Soda stocks fall on Brexit
The news of the United Kingdom’s decision to exit the European Union created panic in global stock markets. On June 24, the S&P 500 Index fell 3.6%. The stock prices of soda giants Coca-Cola (KO) and PepsiCo (PEP) fell by 2.6% and 2.4%, respectively. Smaller players Dr Pepper Snapple Group (DPS) and Monster Beverage (MNST) fell 0.4% and 2.5%, respectively, on June 24.
Respondents who opted to vote for the exit of the United Kingdom from the European Union secured 51.9% of the total votes. Prime Minister David Cameron, who supported the “remain” camp, announced his resignation, which will be effective in October.
Exposure to revenue from Europe
Soda giants Coca-Cola and PepsiCo are global players with an extensive presence in over 200 countries. Europe is an important market for both Coca-Cola and PepsiCo. In 2015, Coca-Cola derived 10.3% of its net operating revenue from Europe. PepsiCo derived 3.1% of its 2015 net revenue from the United Kingdom. In all, PepsiCo’s Europe Sub-Saharan Africa segment generated 16.7% of the company’s 2015 revenue. Together, Coca-Cola and PepsiCo constitute 14.8% of the iShares U.S. Consumer Goods ETF (IYK).
Leading energy drink maker Monster Beverage also sells its products in the United Kingdom. However, Dr Pepper Snapple Group, the third-largest US soda maker, lacks a presence in the United Kingdom. Outside the United States, Dr Pepper Snapple Group sells its drinks in Mexico, the Caribbean, and Canada only.
The exit of the United Kingdom from the European Union has caused a lot of uncertainty, which will likely impact the business of global companies like Coca-Cola and PepsiCo. Macro-level volatility in the United Kingdom and Europe will adversely impact consumer confidence, which is likely to affect the revenue of global companies. However, the soda giants belong to the consumer staples sector, which includes goods that are less affected by macro-level uncertainty than products like automobiles, which are a part of the consumer discretionary sector.
However, the soda giants are likely to face significant currency headwinds, given the fall in the British pound against the US dollar. We’ll discuss this topic more in the next part of this series.