Shares in PepsiCo and The Coca-Cola Co rose this week

Shares in PepsiCo and The Coca-Cola Co rose this week

Shares in PepsiCo and The Coca-Cola Co rose this week as the two soft drinks giants released their second-quarter results.

But while both company’s results beat analysts' forecasts, PepsiCo’s numbers included a 1% decline in US beverage sales. Coca-Cola, however, can lay claim to winning the quarter, reporting a 3% rise in US sales.

"We expected declines in North America and see growth as an important achievement," Credit Agricole Securities analyst Caroline Levy told Business Week as she raised her fiscal 2011 earnings per share estimate for Coca-Cola to US$3.85 from $3.79.

Nonetheless, investors were pleased with the quarter and PepsiCo's stock saw a modest lift on Tuesday (20 July), with shares rising by 3.7% to $64.35 in afternoon trading. Coca-Cola shares, meanwhile, rose 47 cents to $54.55 in midday trading on Thursday.

Stifel Nicolaus analyst Mark Swartzberg said Coca-Cola’s results attest to the company’s ability to produce “healthy growth…even in the current macro environment”.

The Atlanta-based firm said it sold more soft drinks and juices in North America during the second quarter for the first time in four years. Indeed, sales volumes in North America rose for the first time since the fourth quarter of 2007, as shoppers were lured in by discounts and new packaging.

On the firm's earnings conference call this week, CEO Muhtar Kent singled out the North American market in a positive light. 

“What we are seeing today is not an aberration," he said on a conference call. “We firmly believe that North America will be a growth market of great opportunity for the next ten years and beyond.” 

Ned Douthat, chief equity analyst at Ockham Research told Forbes, however, that he believes growth potential for the firm lies more in emerging markets: “[Coca-Cola] has finally stopped the declines in shipping volumes in the US (something Pepsi has been unable to do), and we continue to believe the growth potential abroad remains explosive with rising consumerism in emerging markets," he told the news service.

Meanwhile, Coca-Cola also plans to finish its purchase of the North American assets of its largest bottler in October, aiming to improve beverage profit and distribution. The purchase is expected to enable the firm to be quicker to market with new products - because it will control distribution - and to save money. It expects to save $400m a year by 2012.

At the same time, PepsiCo is also starting a new chapter, with the purchase of it's bottlers now complete.

Moving forward, the company also plans to aggressively target overseas growth.

Janney Capital Markets analyst Jonathan Feeney told Bloomberg said PepsiCo's performance overseas will bode well for the company, especially as it continues to make inroads in growing markets like China and India.

“PepsiCo's footprint of emerging market businesses simply provide superior growth prospects in both volume and scale over the next few years,” he said.

And the firm not only has its soft drinks business to entice overseas consumers, it also has one of the largest food businesses in the world, with brands including Quaker Oats, Fritos, Munchos, SoBe, Naked Juice and Rice-A-Roni.

"They've done a tremendous job in innovation and really giving consumers what they want," Tim Hoyle, vice president of research at Haverford Investments told Reuters.

"That's really where the future growth is going to come, in Asia, the Middle East and Africa," he added, a fact that both Coca-Cola and PepsiCo are fully aware of.

Coca-Cola was the first to announce plans to invest $2bn in China over three years back in March last year.

PepsiCo followed with an announcement in May to invest $2.5bn in its food and beverage businesses in the country, also over a three-year period.

And so as the soda war between the two rivals continues, analysts polled by Thomson Reuters this week forecast earnings for PepsiCo slightly ahead of Coca-Cola at $1.08 on sales of $14.41bn, and $1.03 a share on sales of $8.7bn respectively.

While PepsiCo has completed the purchase of its bottlers, Coca-Cola is yet to close its deal.

“We continue to expect increasing relative performance of Coca-Cola versus PepsiCo...and that buying CCE North America becomes a positive as Coke delivers on the expected benefits of the transaction,” Swartzberg said.