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Coca-Cola (KO) and Nestle to Dissolve Tea Joint Venture

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The Coca-Cola Company (KO - Free Report) and Nestlé SA are preparing to end their 16-year long tea joint venture, Beverage Partners Worldwide (“BPW”), effective Jan 1, 2018.

The joint venture was formed in 2001 to offer a range of ready-to-drink NESTEA brand of tea and beverages in Europe and Canada. Growing health and wellness consciousness is cited as the main reason for the split as consumers are particularly vigilant about the use of artificial sweeteners, high sugar content and related obesity concerns.

After pulling out of the partnership, Coca-Cola will be granted a license to manufacture and distribute the NESTEA range only in seven geographic areas (Canada, Spain, Portugal, Andorra, Romania, Hungary, and Bulgaria), within the ambit of the venture.

Meanwhile, Nestle will start manufacturing NESTEA independently under its Nestlé Waters division. In Feb 2017, the company had revealed a new branding proposition for NESTEA and plans to launch four new, premium real-brewed teas.

Coca-Cola also plans to introduce tea and tea-based beverages in European markets that were part of the BPW venture and also launch new products in the seven countries where it will continue to operate.

Coca-Cola’s Road Ahead

Shift in consumer taste from carbonated soft drinks toward healthier beverages like energy drinks, tea juices and flavored waters, is hurting Coca-Cola’s sales. The company has come up with a new business strategy to reduce sugar content in more than 500 drinks and introduce a number of products in line with the dietary preference of consumers. The products will also come with proper labeling that will provide accurate information on calories and so on.

Stock Price Movement

Coca-Cola’s shares gained only 0.1% in the last three months, compared with the Zacks categorized Beverages/Soft Drink industry’s gain of 3.1%.

Meanwhile, estimates moved down over the last 60 days for the current quarter and year, justifying the company’s Zacks Rank #4 (Sell).

Stocks to Consider

Some better-ranked stocks in this industry include Coca-Cola Amatil Limited (CCLAY - Free Report) , Embotelladora Andina S.A. and Primo Water Corporation (PRMW - Free Report) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Full-year 2017 earnings are expected to increase 7.3% for Coca-Cola Amatil, 24.1% for Embotelladora and 109.5% for Primo Water.

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