Coca-Cola: We Found the Fungicide

It has been bumpy trading for Coca-Cola Co. (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP) shares this year.  Year-to-date, Coca-Cola has decreased 3.7 percent, while Pepsi has fallen by 2.6 percent.  To make matters worse, the orange juice industry has received a scare of fungicide.

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On Thursday, Coca-Cola, the maker of Minute Maid and Simply Orange, said it alerted the Food and Drug Administration after it found traces of fungicide in its own and competitors’ products.  Yesterday, Pepsi, the maker of Tropicana, announced that is was not the company that contacted the FDA.  The fungicide products came from Brazilian growers that spray their orange trees with a fungicide that is not legal for use in the United States.  Brazil is the largest producer of oranges in the world.  According to the U.S. Department of Agriculture, 11 percent of all orange juice consumed in the U.S. is imported from Brazil.  So far, the levels of the fungicide that have been found are “very low”, according to the FDA.  The FDA said it does “not intend to take action to remove from domestic commerce orange juice containing the reported low levels.”

  • On Wednesday, Kaumil Gajrawala from UBS (NYSE:UBS) downgraded Coca-Cola and PepsiCo from Buy to Neutral.  “We see limited upside potential in the face of currency tailwinds and slowing volume growth,” Gajrawala wrote.  He also reduced Coca-Cola’s price target from $73 to $70, and PepsiCo’s price target from $72 to $64.  Shares of Coca-Cola currently trade near $67.50, while PepsiCo trades close to $64.60.
  • Shares of other beverage companies are off to a good start this year.  Year-to-date, Starbucks Corp. (NASDAQ:SBUX) shares have gained almost 3 percent.  In an effort to attract more customers from Dunkin Brands (NASDAQ:DNKN) and McDonald’s (NYSE:MCD), Starbucks debuted its new “blonde” coffee on Thursday.  The blonde roast is for customers who prefer a less bitter or burnt taste.
  • “It took eight months and more than 80 different recipe and roast iterations before we landed on the exact flavor profile our customers told us they were looking for,” said Brad Anderson, master roaster for Starbucks. “They told us they wanted a flavorful, lighter-bodied coffee that offers a milder taste and a gentle finish.”  UBS currently has a Buy rating on Starbucks shares, and recently raised its price target to $52.

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To contact the reporter on this story: Eric McWhinnie at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com