The upcoming earnings report from Coca-Cola (ticker: KO) is expected to show solid performance, with analysts forecasting adjusted earnings of 69 cents per share on $11.4 billion in revenue. However, investor concerns over slowing demand and the impact of weight loss drugs on the company's success may overshadow these positive results.

While there is optimism that Coca-Cola will meet or even exceed consensus estimates this quarter, it may not be enough to boost the stock price. Competitor PepsiCo (PEP) recently delivered a stronger-than-expected quarter and raised its fiscal year guidance, but its stock only experienced a slight increase initially before ultimately falling by 0.4%. Year to date, Pepsi stock has seen an 11% decline, while Coca-Cola shares closed 0.9% lower on Monday, contributing to a 15% drop in the stock's value since the beginning of the year.

The struggles faced by Coca-Cola and Pepsi are reflective of the challenges confronting the entire consumer staples sector this year. The Consumer Staples Select Sector SPDR ETF (XLP) has declined by over 9%, in stark contrast to the S&P 500's 9.8% gain.

There are several factors weighing down the consumer staples sector. One significant obstacle is the shift in the investment cycle. Many investors who sought refuge in consumer staple stocks in 2022 amid market volatility have now withdrawn, enticed by better opportunities in other sectors due to high valuations, rising interest rates, and a broader market rally.

As Coca-Cola prepares to release its earnings report, it must address these concerns and demonstrate its ability to navigate through these challenging market conditions.

Concerns over Weight Loss Drugs Impact on Food and Beverage Companies

Introduction

Weight loss drugs have raised concerns about their potential negative impact on the demand for sugary snacks and drinks. This has also affected the shares of major food and beverage companies, including Coca-Cola. While Coca-Cola is yet to address this issue, Pepsi has stated that the impact has been minimal so far.

Pepsi's Response

During Pepsi's latest earnings call, CEO Ramon Laguarta acknowledged the concerns and stated that they are considering multiple positive and negative risks for their business and category.

Coca-Cola vs. Pepsi

According to Citi analyst Filippo Falorni, Coca-Cola may be better shielded than Pepsi from the effects of weight loss drugs. Falorni points out that Coca-Cola has a larger international presence compared to Pepsi and does not have a snack portfolio like Pepsi does.

Foreign Exchange Rates

Coca-Cola may face a bigger issue this quarter due to fluctuating foreign exchange rates. The strength of the US dollar against several foreign currencies in recent months has impacted the company's net operating revenue, resulting in a decrease of 4% in the previous quarter.

Impact on Coca-Cola's Earnings Per Share

Analyst Nik Modi from RBC Capital Markets highlights that the strong dollar has constrained the earnings per share growth of Coca-Cola. Despite this, Modi emphasizes that the underlying fundamentals of the company remain strong.

In conclusion, weight loss drugs have posed concerns for food and beverage companies. While the impact on Coca-Cola remains uncertain, Pepsi has indicated that the effects have been negligible thus far. Additionally, foreign exchange rates and a stronger dollar have impacted Coca-Cola's financial performance. However, analysts believe that despite these challenges, Coca-Cola's overall fundamentals remain robust.

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