nearly 46 million. That really makes up the international business. And so, we believe that we have got some good strong sales numbers in Europe. We are sort of, you know, breaking into the markets slowly learning to walk, and so, we think that we have set a good basis and that we are sort of positive for 2010 now for ourselves in 2010 in Europe. Australia, we are positive about and we all are going to look at some additional expansion as we continue to go into the year.

Alton Stump – Longbow Research

Thank you. Rodney, how are things going in the UK, obviously it had a bit slower loss there, has that picked up at all over the last couple of months there?

Rodney Sacks

We think we have seen a positive change in the bottler, at the bottler level with some of the – they have started to see the brand and what its strength can be at its pulling, and they have started to, you know, support the brand for better. So, we are seeing a lot more excitement from the bottler and cooperation. We are starting to see, we haven’t – it’s probably still premature, but we are hopeful to get some quite meaningful listings in the next month or two. We are just waiting for them to come through. We are doing quite nicely. And in some of the chains, you know, we have done quite well. I know that, Alton, I think that you perhaps might have looked at it, as the chain had some issue with the – as the chain where we were included not on the warm shelf, we actually think that’s a positive. We are actually doing better in that chain, that relentless in some of the other brand.

So, the chain has actually been a very positive sale for us to be in the coolers. So, to be in the single-serve coolers is actually a plus in the energy category, it might not be in the traditional type category, multi-type products. But in the energy, it certainly, we actually would prefer to be in the culture of single-serve than we would on warm on the – it certainly at this point in time, as the brand continues to mature and becomes a much, much bigger brand in the context of the, you know, consumers, then obviously it becomes important to have your four packs and your multi-packs on shelf. But at this stage, we are quite happy with that particular retail chain actually. So, by and large, you know, obviously we always have issues to face and things to deal with, but we think that there, you know, we have our challenges, but overall, we all think the brand is building strongly and generally the bottler partners are happy with the progress and so are generally our customers, the retailers.

Alton Stump – Longbow Research

Okay. Great. Thank you Rodney, I appreciate it.

Rodney Sacks

Thank you.

Operator

Our final question comes from the line of Mark Astrachan with Stifel Nicolaus. Please go ahead.

Mark Astrachan – Stifel Nicolaus

Hi, good afternoon guys.

Rodney Sacks

Hi Mark.

Mark Astrachan – Stifel Nicolaus

First question on Peach Tea, could you just tell us if you can what the sell-in was for the fourth quarter and just what your thoughts are in going through 2010 in terms of kind of what level of shelf space you guys are anticipating and how you are thinking the brand can do?

Rodney Sacks

You know Peach Tea, pretty late in the year, in December. Sales in December about 1.4 million. So, there is not a – it wasn’t a lot, but it’s selling through quite, you know, very nicely. I think it sold out in a number of accounts that it was placed in, which has caused CCE to redo their estimates and their stockholding numbers and they have been looking in January and February, you know, they have increased orders. The sell rates have been, we have been receiving reports from the market that are positive for the brand. They are positive about it and behind the brand. And you know, we are in the process of just finalizing further arrangements with the coat system with regard to Peach Tea and when those will finalize, we will probably expand Peach Tea into the remaining Coke bottlers. If for some reason, those arrangements don’t come to fruition, obviously we will then look to fill out the rest of the US with independence, but it is looking positive that we will be able to put something together with Coke and with the other Coke bottlers.

So, overall, we are pretty happy with it. We want to obviously sync with our strategy at the moment of continuing to get distribution. We are starting to present the brand to the change in order to get into the schematics and get listings. In the meantime, we have gone on to and gone on to shelf simply on an independent basis, on an ad hoc basis, and you know, so far, as I said, we believe that the brand has legs, that’s the report we are getting back and that’s the belief that CCE have. And so, we are all encouraged by the brand going forward. Once we start establishing the 23-ounce can, as I said, we get the right schematics and listings, we will obviously looking for at least one slicing of each of the four SKUs and in some case, we would obviously like to get more which would give us a shelf. But even at a half a shelf to start in convenience and then we will pull with additional SKUs both in 23-ounce and then possibly look to additional package sizes going forward to, you know, much later in the year.

Mark Astrachan – Stifel Nicolaus

Great. And then share repurchase, any update on the new authorization?

Rodney Sacks

We do have it under consideration, it is premature, but certainly we more or less use up the existing one. We have about 10 million unutilized, and the issue will be whether we just go through that and then have a new share repurchase or at an early stage reconsider a full share repurchase. You know, we will look at that at the board meeting we have tomorrow, and we will either decide then or probably within the next couple of weeks, but we are going to look at a new repurchase program certainly to implement for the company.

Mark Astrachan – Stifel Nicolaus

Okay. Great. And then just finally, talking about the shift to pay-for-performance from a distributor standpoint, just sort of the puts and takes on what potential changes benefit your thinking about that, and including what sort of impact on shelf space you may have and what sort of impact on increased velocity for shelf placement if you can?

Rodney Sacks

I think that’s individual, I don’t think I am really in a position to be able to really comment on that. Obviously we believe that’s going to be positive and more efficient from a per case point of view. But we are working through that, we have got other programs that are slightly different to that. In some cases, there is a pay-for-performance program with retailers, but with our distributors, we have gone more on a fixed cost per case where we are going to allocate and then from that allocation, we will look at individual programs as to how we share certain costs, certain costs will be allocated. So, in fact, in some cases, the cost spend from the distributor point of the bottler is going away from sort of a pay-for-performance other than it’s going to be per case. So, we are not obviously spending something globular (inaudible) that will come through. But you know, it’s obviously – it’s too soon for me to be able to really relate to you what the results are because I really don’t have enough of a feel for it ourselves.

Mark Astrachan – Stifel Nicolaus

Would you think that, that would result in some leverage on the promotional allowances line, like what you saw in the fourth quarter?

Rodney Sacks

You know, obviously we are hoping to get something more – for the dollar that we spent, but how that’s going to translate and whether that translates better, we have this program that we have implemented, we don’t know. It really just is too soon to tell. We think it will be more efficient, and we are hoping it will be, but you know, we will see by the end of the first quarter, I suppose.

Mark Astrachan – Stifel Nicolaus

Great, thank you.

Rodney Sacks

All right. Pleasure is ours.

Operator

At this time, I would like to turn it back to the management team for any closing remarks.

Rodney Sacks

Thank you. You know, as I indicated earlier, we think that the brand is doing very nicely, that the category is growing. So, we are positive going forward for the year as well as both for our North American business as well as international. We really are still trying to evaluate the decision between Coke CCE. We think it will be business as usual, but we actually may end up as I indicated earlier with some additional distribution opportunities in Europe. It maybe not immediately but in the next short period of time. So, we think it may end up being positive, but we are going to look at all aspects of it, and then we will deal with it from there. So, just too premature to give you any other color on it. I would like to thank everybody for attending the call and we have a call that’s not too far away for our first quarter results and hopefully we will be able to then give you more color on the transaction at that time. Thank you very much.

Operator

Ladies and gentlemen, this concludes the Hansen Natural Corporation fourth quarter 2009 financial results conference call. Thank you for your participation and for using AT&T Conferencing. You may now disconnect.

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Source: Hansen Natural Corporation Q4 2009 Earnings Call Transcript
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