Coca-Cola Stock Price (NYSE:KO) Holding $70 Support – Company Considers Costa Coffee Sale

Coca-Cola is reportedly exploring the sale of its Costa Coffee chain, acquired in 2018, as the beverage giant reassesses its portfolio amidst challenging market conditions. The move, driven by Costa's underperformance, could cause shifts in the Coca Cola stock price (NYSE:KO), if the story develops further, yet the relatively small size of Costa to the KO market cap is likely to contain any move.

The Coca-Cola stock price has fallen 1% over the past 12 months, yet has regained the $70 level, as bulls look to turn previous resistance into support for a leg up.

Initial discussions are understood to have commenced with a limited number of potential buyers for Costa, primarily private equity firms, with indicative offers anticipated in early autumn. However, it remains uncertain whether Coca-Cola will ultimately proceed with the divestiture.

The potential sale of Costa Coffee comes after the chain faced headwinds in recent years. While revenue reached £1.22 billion in 2023, a 9% increase year-over-year, it remained below the £1.3 billion recorded in 2018. More significantly, Costa swung to a pre-tax loss of £9.6 million in 2023, a stark contrast to the £245.9 million profit in the previous year, attributed to inflationary pressures and investment impairments. Coca-Cola's CEO, James Quincey, acknowledged in July that Costa had “not quite delivered” and was “not where we wanted it to be from an investment hypothesis point of view,” signalling a strategic shift in the company's approach to the coffee category.

Costa Coffee operates in 50 countries with over 2,700 outlets in the UK and Ireland and more than 1,300 globally. Despite its extensive reach, the chain's financial performance has lagged expectations, prompting Coca-Cola to explore alternative strategies.

Interestingly, Costa Coffee's India operations have shown strong growth, with revenue increasing by 30.76% to ₹198.5 crore in FY25 and profit rising by 28.4% to ₹149.7 crore, driven by store expansion. However, even in India, the brand's contribution margin has been impacted by rising input costs, particularly coffee beans.

Analysts suggest that a sale of Costa Coffee at this stage could result in a multibillion-pound loss compared to the original £3.9 billion (approximately $5.1 billion) acquisition cost. Estimates indicate that Costa could now be worth around £2 billion in a sale process. However, given Coca-Cola's substantial market capitalization of over $300 billion, the financial impact is expected to be relatively contained.