In the Spotlight - Coca-Cola Co & PepsiCo's Q3
Coca-Cola and PepsiCo both released their Q3 results this week
Coca-Cola saw North America volumes climb by a respectable 2%, pushing the company's sales in the region to 48% of the group's total, a record high since it brought its US bottler operations in-house.
On the other hand, PepsiCo's carbonated beverage volumes in the region dropped by mid-single digits, with non-carbs down by low-single digits.
In a call with analysts after the results, PepsiCo CEO Indra Nooyi was forced to again defend the North American beverage market, insisting that it remains a big money maker for the company, despite declining volumes. But, even the normally positive Nooyi seemed tired of the region's refusal to bounce back, wearily admitting to analysts that it was “anyone's guess” whether PepsiCo's much-heralded sweetener innovations, due to launch next year, will turn around CSD sales in the US.
The comments were in stark contrast to the CEO's upbeat mood when she announced the innovations in February, saying they had the potential to “alter the trajectory of the cola business”.
Perhaps, then, it was a relief to Nooyi that analysts on the call were more interested in PepsiCo's recent pricing moves than its domestic market beverage woes. In fact, both PepsiCo's and Coca-Cola's investor calls after their results were dominated by queries over price taking as analysts became jittery over what some have perceived as “irrational” discounting and price drops. Coca-Cola executives used the word “rational” four times over the course of their call, highlighting their desire to placate the stock market.
It must have worked, because Bernstein's soft drinks analyst Ali Dibadj later released a note entitled “Commitment to pricing rationality and refranchising in North America is music to our ears”.
Dibadj was happy to accept Coca-Cola CEO Muhtar Kent's assurances that recent pricing irrationality was a “one-time blip” and that he remains committed to a “rational” pricing environment in North America. However, Dibadj added that concern remains over recent promotional activity and what it “reveals about management's view on the overall health of the category and overall consumer engagement”.
Stifel analyst Mark Swartzberg was less forgiving of Coca-Cola's price manoeuvres, suggesting that the company has been forced to compete on price in the US because of a lack of innovation. This “innovation hurdle”, Swartzberg said, was the reason Coca-Cola's price mix in the region stayed flat in Q3.
PepsiCo, meanwhile, increased its North American beverage price mix by three percentage points in the same period (CSDs were up two percentage points year-to-date), leading CLSA analyst Caroline Levy to suggest that PepsiCo is “running CSDs for profitability (in North America) and looking to non-carbs for beverage growth”.
The price mix increases allowed CEO Nooyi to maintain that, when it came to rationality in the US beverage market, PepsiCo is ahead of its Atlanta rival. In fact, with PepsiCo's sweeteners and flavourings due to launch next year, PepsiCo also appears to have the drop on Coca-Cola in the innovations sphere.
“Once we have a launch date, you'll hear more about it,” Nooyi said of the new sweeteners. For now, though, the CEO can be pleased that, despite appearances that Coca-Cola got the better of the quarter, PepsiCo - in the eyes of investors who have pushed its stock up by 2% since results were released - is still in the running over the long term.
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