PepsiCo has announced an impressive Q1 performance. The US firm is far more diversified than its archrival Coca-Cola; its interests in food and drinks categories other than the slow-growth carbonated soft drinks business far outstrip Coca-Cola’s. As a result, PepsiCo is proving better positioned to exploit growth potential in the global food and drinks sectors than its more illustrious competitor.
PepsiCo has announced its Q1 results, showing a rise in earnings of 18%, while earnings per share beat expectations by 1 cent to reach 34 cents. The company remains confident it will reach its 2001 goals of 12-13% EPS growth and 6-7% revenue growth, but believes a variety of factors, not least the global slowdown, could impact on its performance later in the year.
PepsiCo shares have been performing well on the back of these financials, gaining $1.01 on Monday to reach $42.27. Coca-Cola shares have also performed well, gaining $0.45 on Monday to hit $47.45. But PepsiCo’s superior performance has brought the prices closer than they have been for over four years.
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Many believe PepsiCo could finally emerge from the senior cola company’s shadow. PepsiCo’s superior performance can be at least in part attributed to its lower exposure to the ailing carbonated soft drinks (CSDs) market than Coca-Cola. The CSD market in the US grew by only 0.6% in volume terms in 2000 and growth in other developed markets was equally disappointing, particularly given the high levels of ad-spend of the two global giants.
Both companies are diversifying into other drinks markets, Coca-Cola through the introduction of new brands in the water category and PepsiCo through the $14 billion merger with Quaker Oats which will see it move into the faster growth sports drinks market with Gatorade. With its traditionally more diverse business, PepsiCo is already better placed than Coca-Cola to manage this process of ‘decola-nization’. For example, its salted snacks sales in North America rose 5% in Q1 and operating profit overseas increased by a more than healthy 35%.
If PepsiCo’s share price does rise above Coca-Cola’s, it will mark a significant moral victory for the company. Coming into the cola business decades after Coca-Cola, PepsiCo could never have won the ‘cola war’. But now that skirmish appears to be over, new battlelines in the wider food and drinks marketplace are being drawn up. For the first time, PepsiCo holds the upper ground.
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