Coca-Cola stock has recently faced a lackluster period of trading, with investors expressing worries about the consumer staple sector.
In 2022, consumer staples were a reliable investment amid market volatility and high inflation. The Consumer Staples Select Sector SPDR Fund (ticker: XLP) showed impressive resilience, only losing 3.3% while the broader S&P 500 declined by 19%. Coca-Cola (KO) played a significant role in raising the market value of the staples ETF, achieving a notable gain of 7.4%.
However, this dynamic has changed in the current year as concerns over inflation and recession have waned. The consumer staples ETF has experienced a 4% decline, while the broader S&P 500 has seen a 16% increase, and the Consumer Discretionary Select Sector SPDR Fund (XLY) has enjoyed a remarkable 30% surge.
According to Robert Sluymer, technical strategist at RBC Wealth Management, safety sectors like utilities and staples remained weak during the market downturn in August. Despite being oversold, these sectors have shown no significant signs of improvement. Coca-Cola’s weak performance reflects this trend, as pointed out by Sluymer.
Coca-Cola did not immediately respond to our request for comment.
In addition to these concerns, it seems that other factors may also be contributing to Coca-Cola’s struggles. The company’s stock has declined by 8.3% this year, underperforming the broader consumer staples sector.
Coca-Cola Faces Challenges amid Inflation Slowdown
Coke stock remained unchanged on Friday, ending an eight-day losing streak but reaching its lowest close since October 24, 2022. Last year, concerns over foreign exchange rates and a strong dollar impacted Coca-Cola’s performance.
This time, however, a deceleration in inflation is taking a toll on Coca-Cola and other consumer staple stocks. Many companies were able to increase revenue by raising prices in response to inflation, but with the slowing of inflation, they are facing limitations in price hikes.
Coca-Cola’s CEO, James Quincey, acknowledged that their pricing is expected to moderate as they cycle pricing initiatives from the previous year. Additionally, Citi analyst Simon Hales observed a sales slowdown in beverage and household products due to weakening pricing power among companies.
Despite these challenges, Coca-Cola remains one of Hales’ top picks in the sector. The company surpassed second-quarter earnings and sales expectations and adjusted its fiscal-year guidance. Coca-Cola experienced a 10% increase in average selling prices during the second quarter, despite global unit volumes remaining flat and modestly declining in the U.S.