PepsiCo has historically been the underdog in the battle with Coca-Cola, but quarterly earnings updates this week suggest the number two cola brand is adapting more effectively than its rival.
Pepsi beat analyst expectations with a 41% jump in first-quarter net income and a better than forecast 1.6% rise in net revenues to $12.1bn. The period marked its second quarter of sales growth after eight consecutive quarters of falling sales, signifying Pepsi’s big strides in adapting to changing consumer tastes. Some 45% of the group’s products now have ‘guilt-free’ credentials after it invested outside carbonated drinks into baked potato chips and unsweetened teas.
Chairman and CEO Indra Nooyi said this had helped it overcome “challenging food and beverage industry trading conditions in North America and continued volatility in a number of developing and emerging markets”.
Société Génerale called Pepsi “one of the best ‘pipe and slippers’ stocks to own”, adding: “This is a sleep easy at night staple and a steady compounder with a busy innovation pipeline.”
In contrast, under-pressure Coca-Cola reported on Tuesday its first-quarter earnings dropped by 20% amid a double-digit sales decline and higher than expected costs relating to the restructuring of its bottling operations. Although Coke adjusted full-year earnings expectations marginally upwards and promised an additional $800m of annual cost savings, it is still guiding towards a full-year adjusted profit decline of 1%-3%.
Bernstein labelled Coke’s first quarter “boring” but was more encouraged by the pace of its restructuring. The broker said: “Over time, we see Coca-Cola benefiting from strong price momentum driving solid long-term prospects for 4%-5% top-line growth, significant cost-cutting opportunities, and a broadly healthy global system.”
Pepsi stock slipped 0.7% to $113.33 on Wednesday, but is up 10.4% over the past year. Coca-Cola edged back 0.4% to $43.11 on Tuesday and remains 3.2% down over the past year.
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