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Coca-Cola (KO) on Track to Streamline Its Brand Portfolio

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Beverage giant The Coca-Cola Company (KO - Free Report) has discontinued its energy drink line in North America, per sources. Given the rise in demand for energy drinks, the company introduced the Coca-Cola Energy in January 2020, just before the COVID-19 pandemic devastated the world. As a result, peoples’ lives changed drastically apart from several other things including the companies’ strategies.

Markedly, the decision to cease the retail of energy drinks in North America might probably be part of the company’s efforts to streamline its brand portfolio. On its last earnings call, management confirmed that the company remains committed toward restructuring its growth portfolio by actively and meaningfully transitioning brands to powerful trademarks.

Moreover, the company has been maximizing shelf space with new and higher-velocity products to fuel growth. Coca-Cola is highly focused on disciplined resource allocation to cash in on the biggest opportunities while making quick portfolio decisions.

Per media reports, Coca-Cola energy drink failed to gain the required traction. However, sources say that this energy drink, which contains guarana extracts, B-vitamins and caffeine among others, will be available in other parts of the world. Having said that, Coca-Cola still holds a stake in Monster Beverage (MNST - Free Report) , the key marketer and distributor of energy drinks and alternative beverages.

What’s More?

Last month, Coca-Cola reported sturdy results for first-quarter 2021 wherein both earnings and sales beat the Zacks Consensus Estimate and also improved year over year. In the quarter, the company benefited from underlying share gains in both at-home and away-from-home channels, which were largely offset by a negative channel mix due to pressures in the away-from-home channel. Notably, the company has a majority interest in the away-from-home channel.

Its top line benefited from a better price/mix and an increase in concentrate sales. Gains from aggressive cost management aided margins. However, Coca-Cola lost a global value share in total non-alcoholic ready-to-drink beverages during the reported quarter.

Notably, Coca-Cola reinstated guidance for 2021 despite the lingering uncertainties related to the coronavirus pandemic. It estimates organic net sales growth in high-single digits for 2021. Management expects a comparable earnings per share growth rate of high-single to low-double-digits whereas the company reported $1.95 in 2020.

Going forward, it is poised to gain from its portfolio rationalization and accelerating investments to expand its digital presence. Driven by a shift in consumer behavior amid the coronavirus outbreak, Coca-Cola is steadily witnessing a splurge in e-commerce. The company is speeding up investments to expand its presence in this channel more than the pre-crisis levels. It is also consistently strengthening consumer connections and further piloting various digital-enabled initiatives through fulfillment methods to capture online demand.

Encouragingly, shares of this currently Zacks Rank #3 (Hold) company have gained 9.2% in the past three months compared with the industry’s 7% growth.

Key Picks in the Consumer Staples Space

Medifast, Inc. (MED - Free Report) delivered an earnings surprise of 12.7% in the last four quarters, on average, and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

US Foods Holding Corp. (USFD - Free Report) has a trailing four-quarter earnings surprise of 3.4%, on average and a Zacks Rank of 1.

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