PepsiCo, Inc. (PEP) reported its first-quarter earnings on April 23. In the first quarter, PEP’s EPS surpassed the consensus estimate by 6%, and its revenue exceeded analysts' estimates by 0.8%. The company has a solid earnings history, having beaten the consensus estimates in each of the trailing four quarters.
In 2024, PEP expects a 4% year-over-year increase in organic revenue and a core EPS of $8.15, representing a rise of 7% year-over-year. Despite the revenue and earnings beat in the first quarter, PEP is not a better buy than The Coca-Cola Company (KO) at this moment. Therefore, I believe waiting for a better entry point in both stocks could be prudent.
The beverage industry faces challenges such as inflation, changing rules, and shifting consumer tastes. It has also faced trouble over health and sustainability concerns. Despite showing the initial signs of easing, inflation rates have steadily increased since the beginning of this year. The rise in inflation could raise input costs for beverage companies.
However, the industry's growth is likely to be driven by the rise in disposable income, resilient consumer spending, rising demand for ready-to-drink beverages and unique flavors, and the increasing demand among older demographics with evolving beverage preferences.
Companies are innovating to protect profits and expand their markets, coupled with increased promotional activities boosting the industry's growth. The global beverages market is expected to reach $1.99 trillion by 2028, growing at a CAGR of 3.5%. Furthermore, Statista predicts the U.S. beverage market will reach $187.50 billion by 2029, at an impressive 10.7% CAGR.
Let’s take a look at the fundamentals of the two Beverages stocks, starting with the one less favorable from the investment point of view.
Stock #2: The Coca-Cola Company (KO)
KO manufactures, markets, and sells various non-alcoholic beverages worldwide. The company provides sparkling soft drinks, sparkling flavors, water, sports, coffee, tea, juice, value-added dairy, plant-based beverages, and other beverages.
In terms of the trailing-12-month asset turnover ratio, KO’s 0.48x is 41.1% lower than the 0.82x industry average. On the other hand, its 31.56% trailing-12-month EBITDA margin is 158.2% higher than the 12.22% industry average. Also, its 4.05% trailing-12-month Capex/Sales is 22.3% higher than the 3.31% industry average.
KO’s net operating revenues for the fourth quarter ended December 31, 2023, increased 7.2% year-over-year to $10.85 billion. Its gross profit for the same quarter increased 10.7% from the year-ago value to $6.22 billion. However, its net income decreased 2.9% year-over-year to $1.97 billion. Its EPS came in at $0.46, representing a decrease of 2.1% compared to the prior-year quarter.
Street expects KO’s EPS for the quarter ending March 31, 2024, to increase 2.4% year-over-year to $0.70. However, its revenue for the quarter ending June 30, 2024, is expected to decrease 1% year-over-year to $11.85 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has declined 1.5% to close the last trading session at $61.55.
KO’s POWR Ratings are consistent with this uncertain outlook. It has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a C grade for Growth. It is ranked #15 out of 33 stocks in the Beverages industry. Beyond what we stated above, we also have given KO grades for Value, Momentum, Stability, Sentiment, and Quality. Get all KO ratings here.
Stock #1: PepsiCo, Inc. (PEP)
PEP manufactures, markets, distributes, and sells beverages and convenient foods worldwide. It has seven operating segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; Asia Pacific, Australia, and New Zealand; and China Region.
On March 19, 2024, PEP introduced Bubly Burst, a fresh sparkling water drink featuring vibrant fruit flavors, no added sugar, and low calories. It offers six flavors in 100% recycled PET bottles, targeting consumers seeking a subtly sweet option in the sparkling water market.
In terms of the trailing-12-month EBIT margin, PEP’s 14.74% is 65.5% higher than the 8.90% industry average. Likewise, its 17.83% trailing-12-month EBITDA margin is 45.9% higher than the 12.22% industry average. Its 0.95x trailing-12-month asset turnover ratio is 16.7% higher than the 0.82x industry average.
PEP’s total net revenue for the fiscal first quarter that ended March 23, 2024, increased 2.3% year-over-year to $18.25 billion. Likewise, the company’s non-GAAP operating profit increased 4.9% year-over-year to $2.94 billion. Also, its non-GAAP attributable net income came in at $2.22 billion and $1.61 per share, representing increases of 7.2% and 7.3% year-over-year, respectively.
For the quarter ending June 30, 2024, PEP’s EPS and revenue are expected to increase 3.7% and 1.7% year-over-year to $2.17 and $22.70 billion, respectively. Over the past nine months, the stock has declined 7.1% to close the last trading session at $177.41.
PEP’s POWR Ratings reflect its bleak prospects. It has an overall rating of C, which translates to Neutral in our proprietary rating system.
It has a C grade for Growth and Sentiment. It is ranked #14 in the same industry. To see PEP’s Value, Momentum, Stability, and Quality ratings, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
KO shares were trading at $61.92 per share on Thursday morning, up $0.37 (+0.60%). Year-to-date, KO has gained 5.91%, versus a 5.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
IS PepsiCo (PEP) a Better Buy Than Coca-Cola (KO) Post Earnings? StockNews.com
