Cola Giants Adjust Caramel Color (revised) - Analyst Blog

By Zacks Equity Research,

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Cola giants PepsiCo Inc ( PEP ) and Coca-Cola Co ( KO ) recently announced that they will update the manufacturing process of the caramel color used in all their products.

Both Coca-Cola and PepsiCo use caramel coloring to give their respective colas a distinctive brown color. The Center for Science in the Public Interest ( CSPI ) recently released studies which showed that the caramel coloring contains large amounts of a chemical, 4-ethylimidazole (4-MI), which has been associated with cancer in animals. Accordingly, CSPI has requested the US Food and Drug Administration (FDA) to ban the use of caramel coloring. The FDA is currently reviewing the issue.

This threat of having to include warning labels has triggered both PepsiCo and Coca-Cola to ask their caramel supplier to alter the manufacturing process to reduce the level of the disputed chemical in the caramel. The companies have asserted that their products do not carry any cancer risk and the manufacturing change will have no effect on the color, quality or taste of their popular beverages. PepsiCo's caramel suppliers have already made the change in California and the company is looking forward to making the change elsewhere in US.

Our Recommendation

We currently have a Neutral recommendation on PepsiCo and Coca-Cola. However, the Coca-Cola stock carries a Zacks #3 Rank (Hold rating) while PepsiCo retains a Zacks #4 Rank (Sell rating) over the short term.

(We are reissuing this article to correct a mistake. The original article, issued yesterday, March 12, 2012, erroneously stated that the products may have increased cancer risks. We regret our error.)

COCA COLA CO ( KO ): Free Stock Analysis Report
PEPSICO INC ( PEP ): Free Stock Analysis Report
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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: CSPI , KO , PEP

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