Coke reports third quarter earnings and discontinues half its brands

Coke’s burning off excess calories — by discontinuing nearly half of their brands. On Oct. 22, Coke released their third quarter results that were better than expected:

• Revenues of $8.65b, down 9% from the previous year.
• Earnings per share of $0.55 vs the anticipated earnings of $0.46.

Brewing a new formula for growth

In 2017, Coke launched over 500 brands in an attempt to spark growth and move away from its sugary addictions. Despite its efforts, half of Coke’s brands still only make up 2% of Coke’s total sales.

And now, it’s trying a different strategy — killing off a number of those brands. Goodbye Coca-Cola Life, you won’t be missed.

Here’s Coke’s new strategy:

• Focus on stronger brands by directing its sales and marketing efforts and leaving shelf space for top selling products.
• Reduce cost by cutting marketing & sales teams, simplifying the production process and reducing R&D costs.

Are you a Coke or Pepsi drinker?

COVID chooses PepsiCo whose stock is up over 3% in 2020, while Coke’s is down ~8% in the year. The Pepsi vs. Coke battle goes back decades with millions spent on advertising, perfectly timed movie placements and the introduction of new products that no one asked for.

While both companies saw their beverage sales drop during COVID, Coke, who generates most of its revenue from beverages and nearly 50% from away-from-home channels (e.g. stadiums, events, restaurants and bars), took a bigger hit.

PepsiCo, on the other hand, had a more balanced diet — having earned 41% of its North American revenue from Frito-Lay’s and Quaker Foods in 2019. Both these units saw growth of 6% as more consumers consumed more snacks and food at home.

PepsiCo hands down, won this battle.

For investors… Watch your calories

Coke is considered a recession-proof stock that holds up despite uncertain market conditions — after all, everyone drinks Coke even during a recession right? Turns out, not even Coke is immune to a pandemic. Its stock has yet to recover to its pre-COVID levels and with countries going back into lockdown, investors should hold back on the sugar binge.