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What Will Drive Monster Beverage’s 2Q16 Earnings Growth?

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Impressive growth in 1Q16

Monster Beverage (MNST) impressed its investors with 26% growth in its 1Q16 EPS (earnings per share), excluding the impact of one-time items. The company delivered an adjusted EPS of $0.80 in 1Q16, exceeding the consensus analysts’ estimate of $0.74. Monster Beverage managed to deliver strong earnings growth in 1Q16 despite a significant rise in the diluted share count due to the shares issued to Coca-Cola (KO) as part of a strategic deal between the two companies. In June 2015, Coca-Cola purchased a 16.7% stake in Monster Beverage. Monster Beverage transferred its non-energy drink brands to Coca-Cola in exchange for the latter’s energy drinks portfolio, which included brands like NOS and Burn.

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Growth drivers in 1Q16

The significant growth in Monster Beverage’s adjusted EPS in 1Q16 was driven by higher sales and improved margins. Monster Beverage’s earnings in 1Q16 also benefitted from a lower tax rate. The effective tax rate was 35.8% in 1Q16 compared to 38% in 1Q15. The lower effective tax rate resulted from the domestic production deduction. The iShares Global Consumer Staples ETF (KXI) has 0.6% exposure to Monster Beverage.

Coca-Cola, PepsiCo (PEP) and Dr Pepper Snapple (DPS) reported growth of -6.3%, 7.2%, and 16%, respectively, in their adjusted EPS in 1Q16. PepsiCo’s adjusted EPS grew by 2.3% in 2Q16, driven by improved margins and the strong performance of the company’s North America business.

Analysts’ expectations

Analysts expect Monster Beverage’s adjusted EPS to increase by about 31% to $1.04 in 2Q16. Higher sales and improved margins are likely to drive Monster Beverage’s earnings in 2Q16. As we mentioned in Part 1 of this series, analysts expect Monster Beverage’s sales to rise 15.9% in 2Q16. For full-year 2016, Monster Beverage’s adjusted EPS are expected to rise 31.4% to $3.93.

We’ll discuss analysts’ recommendations and stock price movement of Monster Beverage in the next part of this series.

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