New Tax
01-17-2009, 07:38 PM
#1
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New Tax
Coming soon to a state near you after New York passes this little gem.
After years of prosperity pushing 800-calorie Big Gulps, the makers and bottlers of sugary sodas are threatened by a new tax passing through New York state government.
Budget shortfalls in 38 states and the relative popularity of sin taxes means that the proposed 18% excise tax will spread well beyond the Empire State. "Other states have asked to share copies of the draft and have shown interest in adopting it," said a source in Albany.
As you can imagine, this is terrible news for the likes of Coca-Cola (KO), Pepsi (PEP) and the Dr. Pepper Snapple Group (DPS). Domestic beer volumes still haven't recovered after a similar measure was introduced in the early 1990s that the industry is still fighting. Recent surveys have shown that a 20% price increase on beverages would result in roughly 70% of consumers cutting back consumption. Nearly 40% of consumers indicated they would stop purchases entirely.
Recent trading action suggests investors believe widespread adoption is unlikely or the impact on earnings won't be as bad as expected. Unfortunately, market sentiment is wrong on both counts.
The Credit Suisse (CS) beverage team, led by Carlos Laboy, notes that there isn't any organized resistance to the "fat tax" legislation from the industry or from political proxies. It's worth remembering that New York has historically taken the lead on food-industry regulation (menu labels, trans fats). Moreover, Gov. Paterson seems to be focusing on this issue as "economic, political, and health trends are all stacked up against a soft drink industry at a vulnerable time." Public hearings are scheduled for February 3, so time is running out on any kind of popular uproar over this issue.
Given that full-calorie beverages account for 70% of soft drink sales, which in turn account for 70% of the overall "liquid refreshment" category that includes bottled water, teas, and sports drinks, this tax will hit roughly 50% of the Coke/Pepsi portfolio. To the fair to the bulls, the industry is trying to grow the non-carbonated business, innovate through packaging and presentation, and concentrate on price as well as volume.
But after spending countless billions on the branding of core carbonated products and building a business model that depends on massive volume, section 1105 (D) of the currently proposed N.Y. state budget represents a huge threat to an industry struggling in a more frugal and health-conscious society. I would avoid the stocks mentioned above, as well as Pepsi Bottling Group (PBG), Pepsi Americas (PAS), and Coca-Cola Enterprises (CCE
Someone correct me if I,m wrong here ,but does this not defeat the purpose of a tax increase?
Less use means less tax revenues!
After years of prosperity pushing 800-calorie Big Gulps, the makers and bottlers of sugary sodas are threatened by a new tax passing through New York state government.
Budget shortfalls in 38 states and the relative popularity of sin taxes means that the proposed 18% excise tax will spread well beyond the Empire State. "Other states have asked to share copies of the draft and have shown interest in adopting it," said a source in Albany.
As you can imagine, this is terrible news for the likes of Coca-Cola (KO), Pepsi (PEP) and the Dr. Pepper Snapple Group (DPS). Domestic beer volumes still haven't recovered after a similar measure was introduced in the early 1990s that the industry is still fighting. Recent surveys have shown that a 20% price increase on beverages would result in roughly 70% of consumers cutting back consumption. Nearly 40% of consumers indicated they would stop purchases entirely.
Recent trading action suggests investors believe widespread adoption is unlikely or the impact on earnings won't be as bad as expected. Unfortunately, market sentiment is wrong on both counts.
The Credit Suisse (CS) beverage team, led by Carlos Laboy, notes that there isn't any organized resistance to the "fat tax" legislation from the industry or from political proxies. It's worth remembering that New York has historically taken the lead on food-industry regulation (menu labels, trans fats). Moreover, Gov. Paterson seems to be focusing on this issue as "economic, political, and health trends are all stacked up against a soft drink industry at a vulnerable time." Public hearings are scheduled for February 3, so time is running out on any kind of popular uproar over this issue.
Given that full-calorie beverages account for 70% of soft drink sales, which in turn account for 70% of the overall "liquid refreshment" category that includes bottled water, teas, and sports drinks, this tax will hit roughly 50% of the Coke/Pepsi portfolio. To the fair to the bulls, the industry is trying to grow the non-carbonated business, innovate through packaging and presentation, and concentrate on price as well as volume.
But after spending countless billions on the branding of core carbonated products and building a business model that depends on massive volume, section 1105 (D) of the currently proposed N.Y. state budget represents a huge threat to an industry struggling in a more frugal and health-conscious society. I would avoid the stocks mentioned above, as well as Pepsi Bottling Group (PBG), Pepsi Americas (PAS), and Coca-Cola Enterprises (CCE
Someone correct me if I,m wrong here ,but does this not defeat the purpose of a tax increase?
Less use means less tax revenues!
01-17-2009, 08:12 PM
#2
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Joined APC: Feb 2008
Position: new guy
Posts: 382
Elections have consequences, my friends. When you vote for liberals that want to have control of your life from their legislative palaces, this is the crap you get. But, I'm sure somebody can tell me why regulating our soft drink consumption is totally good for America and exactly what the framers of our Constitution had in mind.
01-19-2009, 11:47 AM
#4
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Joined APC: Jun 2008
Position: USAF
Posts: 1,398
Producing companies will probably just lower the price of the product so it remains roughly the same to the consumer... meanwhile they just shed a few jobs back at the plant. Another possible case would be that revenues suffer for convenient stores and restaurants, so they perhaps shed a few jobs. I'm not sure what the objective is...revenue or more control. Maybe one day everyone will just move out of dumb states with silly laws and pointless taxes and then those states will stagnate until they come to their senses.
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