Two Giants of the Soda and Consumer Packaged Food Industries
Direct access trading platforms have made online stock trading quite popular. But once you've decided to get on with this, you need to figure out the stocks to invest in and the segment to focus on.
It is time to turn to the soda industry and see what the prospects are. Of course, this industry is dominated by two giants, PepsiCo ($PEP) and Coca-Cola ($KO). These own a chunk of brands in the soda and the beverage segments, so let's figure out what their short-term growth plans are.
Where PepsiCo and Coca-Cola Are Similar
They intend to generate a minimum of $17 billion worth operating cash flow in 2019. They have the power to regulate pricing and benefit from huge economies of scale. So if things go as planned, we'll have shareholders experiencing reasonably good returns. The stocks also provide more than 3% dividend yields.
Where They Start to Differ
While both the stocks appear to be similar in the paths they're heading towards, with their fiscal year ending in late December, they do diverge in some key areas. Depending on what your investing preference is, you might find one stock more preferable than the other.
If you see the 2018 growth rates of these companies, there isn't much between them. In terms of organic revenue expansion, Coca-Cola had a slight advantage with 5% overall expansion as a result of greater sales growth when compared to Pepsi's 4%. Coke experienced losses with its Diet Coke, but they were offset by the success of Coke Zero Sugar that was rolled out globally. That affected Pepsi's drink business, but it made up for it with its snack business and enjoyed positive earnings note in 2018. Its sales gains rose from 3% in the first half to 4% for the whole year. That was better than the upgraded management guidance of 3% "at least".
Coke also has the edge in terms of earnings, though it still is close. Coke's bottler refranchising program enabled it to raise its core earnings for the year by 13%. Pepsi could only manage a 9% rise. Pepsi and Coke had to raise prices to make up for the increased costs in commodities, and they equally achieved moderate success in that.
Where They Differ Even More
But it is in the 2019 outlook issued by each company that investors are seeing greater differences. Coca-Cola's growth forecast is slower and its cash returns are more modest when compared to Pepsi. Coke is expecting its organic sales to slow to 4% from 5% as the earnings gain continues to be in a muted state. Pepsi's momentum has been improving in recent months and it expects growth to remain steady. High spending should result in core profits dropping slightly as per the prediction of Pepsi executives. But they expect gains in mid-single-digits to return in 2020.
Pepsi aims to earn $9 billion cash while Coca-Cola aims at $8 billion. The new CEO of Pepsi Ramon Laguarta also has a more strategic and streamlined approach towards earnings. He seems to avoid major acquisitions and prefers offering aggressive direct returns for shareholders and combining that with gradual sales growth. And Motley Fool analyst Demitrios Kalogeropoulos believes that Pepsi seems to have the advantage in cash return plans and growth momentum heading into 2019, though neither Coke nor PepsiCo seem likely to be producing major sales gains, as a result of the general challenges facing the consumer packaged food and soda industries.
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