The non-profit Praxis Project filed a suit against The Coca-Cola Company KO and the American Beverage Association trade group for misleading consumers regarding the health risks associated with its soft drinks. Shares of Coca-Cola closed the trading session on Jan 4 at $41.65, down 0.4% from the previous day.
Coca-Cola has been accused of understating the ill-effects associated with sugary drinks in its advertisements. Praxis also accused both the defendants for deceiving the public into believing that lack of exercise is the only cause for obesity.
However, Coca-Cola deems the lawsuit as "legally and factually meritless” and claims to have taken the health of their consumers very seriously. American Beverage Association found the accusation "unfounded."
Notably, the company’s North American sparkling beverage business has been posting weak results due to Carbonated Soft Drink (CSD) category headwinds. Cross-category competition and growing health and wellness consciousness — consumers are particularly vigilant about the use of artificial sweeteners, high sugar content and related obesity concern — are hurting demand for CSDs.
Among CSDs, the cola segment has been particularly affected as consumers are opting for alternative beverage offerings. The diet drinks are also under pressure due to increasing consumer concern regarding the use of artificial sweeteners.
Also, possible new taxes levied on sugar-sweetened beverages and growing regulatory pressure are denting CSD sales. The challenges in the CSD category have been felt by all major soft drink makers – Pepsico, Inc. PEP, Dr Pepper Snapple Group, Inc. DPS and Monster Beverage Corporation MNST – leading to lower volumes and weak sales.
The Zacks categorized Beverages-Soft Drinks industry has underperformed the broader market in last six months as you can see below:
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Though Coca-Cola has ramped up its marketing investments and is driving package and product innovation to boost its carbonated beverage business, these efforts have not as yet resulted in any meaningful improvement.
Notably, Coca-Cola’s top-line underperformance has been quite noticeable in the first nine months of 2016. The company’s shares have also seen quite a struggle in the last six months, with the stock losing 8% compared to the Beverages – Soft Drinks industry’s decline of 6.5%.
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Earnings growth for the current quarter and year is expected to decline 3.8% and 4.6%, respectively, for this Zacks Rank #4 (Sell) stock.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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