The pandemic had a mixed impact on packaged food and beverage companies. The stay-at-home orders led to increased demand in the at-home channel, but lower demand in on-the-go channels significantly hurt sales.
Coca-Cola and PepsiCo have been closely competing in the non-alcoholic beverage space for decades. Amid the current crisis, which stock offers a better investment opportunity?
The pandemic’s impact on Coca-Cola’s second-quarter performance was so immense that the company posted its largest revenue decline in at least 30 years. The second-quarter revenue fell 28 percent year-over-year to $7.2 billion, while organic revenue plunged 26 percent.
Before COVID-19, Coca-Cola’s soda volumes were improving due to its efforts to offer smaller packages and better beverage choices like Coca-Cola Zero Sugar. But the pandemic hurt the category and sparkling soft drinks volumes were down 12 percent in the second quarter with Coca-Cola Zero Sugar declining four percent.
The pandemic did not spare other categories either. Tea and coffee volumes fell 31 percent and volumes of water, enhanced water and sports drinks were down 24 percent. Also, volumes of juice, dairy and plant beverages tanked 20 percent.
Coca-Cola has been focusing on the non-soda categories as consumers have been shifting from sugary soda drinks to healthier options. It has been expanding its non-soda portfolio through innovation and several acquisitions, including Britain’s Costa coffee.
Coca-Cola intends to streamline its beverage portfolio by focusing on fewer but bigger and stronger brands. Of the company’s 400 master brands, more than half are single-country brands and these generate only two percent of the overall revenue. The company wants to get rid of such brands and direct its resources to the popular ones.
Coca-Cola stock has declined 13 percent year-to-date in 2020. The average price target of $54.67 reflects an upside of about 14 percent over the coming 12-months.
PepsiCo has also been impacted by the current crisis. However, the company’s snack food business has helped its resilience despite several challenges. PepsiCo’s second-quarter revenue declined 3.1 percent year-over-year to $15.9 billion, while organic revenue was down 0.3 percent.
Consumers spent more time at home and avoided eating out. This drove the demand for PepsiCo’s food business. PepsiCo’s Frito-Lay North America business grew seven percent and in fact, the company gained market share in salty, savory and macro-snacks. Revenue from Quaker Foods North America surged 23 percent.
Overall, the segment’s soda volumes fell ten percent and non-soda volumes were down eight percent. On the brighter side, the company gained market share in ready-to-drink coffee, tea and enhanced water. Also, Pepsi Zero Sugar and Bubly delivered double-digit growth.
PepsiCo is seeking growth in the energy drinks space through its Rockstar acquisition and distribution of VPX Sports’ Bang energy drinks. It is also enhancing its portfolio of better beverage and food options. PepsiCo aims to ensure that over 67 percent of its beverage volumes don’t have more than 100 calories from added sugar per 12 ounces by 2025.
Keeping in view the recovery in several markets, PepsiCo predicts low-single-digit organic revenue growth in the third quarter.
The Better Beverage Stock
Both Coca-Cola and PepsiCo are often preferred stocks for their steady dividends. Coca-Cola has hiked its dividends for 58 consecutive years while PepsiCo has raised its dividends for 48 years. Coca-Cola has a higher dividend yield of about 3.5 percent compared to PepsiCo’s three percent.
PepsiCo’s exposure to snack foods gives it an edge over Coca-Cola. PepsiCo’s second-quarter performance and year-to-date stock movement are better than Coca-Cola. But keeping in view the upside potential over the next 12 months and lower valuation, Coca-Cola looks to be a better bet.