Comment - The Coca-Cola Co Piles Pressure on PepsiCo
Does Coca-Cola Co have the answers that PepsiCo is searching for?
Coca-Cola produced a topsy-turvy set of figures yesterday (7 February). Profits sank by 27% for 2011 as the group continued to digest its acquisition of Coca-Cola Enterprises bottling operations in North America. Yet, favourable curreny swings and one-off gains from that deal helped net sales to rise by a third on 2010.
Behind the headline numbers, though, was an assured 5% increase in global soft drinks sales by volume. Brand Coca-Cola, now in its 126th year, grew strongly in Asia, Africa and Latin America, proving that the American dream is alive and well. That also goes for the US, as well as emerging markets, as Coke's CEO, Muhtar Kent, was only too keen to stress.
PepsiCo investors were already peering furtively over the fence at their biggest rival, and yesterday's results won't have dampened their envy. Tomorrow, PepsiCo must use its own results to explain how it will grow a lawn as green as Coke's, and the job just got a little bit harder.
Once criticised for focusing too narrowly on carbonated drinks, while PepsiCo sat aloft a mountain of Quaker Oats sipping OJ, things have come full circle. True, Coca-Cola has moved swiftly into new drinks categories to bring about a reappraisal of its worth; but, in these uncertain economic times, the firm's narrow focus appears to be paying greater dividends.
Over the last few months, there have been complaints in and around PepsiCo that people don't know where the firm stands or where it is trying to get to. Does it want to be the new Kraft Foods? Is it seeking to appropriate Nestle or Danone's health and wellness agenda? Didn't it used to sell cola? Late last year, a survey of 70 institutional investors by Sanford Bernstein saw PepsiCo desribed as "weak, stubborn, lost and over-hyped".
As tends to happen in group griping sessions, things are probably not as bad as they have ended up seeming. In case you haven't noticed, the world is in a delicate state. Yet, PepsiCo still increased net sales by 8% in the first half of 2011, excluding gains from the Wimm-Bill-Dann acquisition. Underlying earnings per share rose by 10%.
Granted, PepsiCo's share price has barely budged in the last five years, but its results are not dire. The really galling tale is Coca-Cola's comparative success in the core soft drinks arena. This week, Coca-Cola reported volume and value share gains in several key markets, including North America, and also announced an extended cost savings programme so as to plough more money into brands.
Tomorrow, PepsiCo knows that it has to match this scale of investment, and ideally beat it, as well as sell its investors a vision.
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