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Can Nonalcoholic Beverage Companies’ 2016 Earnings Improve?

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4Q15 earnings recap

The 4Q15 earnings season for nonalcoholic beverage companies continued to be shadowed by adverse currency movements and softness in carbonated soft drink volumes.

The impact of currency headwinds was significant for beverage giants Coca-Cola (KO) and PepsiCo (PEP).

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4Q15 earnings growth rate

As reflected in the above graph, Dr Pepper Snapple (DPS) posted higher growth of 13.6% in its 4Q15 adjusted EPS (earnings per share) compared to peers Coca-Cola, PepsiCo, and Monster Beverage (MNST).

Dr Pepper Snapple’s lower exposure to operations outside the United States worked in its favor in 2015. During the year, the company derived 11.3% of its net sales from international operations. The growth in Dr Pepper Snapple’s 4Q15 adjusted EPS was driven by higher sales and improved margins.

Coca-Cola’s 4Q15 adjusted EPS fell by 13.6% as its bottom line was impacted by ten percentage points of currency headwinds. PepsiCo’s 4Q15 adjusted EPS fell by 5.4% on a year-over-year basis. PepsiCo’s bottom line was impacted by currency fluctuations of 8%. Coca-Cola and PepsiCo together account for about 15.1% of the iShares U.S. Consumer Goods ETF (IYK).

Monster Beverage’s adjusted EPS fell by 6.8% in 4Q15 as higher sales were offset by currency headwinds. Monster Beverage’s International sales accounted for 21.3% of its 2015 net sales. The company’s 4Q15 earnings were also impacted by a rise in the effective tax rate due to a lower domestic production deduction.

Earnings expectations

The cautious 2016 earnings guidances issued by Coca-Cola and PepsiCo have taken into account the continued impact of currency fluctuations. Coca-Cola expects its comparable currency-neutral EPS to grow by 4%–6% in 2016. PepsiCo expects its 2016 adjusted EPS to come in at $4.66, up 2% compared to 2015.

Dr Pepper Snapple expects its 2016 adjusted EPS to come in the $4.20–$4.30 range, up from $4.02 in 2015. Monster Beverage has not provided any guidance for its 2016 earnings.

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