Monster Beverage Corporation (NASDAQ:MNST) Q4 2022 Earnings Call Transcript

Monster Beverage Corporation (NASDAQ:MNST) Q4 2022 Earnings Call Transcript February 28, 2023

Operator: Good afternoon, and welcome to the Monster Beverage Corporation Fourth Quarter and Full Year 2022 Financial Results Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please also note, today’s event is being recorded. I’d now like to turn the conference over to Rodney Sacks and Hilton Schlosberg, Co-CEOs for Monster Beverage. Please go ahead.

Rodney Sacks: Thank you. Good afternoon, ladies and gentlemen. Thank you for attending this call. I’m Rodney Sacks. Hilton Schlosberg, our Vice Chairman and Co-Chief Executive Officer, is on the call; as is Tom Kelly, our Chief Financial Officer. Tom Kelly will now read our cautionary statement.

Tom Kelly: 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 are based on currently available information regarding the expectations of management with respect to revenues, profitability, future business, future events, financial performance and trends. Management cautions that these statements are based on our current knowledge and expectations and are subject to certain risks and uncertainties, many of which are outside the control of the company that may cause actual results to differ materially from the forward-looking statements made during this call.

Please refer to our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K filed on February 28, 2022, and quarterly reports on Form 10-Q, including the sections contained therein entitled, the Risk Factors and Forward-Looking Statements, for a discussion on specific risk and uncertainties that may affect our performance. The company assumes no obligations to update any forward-looking statements, whether as a result of new information, future events or otherwise. I would now like to hand the call over to Rodney Sacks.

Rodney Sacks: Thank you, Tom. The company achieved record fourth quarter net sales of $1.51 billion in the 2022 fourth quarter, 6.2% higher than net sales of $1.43 billion in the 2021 comparable period and 11.9% higher on a foreign currency adjusted basis. Since the beginning of the COVID-19 pandemic and the subsequent global supply chain challenges and disruptions, the company has prioritized product availability for its consumers and customers, despite adversely impacting gross margins and operating income. The company continues to stand by its strategy to ensure product availability and solidify the continued long-term growth of the company’s brands. CANarchy was acquired in February 2022 to facilitate the company’s entry into the alcohol beverage sector.

During 2022, CANarchy sustained margin pressures, cost of acquisition and integration, as well as certain other costs in preparation for the launch of the company’s new alcohol product lines. Gross profit as a percentage of net sales for the 2022 fourth quarter was 51.8% compared with 53.9% in the comparative 2021 fourth quarter. The decrease in gross profit as a percentage of net sales for the 2022 fourth quarter as compared to the 2021 fourth quarter was primarily the result of: one, increased ingredients and other input costs, including secondary packaging materials and increased co-packing fees; two, geographical and product sales mix; and three, increased logistical costs. The decrease in gross profit as a percentage of net sales for the 2022 fourth quarter was partially offset by pricing actions.

Gross profit as a percentage of net sales increased on a sequential quarterly basis to 51.8% in the 2022 fourth quarter from 51.3% in the 2022 third quarter. Gross profit as a percentage of net sales, excluding gross profit for the company’s Alcohol Brands segment increased on a sequential quarterly basis to 52.5% in the 2022 fourth quarter from 51.9% in the 2022 third quarter. We continue to believe that some of these increased costs we are experiencing are likely to be transitory. The depletion of our remaining higher cost imported can inventories will continue over the next few quarters and should be fully utilized during 2023. We note that our major promotion in the fourth quarter was executed with lower-cost, locally sourced cans in the United States and globally.

We estimate that of the increasing costs of sales in the 2022 fourth quarter, approximately $60 million, was comprised of one, approximately $39.6 million due to increased ingredient and other input costs, including primary and secondary packaging materials and increased co-packing fees; two, approximately $12.5 million due to geographical and product sales mix; and three, approximately $7.9 million due to increased logistical costs. We continue to experience significant increases in distribution expenses, primarily the result of increased warehousing expenses as well as other logistical expenses, which adversely impacted operating expenses. The company continues to address the challenges in its supply chain as it navigates through the uncertainty of the current global supply chain environment.

We are starting to see a reduction in freight rates in the United States. Operating expenses for the 2022 fourth quarter was $390 million compared with $354.7 million in the 2021 fourth quarter. As a percentage of net sales, operating expenses for the 2022 fourth quarter were 25.8% compared with 24.9% in the 2021 fourth quarter and 28.9% in the 2019 fourth quarter pre-COVID. Distribution expenses for the 2022 fourth quarter increased to $76.1 million which is an increase of 9% or 5% of net sales compared to $69.8 million or 4.9% of net sales in the 2021 fourth quarter and 3.5% of net sales in the 2019 fourth quarter pre-COVID. The $6.3 million increase in distribution expenses was primarily due to higher warehouse expenses of $11.2 million as a result of higher raw materials and finished product inventories in the United States and EMEA, partially offset by decreased freight out expenses of $4.4 million.

The increase in other operating expenses was primarily due to increased payroll expenses and increased general and administrative expenses. We are now able to purchase aluminum cans from local sources globally. We have seen a reduction in cost of sales through increased use of domestic cans, as we continue to cycle through existing inventories of imported cans over the next few quarters. We have rebuilt finished product inventory levels globally to return to our Orbitz strategy of producing closer proximity to our customers. The cost of repositioning finished products to distribution centers are included in freight-in costs. Operating income for the 2022 fourth quarter decreased 4.5% to $394.4 million from $412.9 million in the 2021 comparative quarter.

Net income decreased 6.1% to $301.7 million, as compared to $321.3 million in the 2021 comparable quarter. Diluted earnings per share for the 2022 fourth quarter decreased 4.9% to $0.57 from $0.60 in the fourth quarter of 2021. Diluted earnings per share, exclusive of the Alcohol segment operating losses and the adverse impacts of foreign currency exchange rates, net of tax, was $0.64 in the 2022 fourth quarter. Through pricing actions, the company was able to achieve positive pricing appreciation in the United States and EMEA. Due to continued cost pressures, the company implemented a net sales price increase in the range of 6% market-wide in the United States effective September 1, 2022, and will be implementing a price increase on its 24-ounce line effective April 1, 2023.

The company also implemented price increases in the second half of 2022 in certain international markets and will be implementing additional price increases on a phased approach during the first half of 2023 in a number of international markets. The company will continue to review further opportunities for price increases and pricing actions in order to mitigate inflationary pressures. According to the Nielsen reports for the 13 weeks through February 11, 2023, for all outlets combined, namely convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category including energy shots increased by 13.1% versus the same period a year ago. Sales of the company’s energy brands, including Reign, were up 12.1% in the 13-week period.

Sales of Monster were up 11.3%, sales of Reign were up 15.6%, sales of NOS increased 20.6%. And sales of Full Throttle increased 1.3%. Sales of Red Bull increased 11.5%. Sales of Rockstar increased by 3.4%. And sales of 5-hour decreased 2.4%. VPX Bang sales decreased 47.1%. The company continues to have market share leadership in the energy drink category in the United States for the 13 weeks ended February 11, 2023. According to Nielsen, for the four weeks ended February 11, 2023, sales in dollars in the energy drink category in the convenience and gas channel, including energy shots, in dollars, increased 15.1% over the same period the previous year. Sales of the company’s energy brands, which include Reign, increased 14.8% in the four-week period in the convenience and gas channel.

Sales of Monster increased by 13% over the same period versus the previous year. Reign sales increased 26.7%. NOS was up 23.7%. And Full Throttle was up 14.9%. Sales of Red Bull were up 11.9%, Rockstar was up 7%; and 5-hour was down 0.3%. VPX Bang sales decreased 48%. According to Nielsen, for the four weeks ended February 11, 2023, the company’s market share of the energy drink category in the convenience and gas channel, including energy shots in dollars, decreased from 37.1% to 37%. Monster share decreased from 31.5% a year ago to 30.9%. Reign’s share increased 0.2 of a share point to 2.7%. NOS’ share increased 0.2 point to 2.6%. And Full Throttle share remained at 0.7%. Red Bull share decreased 1 point from 36.1% a year ago to 35.1%. VPX Bang share decreased 3.8 points to 3.1%.

5-Hour share was lower by 0.6 of a point at 3.9%. Rockstar share was down 0.3 of a point to 3.7%. CELSIUS’ share is 4.3%. Alani Nu’s share is 0.7%. And GHOST’s share is 2.5%. According to Nielsen, for the four weeks ended February 11, 2023, sales in dollars of the coffee plus energy drink category, which includes our Java Monster line in the convenience and gas channel, increased 6.2% over the same period the previous year. Sales of Monster, including Java Monster 300 and Java Monster Nitro Cold Brew were 8.1% higher in the same period versus the previous year. Sales of Starbucks Energy were 8% higher. Java Monster’s share including Java Monster 300, Java Monster Nitro Cold Brew of the coffee plus energy category, which primarily includes Java Monster, Java Monster 300, Java Monster Nitro Cold Brew, Starbucks Doubleshot and Tripleshot, Rockstar Roasted and Bang Keto Coffee for the four weeks ended February 11, 2023, was 54.7%, up 1 point while Starbucks Energy share was 44.9%, up 0.8 of a point.

According to Nielsen, in all measured channels in Canada, for the 12 weeks ended December 31, 2022, the energy drink category increased 13.3% in dollars. Sales of the company’s energy drink brands increased 16.3% versus a year ago. The market share of the company’s energy drink brands were was 41%, up 1.1 points. Monster sales increased 18.3% and its market share increased 1.6 points to 36.8%. NOS’ sales decreased 7% and its market share decreased by 0.3 of a point to 1.4%. Full Throttle sales increased 8.4%, and its market share remained at 0.5 of a percent. According to Nielsen, for all outlets combined in Mexico, the energy drink category increased 26.6% for the month of January 2023. Monster sales increased 34.1%. Monster’s market share in value increased 1.7 points to 29.4% against the comparable period the previous year.

Sales of Predator increased 106.2%, and its market share increased 2 share points to 5.1%. The Nielsen statistics for Mexico cover a single month, which is a short period that may often be materially influenced positively and/or negatively by sales in the OXXO convenience chain, which dominates the market. Sales in the OXXO convenience chain in turn can be materially influenced by promotions that may be undertaken in that chain by one or more energy drink brands during a particular month. Consequently, such activities could have a significant impact on the monthly Nielsen statistics for Mexico. According to Nielsen for the month of December 2022 compared to December 2021, Monster’s retail market share in value increased in Argentina from 43% to 53.5%, in Chile, from 34.5% to 41.7%.

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In Brazil for the month end January 2023, our share increased from 39.9% to 41.1%. Monster is the leading energy brand in value in Argentina, Brazil and Chile. I would like to point out that the Nielsen numbers in EMEA should only be used as a guide because the channels read by Nielsen in EMEA vary from country to country and are reported on varying dates within the month referred to from country to country. According to Nielsen, in the 13-week period until the end of January 2023, Monster’s retail market share in value as compared to the same period the previous year, grew from 14.2% to 15.2% in Belgium, from 30.7% to 31.8% in France from 29.5% to 31% in Great Britain, from 27.3% to 32.7% in Norway, from 27.7% to 27.8% in the Republic of Ireland, from 38.6% to 40.4% in Spain and from 15.1% to 16.5% in Sweden.

Monster’s retail market share in value as compared to the same period the previous year declined from 8.1% to 4.7% in the Netherlands and from 20% to 19.2% in South Africa. According to Nielsen, in the 13-week period until the end of December 2022, Monster’s retail market share in value as compared to the same period the previous year grew from 16.3% to 18.4% in the Czech Republic from 26.5% to 27.8% in Denmark and from 27.6% to 13.5% in Italy. Monster’s retail market share in value as compared to the same period the previous year declined from 14.6% to 13.9% in Germany, from 38.1% to 36.8% increase and from 19% to 18.3% in Poland. According to Nielsen, in the 13-week period until the end of December 2022, Predator’s retail market share in value as compared to the same period the previous year grew from 20.4% to 31.1% in Kenya and from 14.2% to 19.2% in Nigeria.

According to IRI in Australia, Monster’s market share in value for the four weeks ending January 29, 2023, increased from 13.1% to 16.1% as compared to the same period the previous year. Mother’s market share in value decreased from 11% to 10.7%. According to IRI in New Zealand, Monster’s market share in value for the four weeks ended January 22, 2023, and remained at 13% as compared to the same period the previous year. Live+ market share in value decreased from 6.7% to 6.1%, and Mother’s market share in value increased from 5.8% to 6%. According to INTAGE in Japan in the month of ending December 2022, Monster’s market share in value in the convenience store channel as compared to the same period the previous year grew from 53.7% to 54.7%.

According to Nielsen in South Korea in the month ending December 23 to Monster’s market share in value in all after it’s combined as compared to the same period the previous year, increased from 60.2% to 64.2%. Again, point out that certain market statistics that cover single months or four week periods may often be materially influenced positively and/or negatively by promotions or other trading factors during those periods. Net sales to customers outside the US were $542.5 million, 35.9% of total net sales in the 2022 fourth quarter compared to $508.1 million or 35.7% of total net sales in the corresponding quarter in 2021. Foreign currency exchange rates had a negative impact on net sales in US dollars by approximately $81.9 million in the 2022 fourth quarter.

Included in reported geographic sales are our sales to the company’s military customers, which are delivered in the US, transshipped to the military and their customers overseas. In EMEA, net sales in the 2022 fourth quarter decreased 2.3% in dollars, but increased 14.7% in local currencies over the same period in 2021. Gross profit in this region as a percentage of net sales in the fourth quarter, was 33.9% compared with 32.6% in the same quarter in 2021 and compared to 34.7% in the third quarter of 2022. The company is continuing to address the controllable challenges in this supply chain in EMEA. We’re also pleased that in the 2022 fourth quarter, Monster gained market share in Belgium, Czech Republic, Denmark, France, Great Britain, Italy, Norway, the Republic of Ireland, Spain and Sweden.

In Asia-Pacific, net sales in 2022 fourth quarter increased 0.5 point in dollars and increased 20.6% in local currencies over the same period in 2021. Gross profit in this region as a percentage of net sales was 42.6% versus 41.4% over the same period in 2021. Due in part to a product supply issue with an ingredient that impacted a number of our products in Japan, but has now been resolved, net sales in the 2022 fourth quarter decreased 14.4% in dollars, but increased 10% in local currency. Sales in the 2022 fourth quarter continued to be impacted by COVID in certain channels. In South Korea, net sales increased 13.9% in dollars and increased 34.4% in local currency, as compared to the same quarter in 2021. Once the remains — in China, sales volume in the fourth quarter increased 5.4%, as compared to the same quarter in 2021, largely impacted by COVID-related lockdowns.

We remain optimistic about the prospects for the Monster brand in China. In Oceana, which includes Australia, New Zealand, Tahiti, French Polynesia, New Caledonia, Papua New Guinea and Guam, net sales increased 2.9% in dollars and 16.7% in local currencies. In Latin America, including Mexico and the Caribbean, net sales in the 2022 fourth quarter increased 45.2% in dollars and increased 57.7% in local currencies over the same period in 2021. Gross profit in this region as a percentage of net sales was 28.4% for the 2022 fourth quarter versus 38.6% in the 2021 fourth quarter. In Brazil, net sales in the 2022 fourth quarter increased by 19.9% in dollars and 16.6% in local currency. Net sales in Mexico increased 64.8% in dollars and 16.6% in local currency in the 2022 fourth quarter.

Net sales in Chile increased 1% in dollars, but increased 16% in local currencies in the 2022 fourth quarter. Net sales in Argentina increased 92% in dollars and increased 196.6% in local currency in the 2022 fourth quarter. We will now provide an update on our litigation with Vital Pharmaceuticals, Inc., which will be referred to as VPX, the maker of Bang energy drinks. We previously discussed the trademark infringement arbitration in which an arbitrator found against VPX and awarded Monster Energy Company, or MEC and Orange Bank, $175 million in damages, attorney fees and costs and an ongoing 5% royalty on future sales of certain Bang energy products. VPX has appealed the judgment. Additionally, on September 29, 2022, a jury in the United States District Court for the Central District of California returned a verdict awarding MEC approximately $293 million in damages on its claims against VPX for false advertising, misappropriation of trade secrets and interference with Monster’s contracts over shelf space with certain key retailers.

The parties are briefing post-trial issues. On October 10, 2022, VPX, along with certain of its domestic subsidiaries and affiliates filed for protection under Chapter 11 of the bankruptcy code in the Southern District of Florida. While those proceedings are moving forward, VPX has undertaken to make interim royalty payments subject to potential claw-backs in certain circumstances. On February 14, 2023, VPX made its first royalty payment in the amount of approximately $3.6 million. The company will not recognize either award or the royalty payments until such time as they are realized or realizable. As the litigation and bankruptcy proceedings are subjudicate, we will not be answering further questions on those matters on today’s call. In the first quarter of 2023, we launched The Beast Unleashed in six states through a network of beer distributors.

The Beast Unleashed is a flavored malt beverage with 6% alcohol by volume based on Monster’s well-known and popular flavor profiles. We are pleased with early results and plan to expand into additional markets in the second quarter of 2023, with the goal of being national by the end of the year. We recently launched Wild Basin Hard Seltzer with new packaging and great new flavors and taste profiles. The Dale’s Beer family will get a refresh in the second quarter of 2023, including the introduction of Dale’s American light lager and easy-drinking lager with 4.2% alcohol by volume, 95 calories and 2.5 carbohydrates per 12-ounce serving. Our alcohol beverage innovation pipeline is robust. We look forward to sharing use of additional new products in the future.

In the 2022 fourth quarter in the United States, Monster Reserve Orange Dreamsicle was launched at retail to expand our Monster Reserve line. Monster Energy Zero Sugar was launched at retail in United States in January 2023. Monster Energy Zero Sugar was specifically developed as an indistinguishable zero sugar analog of our original unique Monster Energy Green flavor. We are excited about the opportunities that this product will provide to our Monster consumers who have come to enjoy the unique taste profile of our original Monster Green flavor, which remains our leading flavor. Earlier this month, we also launched Monster Energy Ultra Strawberry Dreams, Monster Reserve Kiwi Strawberry, Monster Nitro Cosmic Peach and Java Monster Cafe Latte.

Initial response from consumers has been positive. In February 2023, we launched the flavor of Reign called Tropical Storm in the United States and also commenced with the launch of Monster Tour Water, a pure unflavored water line in still and sparkling variants in 19.2 ounce cans. We are planning to launch Reign Storm, which is positioned as a total wellness energy drink in 12-ounce sleek cans at retail in March 2023 in four flavors to address a compelling opportunity in the energy drink category. We launched several new SKUs in October in Latin America. In Chile, we expanded our Ultra line by launching Ultra Gold and Ultra Watermelon. In Mexico, we introduced Monster Energy Reserve Watermelon. In Puerto Rico, the Cayman Islands, Curico and Bermuda, we expanded our Reign portfolio and launched Reign White Gummy Bear and Reign Rainbow Sorbet.

In Trinidad and Tobago, we launched Monster Pipeline Punch. In Australia, we expanded our core portfolio and launched Monster Super Dry. In New Zealand, we expanded our juice portfolio and launched Monster Juice Papillon, which is currently exceeding our expectations. In EMEA, in the fourth quarter of 2022, we launched Monster Nitro, Monster Reserve Watermelon and White Pineapple in a number of countries. In certain countries, we also launched juiced Aussie Lemonade, Ultra Gold, Ultra Rosa and Ultra Watermelon during the 2022 fourth quarter. During the 2022 fourth quarter, we also launched additional SKUs of Burn and Reign in certain countries. In EMEA as part of an ongoing plan, EMEA launch, we commenced distribution of our Monster Energy Lewis Hamilton 44 Zero Sugar Energy drink in select EMEA markets late in the fourth quarter of 2022 to be followed by an additional 25 EMEA markets in the first quarter of 2023.

During the fourth quarter of 2022, we launched Monster Rehab Lemon tea in Japan, Monster Ultra Watermelon in Turkey. Monster Ultra Paradise in Vietnam, Predator in Malaysia, and we continued the national rollout of Predator India. We are planning to introduce the Predator brand in additional countries in APAC during the course of 2023. We estimate that on a foreign currency adjusted basis, including CANarchy, January 2023 sales were approximately 16.1% higher than the comparable January 2022 sales and 13.8% higher than January 2022, excluding CANarchy. We estimate January 2023 sales, including CANarchy to be approximately 12.9% higher than in January 2022 and 10.6% higher than in January 2022, excluding CANarchy. January 2023 had the same number of selling days as January 2022.

In this regard, we caution again that sales over a short period are often disproportionately impacted by various factors such as, for example, selling days, days of the week in which holidays fall, timing of new product launches and the timing of price increases and promotions in retail stores, distributor incentives as well as shifts in the timing of production. In some instances, our bottlers are responsible for production and determine their own production schedules. This affects the dates on which we invoice such bottlers. Furthermore, our bottling and distribution partner maintained inventory levels according to their own internal requirements, which they may alter from time to time for their own business reasons. We reiterate that sales over a short period such as a single month should not necessarily be imputed to or regarded as indicative of results for a full quarter or any future period.

If the COVID-19 pandemic and related unfavorable economic conditions continues in certain regions, our new product innovation launches in those regions could be delayed. On November 2, 2022, the Board of Directors authorized a new share repurchase program for the repurchase of up to an additional 500 million of the company’s outstanding common stock. During the 2022 fourth quarter, the company purchased approximately 2.3 million shares of its common stock for a total amount of $201.6 million, excluding broker commissions under the June 2022 repurchase plan, leaving approximately 682.8 million remaining available for repurchase under the previously authorized repurchase programs. The company today announced that its Board of Directors has approved and declared a 2-for-1 split of its common stock that will be effected in the form of a 100% stock dividend.

Each stockholder of record on March 13, 2023, will receive a dividend of one additional share of common stock for each then held share to be distributed after the close of trading on March 27, 2023. The company anticipates its common stock to begin trading at the split adjusted price on March 28, 2023. In conclusion, I’d like to summarize some recent positive points. One, the energy category continues to grow globally; two, the company has increased its raw material and finished product inventories to better service customers and ensure availability of its products. Three, we are seeing improvement in our gross profit margins on a quarterly sequential basis due to supply chain normalization; four, our AFF flavor facility in Ireland is now providing a large number of flavors to our EMEA region, enabling better service levels and lower land costs to our EMEA region.

Five, we are enthusiastic for only 23 new product innovations notably Monster Energy Zero Sugar, which launched in January 2023 in the United States and Monster Energy Lewis Hamilton 44 Zero sugar energy drink in EMEA. We are also particularly enthusiastic for the planned launches of rainstorm in March 2023 as well as Tour Water in the United States. We are pleased with the early results from the launch of The Beast Unleashed, our first flavored malt beverage alcohol product in six states and the planned rollout to additional states, as well as the additional alcohol opportunities that the CANarchy acquisition presents. Seven, we are planning to launch Reign Total Body Fuel high-performance energy drinks in additional international countries.

And finally, we are pleased with the rollout of Predator and Fury, our affordable energy drink portfolio internationally. We are proceeding with plans to launch our affordable energy brands in an additional number of international countries. I would now like to open the floor to questions about the year. Thank you.

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Q&A Session

Operator: We will now begin the question-and-answer session. And our first question will come from Peter Grom of UBS. Please go ahead.

Peter Grom: Thanks, operator, and good evening or good afternoon everyone. So, Hilton, I guess, I wanted to ask about gross margin. You mentioned in the release that you expect some of these cost pressures you’ve experience to be transitory, whereas others remain challenging. And I guess maybe just to start, is there any way to frame how much of the drag on gross margin is still a result of these imported cans? And then just looking ahead in the context of pricing, the cost backdrop you’ve outlined and kind of the modest sequential improvement we saw sequentially, how would you frame the margin recapture opportunity looking out to next year? Thanks.

Hilton Schlosberg: Okay. Well, if you look back at what happened in the fourth quarter, we had a price increase in September 1 in the US. We had some price increases internationally during 2022 and into the fourth quarter of 2022. We are increasing pricing in many international markets on a phased basis starting in the early part of 2023. So, a lot of the increased costs that we have been absorbing should be accommodated by increased pricing. But looking forward, we all know what’s happening with aluminum. It’s coming down. Certain other commodities are coming down. In Europe, we see energy coming down. So overall, I think with regard to margin, we are actually in a good place. And as you saw in this quarter, we were able to move margin on a sequential basis.

We do, however, have certain costs that are not going away. For example, co-packing fees have gone up. The sugar is in tight supply because of weather situations. So, there are positives as well as negatives in the system. As regards to the international cans, we don’t have that significant quantity left in terms of what the impact will be on gross margin. So, I think we’ve just got to work through those cans. They are green and ultra-white. We’ll look through them and will be good. The only issue is that we do have promotional cans from time to time. And as I’ve spoken on this call on a number of occasions, these cans are not promotional cans. They’re just straight cans that we use in non-promotional periods. And also, it depends — we have other obligations with our can companies.

So, it’s a question of sourcing cans on the most optimal place to be able to co-pack. So that may be too long an explanation, but I hope it gave you a sense of what we’re seeing from the sand.

Operator: The next question comes from Chris Carey of Wells Fargo Securities. Please go ahead.

Chris Carey: Hi everyone. So, I just wanted to follow-up on that, but then ask question. So, Hilton, would you expect sequential gross margin improvement from here on steady clip just given pricing and some improvement in commodities or overall cost inflation. I appreciate there are other inflationary factors. But would you expect to continue to sequentially improve from here? So that’s just a follow-up. But then from a US perspective, I think one of the things that’s coming up tonight is, you had mid-single-digit pricing to high-single-digit pricing in the US in September and yet US sales were 6%. So, can you talk to any — was there any pull forward of demand because of the pricing actions? Were there any promotions in the quarter behind the pricing? Maybe can you just help reconcile the revenue growth in the quarter in the US, which is basically in line with the pricing that you’re taking? So, thanks for that follow-up on gross margins in the US comment.