by Tim Schäfer and Stephan Bauer, Euro am Sonntag
Ob Technological change, lack of chips or COVID, Pepsi, Coca-Cola or Monster Beverage hardly have to worry about that. The large beverage manufacturers are resisting this crisis with their steady business. While stock markets around the world are plummeting, their prices are bracing themselves against the downward trendnd: Since the beginning of January, the broad US index S&P 500 has lost around 13 percent, and the NASDAQ technology exchange has lost around 19 percent. It was one of the worst annual developments in stock market history. In contrast, Coca-Cola increased by almost eight percent, Pepsi gained at least two percent.
Because they sell everyday necessities, these companies are largely independent of the economy. Analysts were concerned that business at PepsiCo in particular could slow as inflation-stricken consumers buy fewer snacks and drinks. But boss Ramon Laguarta raised the sales forecast for the second time this year in mid-July. He cited the category’s “resilience,” flexible supply chains, and strong market penetration. Laguarta is now targeting organic sales growth of 10% for 2022 instead of 8%.
Exciting price hikes
Consumers are still willing to pay more for drinks and snacks. PepsiCo is passing higher prices on soda and potato chips to consumers for now, but it’s uncertain how customers will react in the future. The company, which markets iconic brands like Pepsi, Mountain Dew, Gatorade and Doritos chips, hasn’t raised its profit targets in line with its revenue guidance because of uncertainty about “consumer elasticity,” which is how demand responds to price increases. Earnings are expected to increase by eight percent, as previously planned.
Chief Financial Officer Hugh Johnston fears customers may buy fewer products if prices continue to rise. If necessary, he wants to reduce the product content in order to cushion inflation. Among the higher costs PepsiCo is digesting are packaging materials and raw materials. Johnston: “There are periods where we take chips out of the bag instead of raising the price. Sometimes we actually increase the number of chips in the bag, then we can increase the price a bit.”
Pepsi Russia drama
Despite the price increases, CEO Laguarta is trying to “keep consumers with our brands.” He had already emphasized this in a discussion with investors in the spring. CFO Johnston adds, “If you look over time, our categories have always done pretty well in inflationary times. It’s a result of our performance as a company, it’s pretty inflation and recession resistant.”
However, Pepsi did not get through the turbulence of the first half of the year completely unscathed. While profits jumped from $1.7 billion to $4.3 billion in the first quarter due to the sale of juice brands such as Tropicana and Naked Juice, which the French private equity firm PAI Partners acquired, the crisis hit in second quarter too. Depreciation in the course of the Russian invasion of Ukraine pushed the result by 40 percent compared to the previous year.
PepsiCo has been doing business in Russia for more than 60 years and owns several factories there. Last year more than four percent of sales came from Russia. In early March, PepsiCo announced that it was suspending sales of its beverages in Russia. For humanitarian reasons, products such as milk, baby food and groceries that it manufactures there are said to continue to be sold. Pepsi has since reopened its Kyiv factory.
Coke fizzes
Business at arch-rival Coca-Cola was recently bubbling with vitality. From April to June, sales increased by 16 percent. After two years of the pandemic, consumers are keen on dining out and live events and are willing to spend more, James Quincey said. The CEO expects that inflation will also affect consumer spending in the second half of the year. Nevertheless, Coke raised its forecast for the year significantly and now expects growth of twelve to 13 percent instead of an organic increase in sales of between seven and eight percent.
“We continue to see strong business resilience and strong demand not just in the US but globally,” said CFO John Murphy. Above all, he focuses on increasing sales, which he calls “sales growth management”. In India, for example, Coca-Cola expanded its customer base by offering small, single-serve offerings at affordable prices.
In the first quarter, this strategy resulted in more than 500 million additional retail purchases in India, an increase of nearly 20 percent year-on-year. Approximately 70 percent of these purchases were for small packages such as returnable glass and single-use PET bottles.
Recycling is necessary
At home, Coca-Cola is cooperating with the food delivery company DoorDash to expand digital sales. In order to improve recycling and, above all, to improve the company’s own image and to counter criticism from environmentalists, the collection infrastructure is also being expanded. Reusable packaging is making progress, especially in Australia, Brazil, Japan and Mexico. Globally, the group cooperates with The Ocean Cleanup, which is testing its garbage collection system in Vietnam. It fishes plastic waste out of rivers before it ends up in the sea. Coca-Cola supports the “World Without Waste” initiative. The group wants to strengthen recycling and reduce new plastic. The goal is to recycle a different bottle or can for every bottle or can sold by 2030.
Keurig Dr Pepper, the US manufacturer of coffee machines, coffee capsules and fizzy drinks such as 7UP or Schweppes, also has its hands full. Sales increased by 12 percent in the second quarter. Bob Gamgort once again raised the bar for the full year. The CEO now wants to expand sales in the low double-digit range instead of in percentage terms in the high single-digit range.
The Americans offer a wide range of beverage capsules, from coffee to drinking chocolate to tea. Called the K-Cup, the disposable pods are specifically designed for Keurig’s one-cup machines. The giant also markets coffee beans and ground coffee in various pack sizes. Cold drinks are also included. The German billionaire family Reimann has a third stake. In addition, the chocolate giant Mondelez owns 5.3 percent of the shares.
INVESTOR INFO
After selling its fruit juice division, PepsiCo is focusing on sugar- and zero-calorie beverages and energy drinks, as well as its potato chips – the very things consumers want to consume. In the current year, the board wants to pay out $7.7 billion to shareholders. Of this, 6.2 billion are to be allocated to dividends and 1.5 billion to share buybacks. PepsiCo has been increasing its dividend for 50 years. Solid stock for Conservatives to buy and lay.
The world leader in soft drinks’ business provides a steady stream of income. The brand is well protected against high inflation and rising interest rates. Boss James Quincey got out of the bottling business and focused the group on marketing and new products. The shower company has fewer factories and is leaner. Warren Buffett owns 9.2 percent through Berkshire Hathaway and is the largest shareholder. Coca-Cola has increased its annual dividend for 60 straight years. In the turbulent stock market, the paper is a good base value.
The North American market leader for one-cup brewing systems is represented nationwide through its large sales and distribution network. The strongest brands include those known in the USA, A&W, Sunkist and Squirt, while Europeans are familiar with the brands 7Up and Schweppes. Solid group with a strong anchor shareholder. Appropriate dividend, the risks are manageable.
___________________________________
Leverage must be between 2 and 20
No data
More news about Coca-Cola Co.
Image sources: Stuart Monk / Shutterstock.com, LiliGraphie / Shutterstock.com
ttn-28