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OFFON

MONSTER BEVERAGE CORPORATION

(MNST)
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MONSTER BEVERAGE : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

05/11/2020 | 06:03am EDT

Our Business

When this report uses the words "the Company", "we", "us", and "our", these words refer to Monster Beverage Corporation and its subsidiaries, unless the context otherwise requires. Based in Corona, California, Monster Beverage Corporation is a holding company and conducts no operating business except through its consolidated subsidiaries. The Company's subsidiaries primarily develop and market energy drinks.



The COVID - 19 Pandemic


The current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, communities and business operations, as well as the global economy and financial markets. The human and economic consequences of the COVID-19 pandemic as well as the measures being taken by governments, and as a result businesses (including the Company and its suppliers, full service beverage bottlers/distributors ("bottlers/distributors"), co-packers and other service providers) and the public at large to limit the COVID-19 pandemic's spread, has directly and indirectly impacted our business and results of operations. The duration and severity of this impact will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning the COVID-19 pandemic, the actions taken to limit its spread and the economic impact on local, regional, national and international markets. See the section entitled "Risk Factors" in Item 1A of this Quarterly Report.

Over the past few months, we have been actively addressing the COVID-19 pandemic with a global task force team working to mitigate the potential impacts to our people and business.

Health and Safety of our Employees and Business Partners

From the beginning of the COVID-19 pandemic, our top priority has been the health, safety and well-being of our employees. Early in March 2020, we implemented global travel restrictions and work-from-home policies for employees who are able to work remotely. For those employees who are unable to work remotely, safety precautions have been instituted, which were developed and adopted in line with guidance from public health authorities and professional consultants. We are incredibly proud of the teamwork exhibited by our employees, co-packers and bottlers/distributors around the world who are ensuring the integrity of our supply chain.



Customer Demand


The COVID-19 pandemic did not have a material adverse impact on our net and gross sales for the three-months ended March 31, 2020. Our April sales were materially adversely impacted by the COVID-19 pandemic, however bottler/distributor sales of the Company's products to retail in the United States were markedly less adversely impacted. Since mid-March 2020, we have seen a shift in consumer channel preferences and package configurations, including an increase in at-home consumption and a decrease in immediate consumption. To date, our sales in the second quarter of 2020 have been adversely affected as a result of a decrease in foot traffic in the convenience and gas channel (which is our largest channel) and food service on-premise, while our e-commerce, club store, mass merchandiser and grocery and related business remain stable. The duration of these trends and the magnitude of such impacts cannot be precisely estimated at this time, as they are affected by a number of factors (many of which are outside our control).

Any reduced demand for our products or change in consumer purchasing and consumption patterns, as well as continued economic uncertainty as a result of the COVID-19 pandemic, could adversely affect the financial conditions of retailers and consumers, resulting in reduced or canceled orders for our products, purchase returns and closings of retail or wholesale establishments or other locations in which our products are sold.

Our Distribution and Supply Chain

As of the date of this filing, we do not foresee a material impact on the ability of our co-packers to manufacture and our bottlers/distributors to distribute our products as a result of the COVID-19 pandemic. In addition, we are not experiencing raw material or finished product shortages in our supply chain. However, depending on the duration of any COVID-19 pandemic related issues, we may experience material disruptions in our supply chain as the pandemic continues.

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Liquidity and Capital Resources

As of the date of this filing, we expect to maintain substantial liquidity as we manage through the current environment as described in the "Liquidity and Capital Resources" section below.



Overview


We develop, market, sell and distribute energy drink beverages and concentrates for energy drink beverages, primarily under the following brand names:



?  Monster Energy®                 ?  NOS®
?  Monster Energy Ultra®           ?  Full Throttle®
?  Monster Rehab®                  ?  Burn®
?  Monster MAXX®                   ?  Mother®
?  Java Monster®                   ?  Nalu®
?  Muscle Monster®                 ?  Ultra Energy®
?  Espresso Monster®               ?  Play® and Power Play® (stylized)
?  Punch Monster®                  ?  Relentless®
?  Juice Monster®                  ?  BPM®
?  Monster Hydro®                  ?  BU®

? Monster HydroSport Super Fuel® ? Gladiator® ? Monster Dragon Tea®

             ?  Samurai®
?  Caffé Monster®                  ?  Live+®
?  Reign Total Body Fuel®          ?  Predator®
?  Reign Inferno® Thermogenic Fuel




We have three operating and reportable segments, (i) Monster Energy® Drinks segment ("Monster Energy® Drinks"), which is primarily comprised of our Monster Energy® drinks and Reign Total Body Fuel® high performance energy drinks, (ii) Strategic Brands segment ("Strategic Brands"), which is comprised primarily of the various energy drink brands acquired from The Coca-Cola Company ("TCCC") in 2015 as well as our affordable energy brands, and (iii) Other segment ("Other"), which is comprised of certain products sold by American Fruits and Flavors LLC, a wholly-owned subsidiary, to independent third-party customers (the "AFF Third-Party Products").

During the three-months ended March 31, 2020, we continued to expand our existing energy drink portfolio and further develop our distribution markets. During the three-months ended March 31, 2020, we introduced the following products:

? Monster Dragon Tea® Lemon Ice Tea

? Monster Energy Ultra Fiesta®

? Monster Energy Ultra Rosa®

? Monster Hydro® Super Sport Blue Streak

? Monster Hydro® Super Sport Red Dawg

? Java Monster® 300 French Vanilla

? Java Monster® 300 Mocha

? Reign Inferno® Thermogenic Fuel Jalapeno Strawberry

? Reign Inferno® Thermogenic Fuel Red Dragon

? Reign Inferno® Thermogenic Fuel True BLU


 ? NOS® Turbo


 ? Burn® Dark Energy


 ? Burn® Peach

? Nalu® Black Tea & Passion Fruit

? Nalu® Green Tea & Ginger




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In the normal course of business, we discontinue certain products and/or product lines. Those products or product lines discontinued in the three-months ended March 31, 2020, either individually or in aggregate, did not have a material adverse impact on our financial position, results of operations or liquidity.

Many of the above launches were negatively impacted by the COVID-19 pandemic and we did not achieve planned distribution levels, in part due to certain retailers postponing implementation of their new planned spring schematics, which included our innovation products. We are developing plans with our bottlers/distributors to reprioritize these recent innovation launches to ensure that we are able to maximize their distribution, as soon as normalcy returns, particularly in the convenience and gas channel.

Our net sales of $1.06 billion for the three-months ended March 31, 2020 represented record sales for our first fiscal quarter. The vast majority of our net sales are derived from our Monster Energy® Drinks segment. Net sales of our Monster Energy® Drinks segment were $992.5 million for the three-months ended March 31, 2020. Net sales of our Strategic Brands segment were $64.5 million for the three-months ended March 31, 2020. Our Monster Energy® Drinks segment represented 93.4% and 92.0% of our net sales for the three-months ended March 31, 2020 and 2019, respectively. Our Strategic Brands segment represented 6.1% and 7.4% of our net sales for the three-months ended March 31, 2020 and 2019, respectively. Our Other segment represented 0.5% and 0.6% of our net sales for the three-months ended March 31, 2020 and 2019, respectively.

Our growth strategy includes expanding our international business. Net sales to customers outside the United States were $356.8 million for the three-months ended March 31, 2020, an increase of approximately $72.7 million, or 25.6% higher than net sales to customers outside of the United States of $284.1 million for the three-months ended March 31, 2019. Such sales were approximately 34% and 30% of net sales for the three-months ended March 31, 2020 and 2019, respectively.

Our customers are primarily bottlers/distributors, retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, drug stores, foodservice customers and the military. Percentages of our gross sales to our various customer types for the three-months ended March 31, 2020 and 2019 are reflected below. Such information includes sales made by us directly to the customer types concerned, which include our bottlers/distributors in the United States. Such bottlers/distributors in turn sell certain of our products to some of the same customer types listed below. We limit our description of our customer types to include only our sales to our full service bottlers/distributors without reference to such bottlers'/distributors' sales to their own customers.




                                                      Three-Months Ended
                                                          March 31,
                                                      2020          2019
U.S. full service bottlers/distributors                   55 %          59 %

International full service bottlers/distributors 35 % 32 % Club stores and mass merchandisers

                         8 %           8 %
Retail grocery, specialty chains and wholesalers           1 %           1 %
Other                                                      1 %           0 %



Our customers include Coca-Cola Canada Bottling Limited, Coca-Cola Consolidated, Inc., Coca-Cola Bottling Company United, Inc., Reyes Coca-Cola Bottling, LLC, Great Lakes Coca-Cola Distribution, LLC, Coca-Cola Southwest Beverages LLC, The Coca-Cola Bottling Company of Northern New England, Inc., Swire Pacific Holdings, Inc. (USA), Liberty Coca-Cola Beverages, LLC, Coca-Cola European Partners, Coca-Cola Hellenic, Coca-Cola FEMSA, Coca-Cola Amatil, Swire Coca-Cola (China), COFCO Coca-Cola, Coca-Cola Beverages Africa, Coca-Cola ?çecek and certain other TCCC network bottlers, Asahi Soft Drinks, Co., Ltd., Wal-Mart, Inc. (including Sam's Club), Costco Wholesale Corporation and Amazon.com, Inc. A decision by any large customer to decrease amounts purchased from us or to cease carrying our products could have a material negative effect on our financial condition and consolidated results of operations.

Coca-Cola Consolidated, Inc. accounted for approximately 12% and 13% of our net sales for the three-months ended March 31, 2020 and 2019, respectively.

Reyes Coca-Cola Bottling, LLC accounted for approximately 11% and 12% of our net sales for the three-months ended March 31, 2020 and 2019, respectively.

Coca-Cola European Partners accounted for approximately 10% and 9% of our net sales for the three-months ended March 31, 2020 and 2019, respectively.

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Results of Operations



The following table sets forth key statistics for the three-months ended March
31, 2020 and 2019.




                                                          Three-Months Ended       Percentage
(In thousands, except per share amounts)                      March 31,              Change
                                                          2020          2019       20 vs. 19
Net sales1                                             $ 1,062,097    $ 945,991          12.3 %
Cost of sales                                              424,901      372,459          14.1 %
Gross profit*1                                             637,196      573,532          11.1 %
Gross profit as a percentage of net sales                     60.0 %       60.6 %

Operating expenses2                                        272,208      262,071           3.9 %
Operating expenses as a percentage of net sales               25.6 %       27.7 %

Operating income1,2                                        364,988      311,461          17.2 %
Operating income as a percentage of net sales                 34.4 %       32.9 %

Interest and other income, net                                 872        2,742        (68.2) %

Income before provision for income taxes1,2                365,860      314,203          16.4 %

Provision for income taxes                                  87,025       52,718          65.1 %

Income taxes as a percentage of income before taxes           23.8 %       16.8 %

Net income1,2                                          $   278,835    $ 261,485           6.6 %
Net income as a percentage of net sales                       26.3 %       27.6 %

Net income per common share:
Basic                                                  $      0.52    $    0.48           8.0 %
Diluted                                                $      0.52    $    0.48           8.2 %

Case sales (in thousands)
(in 192-ounce case equivalents)                            115,599      101,284          14.1 %




1Includes $10.6 million and $14.2 million for the three-months ended March 31, 2020 and 2019, respectively, related to the recognition of deferred revenue.

2Includes $0.04 million and $10.7 million for the three-months ended March 31, 2020 and 2019, respectively, of distributor termination costs.

*Gross profit may not be comparable to that of other entities since some entities include all costs associated with their distribution process in cost of sales, whereas others exclude certain costs and instead include such costs within another line item such as operating expenses. We include out-bound freight and warehouse costs in operating expenses rather than in cost of sales.

Results of Operations for the Three-Months Ended March 31, 2020 Compared to the Three-Months Ended March 31, 2019.

Net Sales. Net sales were $1.06 billion for the three-months ended March 31, 2020, an increase of approximately $116.1 million, or 12.3% higher than net sales of $946.0 million for the three-months ended March 31, 2019. Net changes in foreign currency exchange rates had an unfavorable impact on net sales of approximately $10.4 million for the three-months ended March 31, 2020.

Net sales for the Monster Energy® Drinks segment were $992.5 million for the three-months ended March 31, 2020, an increase of approximately $122.1 million, or 14.0% higher than net sales of $870.4 million for the three-months ended March 31, 2019. Net sales for the Monster Energy® Drinks segment increased primarily due to increased worldwide sales by volume of our Monster Energy® brand energy drinks as a result of increased consumer demand as well as enhanced distribution and increased consumer demand for our


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Reign Total Body Fuel® high performance energy drinks. Net changes in foreign currency exchange rates had an unfavorable impact on net sales for the Monster Energy® Drinks segment of approximately $10.0 million for the three-months ended March 31, 2020.

Net sales for the Strategic Brands segment were $64.5 million for the three-months ended March 31, 2020, a decrease of approximately $5.7 million, or 8.2% lower than net sales of $70.3 million for the three-months ended March 31, 2019. Net changes in foreign currency exchange rates had an unfavorable impact on net sales for the Strategic Brands segment of approximately $0.4 million for the three-months ended March 31, 2020.

Net sales for the Other segment were $5.1 million for the three-months ended March 31, 2020, a decrease of approximately $0.2 million, or 4.1% lower than net sales of $5.3 million for the three-months ended March 31, 2019.

Case sales, in 192-ounce case equivalents, were 115.6 million cases for the three-months ended March 31, 2020, an increase of approximately 14.3 million cases or 14.1% higher than case sales of 101.3 million cases for the three-months ended March 31, 2019. The overall average net sales per case (excluding net sales of the AFF Third-Party Products of $5.1 million and $5.3 million for the three-months ended March 31, 2020 and 2019, respectively, as these sales do not have unit case equivalents) decreased to $9.14 for the three-months ended March 31, 2020, which was 1.6% lower than the average net sales per case of $9.29 for the three-months ended March 31, 2019. The decrease in the average net sales per case was primarily the result of unfavorable net changes in foreign currency exchange rates as well as increased promotional allowances as a percentage of net sales.

Gross Profit. Gross profit was $637.2 million for the three-months ended March 31, 2020, an increase of approximately $63.7 million, or 11.1% higher than the gross profit of $573.5 million for the three-months ended March 31, 2019. The increase in gross profit dollars was primarily the result of the $122.1 million increase in net sales of our Monster Energy® Drinks segment for the three-months ended March 31, 2020.

Gross profit as a percentage of net sales decreased to 60.0% for the three-months ended March 31, 2020 from 60.6% for the three-months ended March 31, 2019. The decrease for the three-months ended March 31, 2020 was primarily the result of geographical sales mix and increases in promotional allowances as a percentage of gross sales. Such decrease was partially offset by product sales mix as well as reduced input costs.

Operating Expenses. Total operating expenses were $272.2 million for the three-months ended March 31, 2020, an increase of approximately $10.1 million, or 3.9% higher than total operating expenses of $262.1 million for the three-months ended March 31, 2019. The increase in operating expenses was primarily due to increased payroll expenses of $8.2 million (of which $1.8 million was related to an increase in stock-based compensation), increased out-bound freight and warehouse costs of $3.1 million, a $3.0 million Strategic Brand trademark impairment charge and increased expenditures of $2.3 million for other marketing expenses. The increase in operating expenses was partially offset by decreased expenditures of $10.7 million related to the costs associated with distributor terminations and decreased expenditures of $4.3 million for sponsorships and endorsements.

Operating Income. Operating income was $365.0 million for the three-months ended March 31, 2020, an increase of approximately $53.5 million, or 17.2% higher than operating income of $311.5 million for the three-months ended March 31, 2019. Operating income as a percentage of net sales increased to 34.4% for the three-months ended March 31, 2020 from 32.9% for the three-months ended March 31, 2019. Operating income was $71.7 million and $52.0 million for the three-months ended March 31, 2020 and 2019, respectively, in connection with our operations in Europe, Middle East and Africa ("EMEA"), Asia Pacific and South America.

Operating income for the Monster Energy® Drinks segment, exclusive of corporate and unallocated expenses, was $411.1 million for the three-months ended March 31, 2020, an increase of approximately $68.2 million, or 19.9% higher than operating income of $343.0 million for the three-months ended March 31, 2019. The increase in operating income for the Monster Energy® Drinks segment was primarily the result of the $122.1 million increase in net sales of our Monster Energy® Drinks segment for the three-months ended March 31, 2020.

Operating income for the Strategic Brands segment, exclusive of corporate and unallocated expenses, was $36.7 million for the three-months ended March 31, 2020, a decrease of approximately $8.9 million, or 19.4% lower than operating income of $45.6 million for the three-months ended March 31, 2019.



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Operating income for the Other segment, exclusive of corporate and unallocated expenses, was $0.8 million for the three-months ended March 31, 2020, a decrease of approximately $0.1 million, or 12.8% lower than operating income of $0.9 million for the three-months ended March 31, 2019.

Interest and Other Income, net. Interest and other non-operating income, net, was $0.9 million for the three-months ended March 31, 2020, as compared to interest and other non-operating income, net, of $2.7 million for the three-months ended March 31, 2019. Foreign currency transaction losses were $2.9 million and $0.2 million for the three-months ended March 31, 2020 and 2019, respectively. Interest income was $4.5 million and $3.3 million for the three-months ended March 31, 2020 and 2019, respectively.

Provision for Income Taxes. Provision for income taxes was $87.0 million for the three-months ended March 31, 2020, an increase of $34.3 million, or 65.1% higher than the provision for income taxes of $52.7 million for the three-months ended March 31, 2019. The effective combined federal, state and foreign tax rate increased to 23.8% from 16.8% for the three-months ended March 31, 2020 and 2019, respectively. The increase in the effective tax rate was primarily attributable to a decrease in the equity compensation deduction.

Net Income. Net income was $278.8 million for the three-months ended March 31, 2020, an increase of $17.4 million, or 6.6% higher than net income of $261.5 million for the three-months ended March 31, 2019. The increase in net income was primarily due to the $63.7 million increase in gross profit. The increase in net income was partially offset by an increase in the provision for income taxes of $34.3 million and an increase in operating expenses of $10.1 million.



Non-GAAP Financial Measures


Gross Sales**. Gross sales were $1.24 billion for the three-months ended March 31, 2020, an increase of approximately $145.6 million, or 13.4% higher than gross sales of $1.09 billion for the three-months ended March 31, 2019. Net changes in foreign currency exchange rates had an unfavorable impact on gross sales of approximately $11.2 million for the three-months ended March 31, 2020.

Gross sales for the Monster Energy® Drinks segment were $1.16 billion for the three-months ended March 31, 2020, an increase of approximately $151.9 million, or 15.1% higher than gross sales of $1.01 billion for the three-months ended March 31, 2019. Gross sales for the Monster Energy® Drinks segment increased primarily due to increased worldwide sales by volume of our Monster Energy® brand energy drinks as a result of increased consumer demand as well as enhanced distribution and increased consumer demand for our Reign Total Body Fuel® high performance energy drinks. Net changes in foreign currency exchange rates had an unfavorable impact on gross sales for the Monster Energy® Drinks segment of approximately $10.8 million for the three-months ended March 31, 2020.

Gross sales of our Strategic Brands segment were $73.4 million for the three-months ended March 31, 2020, a decrease of $6.1 million, or 7.6% lower than gross sales of $79.5 million for the three-months ended March 31, 2019. Net changes in foreign currency exchange rates had an unfavorable impact on gross sales in the Strategic Brands segment of approximately $0.4 million for the three-months ended March 31, 2020.

Gross sales of our Other segment were $5.1 million for the three-months ended March 31, 2020, a decrease of $0.2 million, or 4.1% lower than gross sales of $5.3 million for the three-months ended March 31, 2019.

Promotional allowances, commissions and other expenses, as described in the footnote below, were $174.0 million for the three-months ended March 31, 2020, an increase of $29.5 million, or 20.4% higher than promotional allowances, commissions and other expenses of $144.4 million for the three-months ended March 31, 2019. Promotional allowances, commissions and other expenses as a percentage of gross sales increased to 14.1% from 13.2% for the three-months ended March 31, 2020 and 2019, respectively.

**Gross sales are used internally by management as an indicator of and to monitor operating performance, including sales performance of particular products, salesperson performance, product growth or declines and overall Company performance. The use of gross sales allows evaluation of sales performance before the effect of any promotional items, which can mask certain performance issues. We therefore believe that the presentation of gross sales provides a useful measure of our operating performance. The use of gross sales is not a measure that is recognized under GAAP and should not be considered as an alternative to net sales, which is determined in accordance with GAAP, and should not be used alone as an indicator of operating performance in place of net sales. Additionally, gross sales may not be comparable to similarly titled measures used by other companies, as gross sales has been defined


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by our internal reporting practices. In addition, gross sales may not be realized in the form of cash receipts as promotional payments and allowances may be deducted from payments received from certain customers.

The following table reconciles the non-GAAP financial measure of gross sales with the most directly comparable GAAP financial measure of net sales:




                                                            Three-Months Ended        Percentage
                                                                March 31,               Change
(In thousands)                                             2020           2019        20 vs. 19
Gross sales, net of discounts and returns               $ 1,236,060    $ 1,090,426          13.4 %
Less: Promotional allowances, commissions and other
expenses***                                                 173,963        144,435          20.4 %
Net Sales                                               $ 1,062,097    $   945,991          12.3 %



***Although the expenditures described in this line item are determined in accordance with GAAP and meet GAAP requirements, the presentation thereof does not conform to GAAP presentation requirements. Additionally, our definition of promotional and other allowances may not be comparable to similar items presented by other companies. Promotional and other allowances primarily include consideration given to our bottlers/distributors or retail customers including, but not limited to the following: (i) discounts granted off list prices to support price promotions to end-consumers by retailers; (ii) reimbursements given to our bottlers/distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances and other fees for both new and existing products; (iii) our agreed share of fees given to bottlers/distributors and/or directly to retailers for advertising, in-store marketing and promotional activities; (iv) our agreed share of slotting, shelf space allowances and other fees given directly to retailers, club stores and/or wholesalers; (v) incentives given to our bottlers/distributors and/or retailers for achieving or exceeding certain predetermined sales goals; (vi) discounted or free products; (vii) contractual fees given to our bottlers/distributors related to sales made by us direct to certain customers that fall within the bottlers'/distributors' sales territories; and (viii) certain commissions paid based on sales to our bottlers/distributors. The presentation of promotional and other allowances facilitates an evaluation of their impact on the determination of net sales and the spending levels incurred or correlated with such sales. Promotional and other allowances constitute a material portion of our marketing activities. Our promotional allowance programs with our numerous bottlers/distributors and/or retailers are executed through separate agreements in the ordinary course of business. These agreements generally provide for one or more of the arrangements described above and are of varying durations, ranging from one week to one year. The primary drivers of our promotional and other allowance activities for the three-months ended March 31, 2020 and 2019 were (i) to increase sales volume and trial, (ii) to address market conditions, and (iii) to secure shelf and display space at retail.



Sales


The table below discloses selected quarterly data regarding sales for the three-months ended March 31, 2020 and 2019, respectively. Data from any one or more quarters or periods is not necessarily indicative of annual results or continuing trends.

Sales of beverages are expressed in unit case volume. A "unit case" means a unit of measurement equal to 192 U.S. fluid ounces of finished beverage (24 eight-ounce servings). Unit case volume means the number of unit cases (or unit case equivalents) of finished products or concentrates as if converted into finished products sold by us.

Our quarterly results of operations reflect seasonal trends that are primarily the result of increased demand in the warmer months of the year. It has been our experience that beverage sales tend to be lower during the first and fourth quarters of each calendar year. However, our experience with our energy drink products suggests they may be less seasonal than the seasonality of traditional beverages. In addition, our continued growth internationally may further reduce the impact of seasonality on our business. Quarterly fluctuations may also be affected by other factors including the introduction of new products, the opening of new markets where temperature fluctuations are more pronounced, the addition of new bottlers/distributors, changes in the sales mix of our products and


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changes in advertising and promotional expenses. The COVID-19 pandemic may also have an impact on consumer behavior and change the seasonal fluctuation of our business.




                                                        Three-Months Ended
                                                            March 31,

(In thousands, except average net sales per case) 2020 2019 Net sales

                                            $ 1,062,097    $ 945,991
Less: AFF third-party sales                              (5,105)      (5,321)
Adjusted net sales1                                  $ 1,056,992    $ 940,670
Case sales by segment:
Monster Energy® Drinks                                    98,252       83,475
Strategic Brands                                          17,346       17,809
Other                                                          -            -
Total case sales                                         115,598      101,284
Average net sales per case                           $      9.14    $    9.29




1Excludes Other segment net sales of $5.1 million and $5.3 million for the three-months ended March 31, 2020 and 2019, respectively, comprised of net sales of the AFF Third-Party Products to independent third-party customers, as these sales do not have unit case equivalents.

See Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Our Business" for additional information related to the increase in sales.

Liquidity and Capital Resources

Cash and cash equivalents, short-term and long-term investments. We believe that cash available from operations, including our cash resources and access to credit, will be sufficient for our working capital needs, including purchase commitments for raw materials and inventory, increases in accounts receivable, payments of tax liabilities, expansion and development needs, purchases of capital assets, purchases of equipment, purchases of real property and purchases of shares of our common stock, through at least the next 12 months. Our sources and uses of cash were not materially impacted by the COVID-19 pandemic in the three-months ended March 31, 2020 and, to date, we have not identified any material liquidity deficiencies as a result of the COVID-19 pandemic. Based on the information currently available to us, we do not expect the impact of the COVID-19 pandemic to have a material impact on our liquidity. We will continue to monitor and assess the impact the COVID-19 pandemic may have on our business, financial condition and/or operating results.

At March 31, 2020, we had $701.8 million in cash and cash equivalents, $233.5 million in short-term investments and $13.9 million in long-term investments. We have historically invested these amounts in U.S. treasuries, U.S. government agency securities, municipal securities, commercial paper, certificates of deposit, variable rate demand notes and money market funds meeting certain criteria. We maintain our investments for cash management purposes and not for purposes of speculation. Our risk management policies emphasize credit quality (primarily based on short-term ratings by nationally recognized statistical organizations) in selecting and maintaining our investments. We regularly assess market risk of our investments and believe our current policies and investment practices adequately limit those risks. However, certain of these investments are subject to general credit, liquidity, market and interest rate risks. These market risks associated with our investment portfolio may have an adverse effect on our future results of operations, liquidity and financial condition.

Based on our current plans, at this time we estimate that capital expenditures (exclusive of common stock repurchases) are likely to be less than $150.0 million through March 31, 2021. However, future business opportunities may cause a change in this estimate.

Cash flows provided by operating activities. Cash provided by operating activities was $191.1 million for the three-months ended March 31, 2020, as compared with cash provided by operating activities of $123.4 million for the three-months ended March 31, 2019.

For the three-months ended March 31, 2020, cash provided by operating activities was primarily attributable to net income earned of $278.8 million and adjustments for certain non-cash expenses, consisting of $17.1 million of stock-based compensation, $16.5


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million of depreciation and amortization and $3.0 million of intangible asset impairment. For the three-months ended March 31, 2020, cash provided by operating activities also increased due to a $34.5 million increase in accrued liabilities, a $19.3 million increase in accounts payable, a $9.4 million increase in accrued promotional allowances, an $8.1 million decrease in prepaid income taxes and a $1.0 million decrease in inventories. For the three-months ended March 31, 2020, cash used in operating activities was primarily attributable to a $147.7 million increase in accounts receivable, a $24.8 million decrease in accrued compensation, an $18.1 million increase in prepaid expenses and other assets, a $4.3 million decrease in deferred revenue and a $1.6 million decrease in income tax payable.

For the three-months ended March 31, 2019, cash provided by operating activities was primarily attributable to net income earned of $261.5 million and adjustments for certain non-cash expenses, consisting of $15.3 million of stock-based compensation and $14.9 million of depreciation and other amortization. For the three-months ended March 31, 2019, cash provided by operating activities also increased due to a $23.1 million increase in accrued promotional allowances, an $18.6 million increase in accounts payable, a $10.3 million increase in accrued distributor terminations, a $2.9 million decrease in distributor receivables and a $1.3 million increase in other liabilities. For the three-months ended March 31, 2019, cash used in operating activities was primarily attributable to a $116.4 million increase in accounts receivable, a $25.2 million increase in prepaid income taxes, a $24.0 million increase in inventories, a $21.8 million decrease in accrued compensation, a $21.5 million increase in prepaid expenses and other current assets, a $9.5 million decrease in deferred revenue, a $4.1 million decrease in income taxes payable and a $2.3 million decrease in accrued liabilities.

Cash flows provided by investing activities. Cash provided by investing activities was $280.0 million for the three-months ended March 31, 2020 as compared to cash provided by investing activities of $46.8 million for the three-months ended March 31, 2019.

For both the three-months ended March 31, 2020 and 2019, cash provided by investing activities was primarily attributable to sales of available-for-sale investments. For both the three-months ended March 31, 2020 and 2019, cash used in investing activities was primarily attributable to purchases of available-for-sale investments. For both the three-months ended March 31, 2020 and 2019, cash used in investing activities also included the acquisitions of fixed assets consisting of vans and promotional vehicles, coolers and other equipment to support our marketing and promotional activities, production equipment, furniture and fixtures, office and computer equipment, computer software, equipment used for sales and administrative activities, certain leasehold improvements, as well as acquisitions of and/or improvements to real property. We expect to continue to use a portion of our cash in excess of our requirements for operations for purchasing short-term and long-term investments, leasehold improvements, the acquisition of capital equipment (specifically, vans, trucks and promotional vehicles, coolers, other promotional equipment, merchandise displays, warehousing racks as well as items of production equipment required to produce certain of our existing and/or new products) to develop our brand in international markets and for other corporate purposes. From time to time, we may also use cash to purchase additional real property related to our beverage business and/or acquire compatible businesses.

Cash flows used in financing activities. Cash used in financing activities was $546.0 million for the three-months ended March 31, 2020 as compared to cash used in financing activities of $188.0 million for the three-months ended March 31, 2019. The cash used in financing activities for both the three-months ended March 31, 2020 and 2019 was primarily the result of the repurchases of our common stock. The cash provided by financing activities for both the three-months ended March 31, 2020, and 2019 was primarily attributable to the issuance of our common stock under our stock-based compensation plans.

Purchases of inventories, increases in accounts receivable and other assets, acquisition of property and equipment (including real property, personal property and coolers), leasehold improvements, advances for or the purchase of equipment for our bottlers, acquisition and maintenance of trademarks, payments of accounts payable, income taxes payable and purchases of our common stock are expected to remain our principal recurring use of cash.

Of our $701.8 million of cash and cash equivalents held at March 31, 2020, $430.0 million was held by our foreign subsidiaries. No short-term or long-term investments were held by our foreign subsidiaries at March 31, 2020.



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The following represents a summary of the Company's contractual commitments and related scheduled maturities as of March 31, 2020:




                                        Payments due by period (in thousands)
                                         Less than       1-3         3-5       More than
      Obligations             Total        1 year       years       years       5 years

Contractual Obligations1    $ 200,516    $  141,728    $ 56,337    $ 2,451    $         -
Finance Leases                  2,234         2,234           -          -              -
Operating Leases               33,289         3,710       6,814      5,740         17,025
Purchase Commitments2          70,513        70,513           -          -              -
                            $ 306,552    $  218,185    $ 63,151    $ 8,191    $    17,025



1Contractual obligations include our obligations related to sponsorships and other commitments.

2Purchase commitments include obligations made by us and our subsidiaries to various suppliers for raw materials used in the production of our products. These obligations vary in terms, but are generally satisfied within one year.

In addition, approximately $3.0 million of unrecognized tax benefits have been recorded as liabilities as of March 31, 2020. It is expected that the amount of unrecognized tax benefits will not significantly change within the next 12 months. As of March 31, 2020, we had $0.4 million of accrued interest and penalties related to unrecognized tax benefits.



Critical Accounting Policies


There have been no material changes to our critical accounting policies from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 ("Form 10-K").

Recent Accounting Pronouncements

The information required by this Item is incorporated herein by reference to the Notes to Condensed Consolidated Financial Statements - Note 2. Recent Accounting Pronouncements, in Part I, Item 1, of this Quarterly Report on Form 10-Q.



Inflation


We believe inflation did not have a significant impact on our results of operations for the periods presented.



Forward-Looking Statements


Certain statements made in this report 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) (the "Exchange Act") regarding the expectations of management with respect to revenues, profitability, adequacy of funds from operations and our existing credit facility, among other things. All statements containing a projection of revenues, income (loss), earnings (loss) per share, capital expenditures, dividends, capital structure or other financial items, a statement of management's plans and objectives for future operations, or a statement of future economic performance contained in management's discussion and analysis of financial condition and results of operations, including statements related to new products, volume growth and statements encompassing general optimism about future operating results and non-historical information, are forward-looking statements within the meaning of the Exchange Act. Without limiting the foregoing, the words "believes," "thinks," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements.



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Management cautions that these statements are qualified by their terms and/or important factors, many of which are outside our control, and involve a number of risks, uncertainties and other factors, that could cause actual results and events to differ materially from the statements made including, but not limited to, the following:

The human and economic consequences of the COVID-19 pandemic, as well as the

? measures being taken by governments, and as a result, businesses (including the

Company and its suppliers, bottlers/ distributors, co-packers and other service

providers) and the public at large to limit the COVID-19 pandemic;

The slowing of growth and/or decline in sales of the domestic and international

energy drink categories generally, including the convenience and gas channel

? (which is our largest channel), and the impact on demand for our products

resulting from deteriorating economic conditions and financial uncertainties

due to the COVID-19 pandemic;

The impact of temporary plant closures, production slowdowns and disruptions in

? operations experienced by our suppliers, bottlers/distributors and/or

co-packers as a result of the COVID-19 pandemic, including any material

disruptions on the production and distribution of our products;

We have extensive commercial arrangements with TCCC and, as a result, our

? future performance is substantially dependent on the success of our

relationship with TCCC;

The impact of TCCC's bottlers/distributors distributing Coca-Cola brand energy

? drinks and possible reductions in the number of our SKUs carried by such

bottlers/distributors and/or such bottlers/distributors imposing limitations on

distributing new product SKUs;

? Closure of on-premise retailers and other establishments which sell our

products as the result of the COVID-19 pandemic;

? The limitation or reduction by our suppliers, bottlers/distributors and/or

co-packers of their activities and/or operations during the COVID-19 pandemic;

? The impact of the COVID-19 pandemic on our product sampling programs;

? The effect of TCCC being one of our significant shareholders and the potential

divergence of TCCC's interests from those of our other shareholders;

The effect of TCCC's refranchising initiative to transition from a TCCC owned

? system to an independent bottling system, including our ability to maintain

relationships with TCCC system bottlers/distributors and manage their ongoing

commitment to focus on our products;

Disruption in distribution channels and/or decline in sales due to the

? termination and/or insolvency of existing and/or new domestic and/or

international bottlers/distributors;

? Lack of anticipated demand for our products in domestic and/or international

markets;

? Fluctuations in the inventory levels of our bottlers/distributors, planned or

otherwise, and the resultant impact on our revenues;

Unfavorable regulations, including taxation requirements, age restrictions

? imposed on the sale, purchase, or consumption of our products, marketing

restrictions, product registration requirements, tariffs, trade restrictions,

container size limitations and/or ingredient restrictions;

The effect of inquiries from, and/or actions by, state attorneys general, the

Federal Trade Commission (the "FTC"), the Food and Drug Administration (the

"FDA"), municipalities, city attorneys, other government agencies,

quasi-government agencies, government officials (including members of U.S.

? Congress) and/or analogous central and local agencies and other authorities in

the foreign countries in which our products are manufactured and/or

distributed, into the advertising, marketing, promotion, ingredients, sale

and/or consumption of our energy drink products, including voluntary and/or

required changes to our business practices;

Our ability to comply with laws, regulations and evolving industry standards

? regarding consumer privacy and data use and security, including with respect to

the General Data Protection Regulation and the California Privacy Act of 2018;

? Our ability to achieve profitability from certain of our operations outside the

United States;

Our ability to manage legal and regulatory requirements in foreign

? jurisdictions, potential difficulties in staffing and managing foreign

operations and potentially higher incidence of fraud or corruption and credit

risk of foreign customers and/or bottlers/distributors;

? Our ability to produce our products in international markets in which they are

sold, thereby reducing freight costs and/or product damages;

? Our ability to absorb, reduce or pass on to our bottlers/distributors increases

in freight costs;

? Our ability to effectively manage our inventories and/or our accounts

receivables;

Our foreign currency exchange rate risk with respect to our sales, expenses,

? profits, assets and liabilities denominated in currencies other than the U.S.

dollar, which will continue to increase as foreign sales increase;

? Uncertainties surrounding the United Kingdom's departure from the European

Union (or "Brexit");

? Changes in accounting standards may affect our reported profitability;


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? Implications of the Organization for Economic Cooperation and Development's

base erosion and profit shifting project;

Any proceedings which may be brought against us by the Securities and Exchange

? Commission (the "SEC"), the FDA, the FTC or other governmental agencies or

bodies;

The outcome and/or possibility of future shareholder derivative actions or

? shareholder securities litigation that may be filed against us and/or against

certain of our officers and directors, and the possibility of other private

shareholder litigation;

The outcome of product liability or consumer fraud litigation and/or class

action litigation (or its analog in foreign jurisdictions) regarding the safety

? of our products and/or the ingredients in and/or claims made in connection with

our products and/or alleging false advertising, marketing and/or promotion, and

the possibility of future product liability and/or class action lawsuits;

? Exposure to significant liabilities due to litigation, legal or regulatory

proceedings;

? Intellectual property injunctions;

? Unfavorable resolution of tax matters;

? Uncertainty and volatility in the domestic and global economies, including risk

of counterparty default or failure;

? Our ability to address any significant deficiencies or material weakness in our

internal controls over financial reporting;

? Our ability to continue to generate sufficient cash flows to support our

expansion plans and general operating activities;

Decreased demand for our products resulting from changes in consumer

? preferences, obesity and other perceived health concerns, including concerns

relating to certain ingredients in our products or packaging, product safety

concerns and/or from decreased consumer discretionary spending power;

Adverse publicity surrounding obesity and health concerns related to our

? products, water usage, environmental impact, human rights and labor and

workplace laws;

Changes in demand that are weather related and/or for other reasons, including

? changes in product category consumption and changes in cost and availability of

certain key ingredients, as well as disruptions to the supply chain, as a

result of climate change and extreme weather conditions;

The impact of unstable political conditions, civil unrest, large scale

? terrorist acts, the outbreak or escalation of armed hostilities, major natural

disasters and extreme weather conditions, or widespread outbreaks of infectious

diseases;

The impact on our business of competitive products and pricing pressures and

our ability to gain or maintain our share of sales in the marketplace as a

? result of actions by competitors, including unsubstantiated and/or misleading

claims, false advertising claims and tortious interference, as well as

competitors selling misbranded products;

? The impact on our business of trademark and trade dress infringement

proceedings brought against us;

? Our ability to introduce new products and the impact of the COVID-19 pandemic

on our innovation activities;

? Our ability to implement and/or maintain price increases;

? An inability to achieve volume growth through product and packaging

initiatives;

Our ability to sustain the current level of sales and/or achieve growth for our

? Monster Energy® brand energy drinks and/or our other products, including our

Strategic Brands;

The impact of criticism of our energy drink products and/or the energy drink

market generally and/or legislation enacted (whether as a result of such

criticism or otherwise) that restricts the marketing or sale of energy drinks

? (including prohibiting the sale of energy drinks at certain establishments or

pursuant to certain governmental programs), limits caffeine content in

beverages, requires certain product labeling disclosures and/or warnings,

imposes excise and/or sales taxes, limits product sizes and/or imposes age

restrictions for the sale of energy drinks;

Our ability to comply with and/or resulting lower consumer demand for energy

drinks due to proposed and/or future U.S. federal, state and local laws and

regulations and/or proposed or existing laws and regulations in certain foreign

jurisdictions and/or any changes therein, including changes in taxation

requirements (including tax rate changes, new tax laws, new and/or increased

excise, sales and/or other taxes on our products and revised tax law

interpretations) and environmental laws, as well as the Federal Food, Drug, and

Cosmetic Act and regulations or rules made thereunder or in connection

? therewith by the FDA, as well as changes in any other food, drug or similar

laws in the United States and internationally, especially those changes that

may restrict the sale of energy drinks (including prohibiting the sale of

energy drinks at certain establishments or pursuant to certain governmental

programs), limit caffeine content in beverages, require certain product

labeling disclosures and/or warnings, impose excise taxes, impose sugar taxes,

limit product sizes, or impose age restrictions for the sale of energy drinks,

as well as laws and regulations or rules made or enforced by the Bureau of

Alcohol, Tobacco, Firearms and Explosives and/or the FTC or their foreign

counterparts;

Our ability to satisfy all criteria set forth in any model energy drink

guidelines, including, without limitation, those adopted by the American

? Beverage Association, of which the Company is a member, and/or any

international beverage association and the impact on the Company of such

guidelines;

? Disruptions in the timely import or export of our products and/or ingredients

due to port strikes and related labor issues;


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? The effect of unfavorable or adverse public relations, press, articles,

comments and/or media attention;

Changes in the cost, quality and availability of containers, packaging

materials, aluminum, the Midwest and other premiums, raw materials and other

? ingredients and juice concentrates, and our ability to obtain and/or maintain

favorable supply arrangements and relationships and procure timely and/or

sufficient production of all or any of our products to meet customer demand;

Any shortages that may be experienced in the procurement of containers and/or

? other raw materials including, without limitation, aluminum cans generally, PET

containers used for our Monster Hydro® energy drinks and 24-ounce aluminum cap

cans;

? The impact on our cost of sales of corporate activity among the limited number

of suppliers from whom we purchase certain raw materials;

Our ability to pass on to our customers all or a portion of any increases in

? the costs of raw materials, ingredients, commodities and/or other cost inputs

affecting our business;

Our ability to achieve both internal domestic and international forecasts,

which may be based on projected volumes and sales of many product types and/or

? new products, certain of which are more profitable than others; there can be no

assurance that we will achieve projected levels of sales as well as forecasted

product and/or geographic mixes;

Our ability to penetrate new domestic and/or international markets and/or gain

? approval or mitigate the delay in securing approval for the sale of our

products in various countries;

The effectiveness of sales and/or marketing efforts by us and/or by the

? bottlers/distributors of our products, most of whom distribute products that

may be regarded as competitive with our products;

Unilateral decisions by bottlers/distributors, convenience chains, grocery

chains, mass merchandisers, specialty chain stores, club stores and other

? customers to discontinue carrying all or any of our products that they are

carrying at any time, restrict the range of our products they carry and/or

devote less resources to the sale of our products;

? The effects of retailer consolidation on our business and our ability to

successfully adapt to the rapidly changing retail landscape;

? The costs and/or effectiveness, now or in the future, of our advertising,

marketing and promotional strategies;

? The success of our sports marketing, social media and other general marketing

endeavors both domestically and internationally;

Our ability to successfully adapt to the changing landscape of advertising,

? marketing, promotional, sponsorship and endorsement opportunities created by

the COVID-19 pandemic;

? Unforeseen economic and political changes and local or international

catastrophic events;

? Possible recalls of our products and/or defective production;

Our ability to make suitable arrangements and/or procure sufficient capacity

? for the co-packing of any of our products both domestically and

internationally, the timely replacement of discontinued co-packing arrangements

and/or limitations on co-packing availability, including for retort production;

? Our ability to make suitable arrangements for the timely procurement of

non-defective raw materials;

Our inability to protect and/or the loss of our intellectual property rights

? and/or our inability to use our trademarks, trade names or designs and/or trade

dress in certain countries;

Volatility of stock prices which may restrict stock sales, stock purchases or

? other opportunities as well as negatively impact the motivation of equity award

grantees;

Provisions in our organizational documents and/or control by insiders which may

? prevent changes in control even if such changes would be beneficial to other

stockholders;

? The failure of our bottlers and/or co-packers to manufacture our products on a

timely basis or at all;

? The impact of any reductions in productivity and disruptions to our business

routines while most office-based employees of the Company work remotely;

Any disruption in and/or lack of effectiveness of our information technology

? systems, including a breach of cyber security, that disrupts our business or

negatively impacts customer relationships, as well as cybersecurity incidents

involving data shared with third parties; and

? Recruitment and retention of senior management, other key employees and our

   employee base in general.



The foregoing list of important factors and other risks detailed from time to time in our reports filed with the SEC is not exhaustive. See the section entitled "Risk Factors" in our Form 10-K and in Item 1A of this Quarterly Report for a more complete discussion of these risks and uncertainties and for other risks and uncertainties. Those factors and the other risk factors described therein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, our actual results could be materially different from the results described or anticipated by our forward-looking statements, due to the inherent


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uncertainty of estimates, forecasts and projections and may be better or worse than anticipated. Given these uncertainties, you should not rely on forward-looking statements. Forward-looking statements represent our estimates and assumptions only as of the date that they were made. We expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, after the date of this report, in order to reflect changes in circumstances or expectations or the occurrence of unanticipated events except to the extent required by applicable securities laws.

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Financials (USD)
Sales 2021 5 363 M - -
Net income 2021 1 384 M - -
Net cash 2021 1 894 M - -
P/E ratio 2021 35,1x
Yield 2021 -
Capitalization 48 511 M 48 511 M -
EV / Sales 2021 8,69x
EV / Sales 2022 7,80x
Nbr of Employees 3 340
Free-Float 58,9%
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Mean consensus OUTPERFORM
Number of Analysts 22
Last Close Price 92,04 $
Average target price 102,71 $
Spread / Average Target 11,6%
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Managers and Directors
NameTitle
Rodney Cyril Sacks Chairman & Co-Chief Executive Officer
Hilton Hiller Schlosberg Vice Chairman & Co-Chief Executive Officer
Thomas J. Kelly CFO & Principal Accounting Officer
Gary P. Fayard Independent Director
Benjamin M. Polk Independent Director
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