Coca-Cola earnings get a jolt from ready-to-drink Costa Coffee

Jul. 23, 2019

Coca-Cola stock us up 5.2% after an earnings and revenue beat

Coca-Cola Co. has always been in the caffeine business, but now the soda company is getting a bigger jolt from coffee.

Coca-Cola (KO) stock reached a record high, surging 5.2% in Tuesday trading after it reported second-quarter earnings and sales that beat expectations. The company called out canned, ready-to-drink Coca-Cola Plus Coffee among the beverage standouts. Diet soda Coca-Cola Zero Sugar was another.

In particular, the company highlighted the launch of Costa Coffee ready-to-drink products in Great Britain, “marking the first major introduction since Coca-Cola acquired Costa earlier this year,” the earnings release said.

Coca-Cola finalized the Costa acquisition in January 2019.

“Ready-to-drink is a small percentage, about 8% of the in-home coffee business, but compared to the rest of the category, it’s growing,” said David Portalatin, analyst at NPD Group.

According to Portalatin, millennials and Gen Z are ready-to-drink consumers, and that “would be the reason for optimism around ready-to-drink.”

Coca-Cola plans to bring the product to other markets during the second half of the year. However, Wells Fargo analysts surveyed convenience-store retailers who say they haven’t heard of any plans to bring Costa Coffee to the U.S., “suggesting that a domestic launch is likely still several quarters away,” analysts wrote in a July 17 note.

“[C]onsistent with our other innovations, ready-to-drink Costa leverages a unique brand and product edge that will allow us to capture category growth,” said James Quincey, Coca-Cola’s chief executive officer, on the earnings call, according to a FactSet transcript.

Purchasing coffee away from home, such as at chains like Starbucks Corp. (SBUX) and Dunkin’ Brands Group Inc., (DNKN) is still growing as well, Portalatin said, but there have been recent developments in the to-go coffee category that indicate the competition there is heating up. Caribou Coffee, for instance, introduced ready-to-drink cold brew coffee products on July 11.

And Starbucks introduced a line of creamers this week through a partnership with Nestlé. Creamers are expected to be a $7.8 billion category in the U.S. by 2023, according to Starbucks.

Both companies see creamers as an opportunity thanks to “millennials and their desire for a more premium experience,” Daniel Jhung, president of the beverage division at Nestlé, told MarketWatch.

“We see this as a natural continuation of our business,” added Duncan Moir, president of global channel development at Starbucks.

The line of creamers are inspired by customer favorites: caramel macchiato, white chocolate mocha and cinnamon dolce. They will be available across grocers like Walmart Inc. (WMT) and Kroger Co. (KR)

Coca-Cola stock has rallied nearly 20% over the past year. Starbucks, which is scheduled to announce its quarterly earnings on Thursday, has soared 76%. In comparison, the Dow Jones Industrial Average (^DJI) has gained nearly 9% over the past 12 months