The US Dollar has been staging a very strong rally, particularly during mid-December and into January. US Dollar futures rose from around $88 to a high of $95.85 during that time period. Since hitting its high, the dollar’s price action has been mostly sideways and has been struggling to regain its rally. However, the sideways range is tight and the US Dollar is still trading at $94.21, just below its high. With world central banks continuing to ease and uncertainty with the Greece debt negotiations, look for the US Dollar to continue being a go-to asset during times of uncertainty and distress.
Additionally, with a Fed Funds Rate hike planned for some point either this year or early 2016, currency speculators certainly continue to warm up with the US Dollar. Unfortunately, not everyone is cheering the higher Dollar, particularly beverage companies to name one example.
Coca-Cola, PepsiCo among others continue to feel the pressure from US Dollar
The Coca-Cola, PepsiCo, Molson Coors Brewing Company and Brown-Forman Corporation are just a few names in the industry that are experiencing sales depletion due to currency exchange rates. With all four of these companies obtaining over half of their sales outside the US, it essentially means that over half of their sales are shrinking due to exchange rates. According to Cowen and Company’s Equity Research, The Coca-Cola Co gets 49% of its sales from the US and 51% from international. PepsiCo relies on 47% US sales and 53% non-US for sales, Molson Coors Brewing Company gets 44% of its sales from US and 56% from non-US entities. Brown-Forman Corporation has the worst of it with only 40% of its sales coming from the US and 60% of its sales coming from outside the US. As you can see, The Coca-Cola Co has the most US sales exposure, but it still is just under half of its overall sales, making sales feel the pinch.
Beverage makers turn to international markets to make up for lagging US demand
As Americans continue to turn away from soda due to health concerns, sales have fallen steadily over the years. Up until 2005, US soda sales had healthy growth and continued to see consumption rise along with it. However, while sales are lower, consumption has mostly flat lined with the average American consuming 450 cans of soda per year, about the same as the average American in 1986.
Continued negative press from former New York City Mayor Michael Bloomberg’s “soda ban” for large containers and Michelle Obama’s continued health campaign against obesity, soda and beer companies continue to remain in the crosshairs.
Overall, Americans’ drinking preferences have drastically changed over the past decade. Sodas, beers, milk, juice, and powdered drinks are seeing big declines in consumption. Instead, Americans reach for tea, wine, bottled water, and spirits; certainly a new trend that has developed over the past decade, tie this in with a continued sales squeeze from currencies and it could spell a new normal for soda and beer companies.