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Monster Beverage (MNST) Strong on Innovation, Fx Woes Stay

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Monster Beverage Corporation’s (MNST - Free Report) strong product portfolio, strategic deal with The Coca-Cola Company (KO - Free Report) and focus on innovation are encouraging.

Monster Beverage offers a wide range of products under the energy drinks category. Energy drinks constitute one of the few sub-categories that continue to gain momentum. Net sales at the segment, comprising Monster Energy drinks as well as Mutant Super Soda drinks, increased 9.6% in 2016 and 8.7% in the first half of 2017. Thus, a portfolio based on energy drinks should continue to drive the company’s top line.

Product innovation plays a huge role in the company’s success. There is consistent demand for new products that are appetizing as well as healthy. The company regularly introduces new flavors of existing products, while removing non-performing ones.

Monster Beverage launched a number of products in the first half of 2017 and has several new products lined up for launch in the remaining of 2017. In April, the company launched a Lewis Hamilton signature Monster Energy drink in Great Britain, followed by launches in 21 European markets in the second quarter of 2017 and South Africa in July 2017. Notably, these new products will benefit from the broader distribution network from the deal.

Also, Monster Beverage’s products enjoy greater exposure, courtesy of the strategic deal with Coca-Cola. Under the strategic deal, Coca-Cola and its bottling partners will act as Monster Beverage's preferred distribution partner globally. The company’s cash balance also received a major boost from the deal. The deal provides Monster Beverage full access to Coca-Cola’s world-class global distribution network. Monster Beverage generated 26% of its net sales outside the United States in the first half of 2017.

Challenges

Softness in the beverage industry and unfavorable currency translations raise concerns. The soft drink industry has been facing the brunt of shift in consumer preference toward healthier options. This changing preference is impacting the volumes of beverage companies like Monster Beverage, Coca-Cola, PepsiCo Inc. (PEP - Free Report) and Dr Pepper Snapple Group, Inc .

Moreover, though the U.S. dollar has recently softened against other currencies, the impact is still significant. Net changes in foreign currency exchange rates affected net sales at the Monster Energy Drinks segment by $12.9 million in the first half of 2017.

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