Can-Do Attitude

Image source: Chones, Jaochainoi1980 - Shutterstock

What's going on?

Coca-Cola might’ve seen a drop in sales in its third quarter, but that didn’t knock its mood: the drinks giant still reported better-than-expected results on Thursday.

What does this mean?

Both Coca-Cola’s revenues and profits beat analysts’ forecasts, though expectations weren’t necessarily high: the drinks giant’s last earnings update revealed a 16% drop in the number of drinks sold versus the same time last year. Things were still shaky this time around, sure, but they had improved: the drop was only 4%.

Coke’s sparkling soft drinks category saw the smallest decline, while its teas and coffees saw the biggest. And that might inform its response to this year’s plummeting demand: the company is cutting the brands it owns in half, so it can focus on the most popular and most promising of them. It might be hoping this – plus a slew of job cuts – will help it come out of the coronavirus crisis even stronger than before.

Why should I care?

For markets: Staples hold the economy together.

Companies that sell everyday essentials – i.e. consumer staples – are having a good quarter. Nestlé and Procter & Gamble both reported increased profits at the start of the week, while Unilever followed suit on Wednesday with its own better-than-expected results. In fact, the 4.4% growth of its organic revenues – which excludes the impact of foreign currency swings, as well as buying and selling parts of its businesses – was more than double what analysts had been expecting. 

The bigger picture: David versus Goliath. 

Customers have been flocking toward niche or private-label products in favor of big-name brands in recent years, and consumer staples have been struggling to respond. But with shoppers stocking up on big brands’ more easily available products since the pandemic took hold, that trend’s broken down. Of course, there’s nothing to say it won’t pick up and hurt the big companies’ bottom lines once again – another reason investors might want to start avoiding consumer staples. 

Originally posted as part of the Finimize daily email.

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