Hansen Natural Corporation Q1 2010 Earnings Call Transcript

May. 6.10 | About: Monster Beverage (MNST)

Hansen Natural Corporation (HANS) Q1 2010 Earnings Call May 6, 2010 5:00 PM ET

Executives

Rodney Sacks – Chairman and Chief Executive Officer

Analysts

Judy Hong – Goldman Sachs

Mark Astrachan – Stifel Nicolaus

Michael [Avery] – CLSA

John Faucher – JP Morgan

Operator

Good day, ladies and gentlemen, thank you for standing by. Welcome to the Hansen Natural Corporation first quarter 2010 financial results conference call. During today's presentation, all parties will be in listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions)

This conference is being recorded today, Thursday, May 6, 2010. I would now like to turn the conference over to our host, Mr. Rodney Sacks, Chairman and Chief Executive Officer. Please go ahead, sir.

Rodney Sacks

Good afternoon, ladies and gentlemen. Thank you for attending this call. I am Rodney Sacks. Hilton Schlosberg, our vice chairman and president, 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, 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 and that may cause actual results to differ materially from the forward-looking statements made herein.

Please refer to our filings with the Securities and Exchange Commission including our most recent annual report on Form 10-K filed on March 1, 2010, 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 for 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 6, 2010. A copy of this information is also available on our website, www.hansens.com in the investor relations section.

Although the beverage market in general continued to show softness through the first quarter of 2010, particularly in North America, the energy drink category inclusive of energy shots continued to experience increases in sales. According to Nielsen for the 13 weeks through April 24, 2010, all outlets combined, namely convenience, grocery, drug, and mass merchandisers, excluding Wal-Mart, sales in the energy drink category including shots increased 7.5% versus the same period a year ago.

Sales of Monster grew 8.8% in the 13-week period concerned while sales of Red Bull increased by 13.3%. Sales of Rockstar increased 3.1%, sales of Amp dropped 9.5%, sales of NOS increased 8.5%, and sales of Full Throttle dropped 21.1%. According to the Nielsen report for the four weeks ending April 24, 2010, sales of energy drinks in the convenience and gas channel increased by 5.6% over the comparable four-week period in 2009.

Over this period, sales of Monster increased by 7.1% over last year, while sales of Red Bull increased by 11.7% over last year. Rockstar was up 1.8%, while Amp was down 13.4%. Full Throttle was down 28.8%. No Fear was down 39.2%, while SoBe and Adrenaline Rush were down in excess of [90%]. NOS was up by 1.8%.

According to Nielsen, for the four weeks ended April 24, 2010, Monster's market share of the convenience and gas channel of the energy drink category including energy shots was 27.7% against Red Bull's share of 31.8% and Rockstar's share of 9.6%. In actual dollars, sales in the energy drink category for all outlets combined increased by $91.6 million to $1.3 billion in the 13 weeks ended April 24, 2010.

According to Nielsen, sales of Monster increased by $27.6 million as compared to sales of Red Bull which increased by $50.1 million. Sales of Rockstar increased by $3.9 million and, sales of Amp decreased by $8.2 million. Sales of NOS increased by $3.5 million, while sales of Full Throttle dropped by $10.4 million. We continue to address the markets in the United States in which Monster has experienced weakness with a view to recovering market share.

According to Nielsen, sales of Java Monster represented approximately 12.3% of the sales of the Monster brand for the 13 weeks to April 24, 2010, which is a decrease of 1.2 percentage points as compared to 13.5% for the same period last year. The decline in the sales of Java Monster continues to be attributable primarily to the entry of Starbucks into the category in the middle of the second quarter of 2008 with its new line of Doubleshot Energy Plus coffee drinks in 15-ounce cans which compete directly with Java Monster.

We are, however, seeing increased sales of Loca Moca and Mean Bean, which are the primary packages of our Java Monster line over the comparable 13-week period last year. In the 13 weeks ended April 24, 2010, for all outlets combined, sales of the ready-to-drink coffee drinks and energy plus coffee drinks increased 2.1% over the same period last year. Java Monster is 0.6% lower than last year. Starbucks Doubleshot Energy is up 24.1. Rockstar Roasted is down 17.8%, and Full Throttle coffee is down 52.9%.

We continue to see improvements in Monster's market share and sales in Canada. According to Nielsen, in the convenience and gas channel in Canada for the 12 weeks ended April 10, 2010, the energy drink category grew 8%. Monster's market share increased 5.2 points over the same period last year to 18.8%, while Red Bull's share increased 1 point to 37.8 and Rockstar's market share decreased by 0.6 points to 13.6%. According to Nielsen, sales of Monster Energy in Mexico in February 2010 grew 23.6% over last year while sales of Red Bull grew 16.7%. Sales in the energy drink category in Mexico grew 24.9% in the same period. Monster's market share in Mexico in February 2010 decreased by 0.3 points to 24.9%, which excludes Java Monster.

In the Mexico City region, Monster experienced some softness in the lower-priced traditional channel due to lower-priced competitor products in that channel such as Gladiator. We are addressing this channel with our distributors in Mexico.

Sales continued to progress satisfactorily in the United Kingdom and continental Europe. Although sales in Europe were lower in the first quarter of 2010 compared to the same period last year, 2009 first quarter sales included initial sales to Coca-Cola Enterprises and its customers. Consequently, excluding the initial sales in the first quarter of 2009, sales levels in Europe are higher this year than they were in the same period last year.

We believe that the brand is gaining momentum in Europe; and in light of April sales and May orders in Europe, we expect sales in the second quarter in Europe to be materially higher than last year. However, costs in Europe, particularly sponsorship expenses, sampling costs, and point of sale costs, were higher than anticipated. We believe that over the full 2010 year, our selling costs per case as well as our manufacturing cost per case in Europe will be lower than they were in the first quarter.

We commenced sales in Norway during the first quarter and anticipate commencing sales in Germany shortly. We also commenced sales in Hungary in April and in the Czech Republic and Slovakia in May through Coca-Cola Helenic. We also commenced sales of Monster Energy in Brazil in the first quarter and are planning to commence sales in additional countries in central and Eastern Europe and South America during the remainder of 2010. Competition has been very aggressive in Australia, but we are encouraged with the progress that we continue to make there.

Both our gross and net sales were negatively impacted by advance 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.

If the estimated sales attributable to the fourth quarter volume had been included in the 2010 first quarter, and which the company previously estimated at approximately 4% to 6% of 2009 fourth quarter sales, we estimate that sales of the Monster Energy brand, excluding shots, would have been approximately 5% to 8% higher than in the comparable 2009 quarter.

Sales of shots in the first quarter were substantially lower than last year; although according to Nielsen, sales of Monster Energy shots to retail customers were actual higher in the 13-week period ended April 24, 2010, than in the comparable period last year. We are reviewing our strategy to compete in the energy shot category, including continuing to sell our Monster Hitman energy shots.

Gross sales were down in the first two months of this year compared to last year. March sales were more than 10% higher than last year's sales, and our preliminary sales for April are also similarly higher than last year.

For the three months ended March 31, 2010, sales to retail grocery, specialty chains, and wholesalers represented 7% of gross sales, up from 6% last year. Sales to club stores, drug chains, and mass merchandisers represent 12% of sales, down from 15% last year. Sales to full-service distributors represented 64% of sales, up from 63% in the same period last year. Other sales were 3%, which is the same as last year; and sales outside the United States increased to 14% from 13% in the same period last year.

Gross sales to customers outside the United States in the first quarter of 2010 amounted to $37.8 million compared to $35.3 million in the same quarter last year. Included in such sales are sales to the company's military customers, which are delivered in the U.S. and then trans-shipped to the military and their customers overseas. Sales to military customers were lower than last year, primarily due to the relocation of a large number of United States troops and logistics difficulties that were experienced in our ability to supply product to them.

Gross profit margins were 52.3% this year versus 53.3% last year. The reduction in our overall gross margin generally was partly attributable to lower margins achieved by us for our [inaudible]. Our overall gross margin was also negatively affected by lower gross margins achieved in Europe and Australia than in the comparable period last year.

MDF and CMAs were higher in 2010 than in the comparable period last year. Sponsorship and endorsement costs incurred by us were approximately $3.7 million higher than in the comparable period last year. Payroll expenses were also substantially higher in the first quarter of 2010. The principal reason for the increase in payroll costs was attributable to a noncash stock-based compensation charge of $5 million in the first quarter of 2010 as compared to $2.7 million in the first quarter of 2009.

Operating income in the first quarter includes losses of $3.9 million incurred in relation to our European and Australian operations. Our peach tea line of ready-to-drink iced teas has been well received by consumers and is continuing to gain traction. Repeat sales continue to increase. Sales of peach tea were approximately $5 million in the first quarter of 2010.

As can be expected with any significant changeover of an IT system, we did experience some issues and challenges when we completed our North American transition to the SAP enterprise resource planning system as of January 1, 2010. There have been some delays in filling deliveries and some lost sales as a result, but we have been working through these issues.

I can't quantify what the impact has been, but we believe the impact was relatively minor and that the change to the SAP system will ultimately be beneficial for the company overall.

Turning to the balance sheet, cash and cash equivalents amounted to $375.9 million compared to $328.3 million at December 31, 2009. Short-term investments were $61.3 million, compared to $18.5 million at December 31, 2009. Long-term investments consisting of auction rate securities decreased from $80.8 million to $64.4 million.

Trade accounts receivables net increased to $113.9 million from $104.2 million at December 31, 2009. Distribution agreement receivables decreased to $3.8 million from $4.7 million at December 31, 2009. Days outstanding for receivables were 31.4 days at December 31, 2009, compared to 31 days at March 31, 2010.

Inventories increased to $119.1 million from $108.1 million at December 31, 2009. Average days of inventory was 94 days at March 31, 2010, which is higher than the 72 days of inventory at December 31, 2009.

In March 2010, the company entered into an agreement relating to $54.2 million in par value auction rated securities which enables the company to sell such securities put option in semiannual or annual installments beginning March 22, 2011, with full [inaudible] available on or off to March 22, 2013. Such auction rate securities which have been reclassified from available for sale to trading securities will continue to accrue interest until redeemed through the put option or as determined by the auction process or by the terms outlined in their respective prospectuses in the event of auction failure.

The fair market value of the put option of $5.1 million offset by a $4.9 million loss on trading securities has been recognized in the income statement for the first quarter of 2010. The company also recognized a gain of $0.4 million resulting from the redemption at par of a separate security which previously had been other than temporarily impaired.

At March 31, 2010, the company held auction rate securities with a face value of $92.7 million – $96.4 million at December 31, 2009. The company determined that an impairment of $7 million existed at March 31, 2010, of which $3 million was deemed temporary and $4 million was deemed other than temporary. As a result, included as a component of accumulated other comprehensive loss is $1.8 million net of taxes as of March 31, 2010. Auction rate securities will continue to accrue interest at their contractual rates until their respective auctions succeed or they are redeemed.

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

Question-and-Answer Session

Operator

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions) Your first question comes from Judy Hong – Goldman Sachs.

Judy Hong – Goldman Sachs

Thanks. I guess I am trying to understand the underlying sales growth in the quarter for the U.S. market, because I know you have the volume that distorted the figures. So do you have that figure just in terms of what the U.S. sales would have been ex the inventory volume?

Rodney Sacks

Sorry. Judy, just one thing I would like the clarify that the 5.28% increase in sales of the Monster Energy brand, including shots that I referred to earlier, as giving affect to the fourth quarter volume estimates were in gross sales figures.

Judy Hong – Goldman Sachs

But that includes the international numbers. Does that include the international numbers, right?

Rodney Sacks

That includes international, correct.

Judy Hong – Goldman Sachs

I guess I am just trying to understand. Because the U.S. numbers that would have been down slightly?

Rodney Sacks

If you go back to the U.S. numbers, the U.S. numbers, after giving affect to the estimate of buy-in volume, are in fact up.

Judy Hong – Goldman Sachs

Okay. Does that reconcile with the Nielsen numbers that you cited in the [inaudible]?

Rodney Sacks

Probably a little bit lower than the Nielsen numbers. The Nielsen numbers were citing or indicating higher sales, slightly higher.

Judy Hong – Goldman Sachs

Then just in terms of the category trends, we've heard from a lot of the other beverage companies that actually industry that may be outside of energy drink categories trends improved in late March and then into April. It looks like, based on the Nielsen numbers that you cited, the energy drink category actually decelerated from the first quarter and into April. So, I am just wondering what you think is driving that phenomenon?

Rodney Sacks

I think that basically looking at a single month really isn't very reliable. We did see generally a pickup coming from November last year through the first quarter. We then saw a dropoff in January, and then it picked up in February, and then it picked up again in March and had a slight dropoff. So it's really going up and down.

I think the positive news is that the category is trending positive – far better numbers in the higher single digits than it was in the first quarter or the first half plus of last year. We are still seeing positive trends in the category.

When you contrast that with the general [inaudible] C&D category which, as you can see from all the major companies that have reported recently, all volumes pretty much in the North America are down.

Judy Hong – Goldman Sachs

Just in terms of the competitive situation. I think this is probably the first quarter where Red Bull has outpaced Monster in a while. So, what is driving the improvement in Red Bull and what are you trying to do [inaudible] at a competitive level?

Rodney Sacks

I think what has been happening is Red Bull has been introducing their 16-ounce drinks that have been getting increased distribution of the 16-ounce size products. That has enabled them to get additional traction in space. What's happening is they've obviously been able to trade up sales in dollar terms because of the higher price ring of the 16-ounce. They also have been increasing in volume, and they've been, not everywhere, there's been some aggressive pricing from Red Bull. Probably a little more than we've seen historically. But on average, the brand has just got some traction.

If you look at the sales numbers in the category, you pretty much, it's Red Bull and ourselves that are still selling. They have increased sales in the last couple of months a little higher than us. We are looking at that. We're looking at our own marketing in our programs, and we are going to address that going forward into the second quarter.

Judy Hong – Goldman Sachs

Sounds like you may have to spend more to get some of that share back from Red Bull?

Rodney Sacks

I'm not sure we need to spend more, but perhaps spend differently and in a different way. We sort of had probably not done a lot of promotions in the first couple of months of this year and then started to increase later. We were a little bit cautious when we were going into this whole changeover into the SAP system as well.

We have a number of very, we think, unique promotions going into summer, including a promotion in summer with Slash, the musician, which we think will be very popular and will offer well for sales going forward. We are addressing it, and we are looking at addressing the market and how to obviously meet competition.

Judy Hong – Goldman Sachs

Okay. Thank you.

Operator

Thank you. Your next question comes from Mark Astrachan – Stifel Nicolaus.

Mark Astrachan – Stifel Nicolaus

Good morning or good afternoon, guys. Just questions on the G&A expenses. Curious what would be in there that might not necessarily be realized from reading the press release like the payoff for Nick, your COO in the Monster business leaving, the legal fees in there, that sort of thing. If you could just break that out a bit more, I think that would be helpful.

Rodney Sacks

I don't think we'd like to break it out in much more detail. Travel was one item that we noted for the company was considerably higher. As I think we had indicated, the costs of coolers, sorry, the cost of depreciation. We've been putting a lot more coolers into the trade. There is a depreciation plus a cost expense that was expensed for the SAP system.

The costs related to Nick leaving were not significant. I think the major costs were attributable to, as I said, to the items that we previously indicated which is the additional sponsorships and costs of those items. We felt certain sponsorships were desirable for us to secure. Some of them were secured back in last year. We just think that was necessary for the brand to keep the brand's positioning. In the extreme action sports both in the U.S. and in Europe and in many cases, unfortunately, you have to spend ahead of sales and ahead of distribution.

As we go into the rest of the year, we think that a lot of the sponsorship expenses will level out during the year, but it was higher during the year in this first quarter. The legal costs have been high. There's been securities litigation. There's been quite a bit of litigation regarding our auction rate securities and trademarks and intellectual property. We just had to deal with that and it has, you know, paying attorneys isn't inexpensive. So that also has had an effect.

Mark Astrachan – Stifel Nicolaus

Okay. Then in terms of the disruptions, the out of stocks that you cited, it sounds like that largely normalized after February, is that a fair assessment?

Rodney Sacks

Probably. It was clearly more weighted in the earlier part of the quarter. But there were instances where, even after February, we did have some instances where we sort of had some difficulties in tracking down deliveries or orders and verifying things. We just have had our challenges, I think, like everybody who's gone through a conversion to SAP has experienced; and we've had our share as well unfortunately. But we feel that, again as I indicated, I don't have a number to it, but we feel that it was, it hasn't been very material.

Mark Astrachan – Stifel Nicolaus

In terms of the pickup on a go-forward basis, do you feel like you needed to ship more product into the channels to make up for some of those lost sales, meaning that the second quarter or even third quarter numbers might be a bit stronger versus what we've seen in the scanner data as a result?

Rodney Sacks

I don't think so. I think if you're out of stock and you are out of stock, and then when you ship you get back into stock. You can't really load more on to the shelves of the consumer or the club stores, etc. That was one channel that was sort of down for us this quarter, club stores. We think that might have had something to do with that. But that was one of the reasons we saw some softness in sales was in the club channel, as I gave you in the ultimate breakup of the share of the business. We are looking at how to address that and how to get those channels back to growth.

Mark Astrachan – Stifel Nicolaus

Okay. Then in terms of how you're thinking about Europe, in particular, on the international side going into the summer. You had talked a bit about trends seeming to get a little bit better there. But any sort of additional color as you start to head into the real summer selling season there would be helpful.

Rodney Sacks

Other than, really, I think I did give you guys pretty good direction on where we feel we will be in Europe in the second quarter. We think that will be a material improvement over last year. Sales are coming in. As I've indicated, April numbers sales are very positive and are up nicely. Orders for May are also up nicely. So the trends are very strong in our established markets. We are running out some of the new markets. Even in those markets, we are actually seeing some very good initial sales.

But it is very early, early days in markets like Hungary; but so far, so good. So we also planning to expand that. You know the costs of rolling out in Europe have been higher. The costs of actual products are higher production and your selling price are lower, so you are dealing with a lower margin. And costs, we're entering well established markets, which means that we really do have costs incurred up front in order to establish the brand.

But we think we're doing the right thing to establish the brand. The brand is definitely taking foot in Europe and becoming the clear number two player to Red Bull. We think that's the right way to continue to grow the brand in the long-term interests of the brand and the company.

Mark Astrachan – Stifel Nicolaus

Great. Thanks, guys.

Operator

Your next question comes from Caroline Levy – CLSA.

Michael [Avery] – CLSA

It's Michael Avery for Caroline. I was wondering if you could help me understand a little bit better the volume and price. I see the average net sales price per case. Looks like it was down kind of mid-single digit percent. Is that mix or how?

Rodney Sacks

It's primarily mix. The actual numbers for individual products like Monster in these numbers are not affected. The mix has been primarily due to peach tea, which is a higher volume. As you know, they're 12 packs of 24-ounce cans. You have got high volume at a relatively low cost. So that has had an effect. That's probably the major effect on our sales.

Also the way we account for sales overseas – because of the agreements we have, some of the costs go over the top line probably also have affected the net selling price to a lesser degree.

Michael [Avery] – CLSA

So the price increase in January on Monster, what kind of magnitude would that have been?

Rodney Sacks

Pretty much about a dollar a case.

Michael [Avery] – CLSA

Then in percent terms, that's?

Rodney Sacks

It was a marketing fee as opposed to a price increase. That's about 4%. That really is a way of increasing, you're getting the money up front to support the marketing, the CMAs, and the actual marketing and advertising for the brand. It's not a price increase in that sense. Cash flow-wise, yes, it is. We get in the dollar and we, obviously, with spending it and how we expense it.

Michael [Avery] – CLSA

And on peach tea, what are the margins looking like there? Is that breaking even yet or does it?

Rodney Sacks

The margins are very thin. We think they're probably pretty much close to a break-even. But obviously the strategy there is to continue to develop the brand and establish the brand. And once we do that, we are all starting to really start looking at additional SKUs, which we believe will then be able to afford the company better margins as we continue to establish the brand. Then we'll also, at an appropriate time, look to basically removing the prepricing on the can and just pricing it according to promotional periods.

Michael [Avery] – CLSA

And for the European business, I assume obviously with some of the investment costs and ramping up just like you said establish the markets. Is that the same situation? Is it negative or is it just a small positive or near break-even kind of margins there?

Rodney Sacks

Europe was negative. I think I gave the figure was 3.9 between Europe and there was a small loss in Australia. It was 3.9 in the first quarter. That was, again, largely because of the disproportionate, as I indicated, sponsorship fees up front that were incurred in the first quarter. We believe that as we go forward with that, that will start rectifying itself and the percentages will be better.

We also are hopeful that we'll be able to get our production of the majority of our products produced by CCE for us. This was originally contemplated. There have been some delays in getting their plants up and running. We are hopeful that will start in the next month or two. That will, we believe, that will have a meaningful impact on lowering our costs in Europe. So, costs for the last year have been higher than we had anticipated due to additional freight and transport and production costs.

Michael [Avery] – CLSA

Okay. Could you give us a sense of when you think it might turn? Would the production being localized be the difference in flipping that towards the positive margin?

Rodney Sacks

We think that will contribute. It won't be the sole cause. The other cause will be, obviously, to get, you know you need minimum sales volume. You have a certain overhead that you have. As I said, all the endorsement and sponsorship costs. You have a fixed overhead of people and staff. And we believe that will get much closer to that as we go into the year. That will start improving. At this stage, I don't think it would be appropriate for us to give you any direction on that.

Michael [Avery] – CLSA

Okay. Great, thank you so much.

Operator

Thank you. We have time for one more question, and the last question comes from John Faucher – JP Morgan.

John Faucher – JP Morgan

Thank you very much. Couple of questions. First off, starting on the sponsorship piece, is this something where I understand it's going to be higher right now; but is this something we should expect to continue to grow as you continue to enter new markets or is it something where you'd say, okay, we've got these properties and we can amortize them over multiple markets?

Rodney Sacks

I think the majority of the sponsorship costs, the very larger amounts, are what we would call international sponsorships. They will be leveraged across all the additional markets. We will need to continue to, obviously, continue to implement local marketing programs in each of the countries as we go into them.

But what we're doing is the marketing program for each of these countries is clearly modeled on the international piece, which rubs off on, gives credibility to, the brand that creates awareness for the brand through TV, you know, as been seen on TV, Formula One, Motor GP, all of those properties get shown in Euro Sport and get shown on TV around the world, Europe and around the world.

But on a per case basis, we should start seeing some real benefits and reductions as we continue to leverage those properties out in the rest of Europe because we're not planning on increasing the basically the international marketing spend for those international properties, the Valentino Rossi and the [inaudible] etc. It's the local market that we will simply have to ramp up in each country as we go into it.

John Faucher – JP Morgan

Great. And then one other question. Can you talk a little bit about, you guys have a tremendous amount of stuff on your plate right now between the SAP implementation and just entering an incredible number of new countries, plus all the competitive activity and the ramp-up you're seeing there. Can you talk to us in terms of how you're dealing with all of that added complexity of business and sort of focus on the investments you have made in terms of additional capabilities to handle what is, obviously, a much more complicated business model than it was just a couple of years ago. I am thinking mostly in terms of people etc., from that standpoint.

Rodney Sacks

What we've done is we've looked at how we're staffing. We have taken on additional people, and that's probably one of the reasons why, and higher paid people, more qualified people, one of the reasons we're seeing an increase in our payroll. We've taken on two, some key people to head up the business – one person, in particular, to head up our business in basically in central and eastern Europe. And we've also now taken on a new person, senior person, to help really head up, growing to heading up sales for western Europe. We are obviously taking on and staffing up to meet the additional staffing.

In the U.S., we've really created three business units. We have senior vice presidents heads of those units. Again, with that, we're staffing up individually with more qualified and higher qualified people in each of the units. We are sort of being cautious not to take on too much payroll expense; but at the same time, this is part of the reason we are having to staff up.

The actual implementation of the SAP system itself has required us to take on pretty senior consultants and experts to be able to manage that system. Ultimately, we believe that we will benefit from the benefits out of, there are benefits from the SAP system.

On the marketing side, we have taken on a new senior head to manage our sports marketing program. Again, it's becoming a global platform. We need somebody who's able to really market that and plan that more carefully and more rationally than historically.

We've also taken on a senior person to head up our internal graphics and support services department to be able to design, again, support our local marketing programs and new product introductions and designs as well as international.

For the image of our brand, generally and even on the licensing side, we're being very cautious with how we deal with the brand and the Monster claw. We are gearing up to it. They're all growing pains, you know, any growing organization as we grow and as we continue to try and deal with the challenges that we are being presented with.

John Faucher – JP Morgan

Okay. Great. Thank you very much.

Operator

Thank you. At this time I will turn it back over to you, Mr. Sacks, for closing comments.

Rodney Sacks

Thank you. This quarter has been a challenging quarter for us. A lot of costs have been spent in sort of trying to lay the basis for our future growth and for the business. We do believe that we can look forward to positive results going forward in the second quarter and through the rest of the year. Sales trends are certainly starting to bear that out for us.

We also are going, obviously, taking steps to stabilize and to ensure that we don't increase our spend on sponsorships and supporting the brand, but we believe that ultimately is essential to feed the brand and make sure that it continues to have the growth for years to come. We don't want to cut back on that irrationally. So we all believe that we are continuing to grow and staffing up our company.

The fact of the matter is that we really believe that the brand continues to gain strength at retail, whether it's from the Nielsen numbers, from our numbers, when you really look at the core brand, the brand is strong, the energy category is continuing to grow, and we do believe and we're optimistic that we will be able to continue to show and deliver growth going forward.

Thank you very much.

Operator

Thank you, ladies and gentlemen. That concludes today's Hansen Natural Corporation's first quarter 2010 financial results conference call. Thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!