U.S. consumers are losing interest in sodas and carbonated beverages since people are becoming increasingly health conscious. This has led to a lot of innovation on the part of soda retailers. In fact, retailers such as PepsiCo (PEP) have diversified their business, getting into the food business so much that it now makes more than half of its revenue. This has helped the retailer boost its performance over the last few years. On the contrary, Coca Cola (KO) is suffering from declining sales in North America.
Both the companies reported their recently ended second quarter results, which affirmed the prevailing problems in North America. Coca Cola’s results failed to meet analysts’ expectations, enabling its share price to fall. On the other hand, PepsiCo’s quarter was mixed, leading to an increase in share price.
The case of Coca Cola
Revenue declined slightly, to $12.57 billion, over last year. This was below the estimate of $12.83 billion. Although worldwide volume growth was 3%, volumes in North America were flat for the quarter. Nonetheless, earnings jumped to $0.64 per share, 6% higher than the prior year. The bottom line was a penny more than what analysts were expecting. Hence, the company managed to register earnings growth, despite the prevailing headwinds in North America.
One of the key drivers of revenue growth was increased marketing efforts in FIFA World Cup, held during the quarter. Coca Cola was one of the sponsors in the World Cup. Also, the activation of “Share a Coke” ad campaign helped in attracting people.
On a global basis, the soda retailer witnessed growth across all the beverage categories, such as teas, sports drinks and packaged water. However, juice and juice drinks registered a decline of 1%, mainly because of the increase in price in North America.
PepsiCo leads the way
PepsiCo, on the contrary, managed to register an increase of 0.5% in the top line, clocking in at $12.89 billion. This was in line with what analysts were expecting. In fact, organic revenue growth stood at 3.6% during the quarter. The reason is obvious. PepsiCo derives most of its revenue from food business, which is doing very well. Therefore, it is able to post better results over its rival.
Global snacks sales grew 5%, whereas global beverages, organic revenue jumped 2%. Beverage segment was positive mainly because of growth in emerging markets. Sales in emerging markets grew 8% over the prior year’s quarter. Also, innovation played a key role in PepsiCo’s results.
The bottom line stood at $1.32 per share, 9% higher than last year. Also, it was ahead of analysts’ estimate, which stood at $1.23 per share. Despite higher marketing and advertising spending; the food and beverage retailer did a commendable job of managing its costs efficiently.
It is quite evident that PepsiCo is making its way out of the situation, in a better way than its rival. Currently, Coca Cola has a higher market share of 42.4% as compared to PepsiCo (28.7%). But if PepsiCo continues to perform better than Coca Cola, there might be a time when the former outpaces the latter. Even otherwise, PepsiCo seems to have better prospects, owing to its diversified product portfolio. Therefore, it is safer to invest in PepsiCo since it helps in gaining from both, the food growth and the beverage growth.