Recently, PepsiCo and Coca-Cola released their Q3 2017 earnings reports. While PepsiCo's revenue and net profit far exceeded Coca-Cola's, why do we say Coca-Cola won this time?
Q3 Performance of the Two Giants
| Revenue (USD billion) | YoY Change | Net Profit (USD billion) | YoY Change |
|---|---|---|---|
| PepsiCo | 162.4 | +1.3% | 21.4 |
| Coca-Cola | 90.8 | -15% | 14.5 |
PepsiCo: Revenue and Profit Both Up, but Q3 Was Challenging PepsiCo released its Q3 2017 earnings a few days ago. The data shows that Q3 revenue was $16.24 billion, up from $16.03 billion in Q3 2016, an increase of 1.3%; operating profit rose 6% to $2.99 billion; net profit increased 7.6% to $2.14 billion.
PepsiCo Chairman and CEO Indra Nooyi said: "Overall, our third-quarter business was under severe challenge, especially in North America, where revenue began to decline after two consecutive years of strong third-quarter growth." However, thanks to improvements in product lines and internal structure, PepsiCo's financial performance was still better than many peers, including General Mills and Kellogg's, whose Q3 reports showed declining revenue and profits.
"Despite challenges in our North American business, PepsiCo's global overall revenue increased, and operating profit and earnings per share both grew," Nooyi added. PepsiCo's North American business covers all beverage sales in the U.S. and Canada, including its most famous brand Pepsi, as well as certain brands licensed by Dr Pepper Snapple Group, including Dr Pepper, Crush, and Schweppes, and juice brands licensed from Dole Food and Ocean Spray.
Coca-Cola: Revenue Declined, Net Profit Soared, Non-Carbonated Drinks Shine Yesterday (October 25), U.S. beverage giant Coca-Cola also released its Q3 earnings, with both profit and revenue beating expectations. According to the report, Coca-Cola's Q3 net income was $1.45 billion, up from $1.05 billion in the same period last year. Due to the impact of refranchising its bottling operations, Q3 revenue reached $9.08 billion, down 15% year-over-year, but excluding that impact, revenue grew 4%.
Some analysts believe that Coca-Cola is currently experiencing the pain of business restructuring, but after selling bottling franchises, Coca-Cola will only provide concentrate in the future, and will not be responsible for high-cost segments such as equipment materials, production sales, and logistics. The "asset-light" business model will drive profit growth over the next two years.
During the reporting period, Coca-Cola not only received fees from selling franchise rights, but also significantly reduced operating and management expenses. According to the report, operating expenses fell about 20%, which led to a large increase in operating margin and net profit, halting the profit decline that began in 2012.
Since new CEO James Quincy took office in May, Coca-Cola has shifted to being a "beverage company" rather than a "carbonated beverage company," seeking diversified growth points, especially in health and premium products. After a quarter of testing, Coca-Cola has indeed begun to seriously shed its carbonated beverage company label.
Coca-Cola CEO James Quincy
From a business line perspective, Coca-Cola's main carbonated beverage products continued their previous sluggishness, with consumption flat year-over-year, with only Sprite and the newly promoted Coca-Cola Zero Sugar performing well. Non-carbonated beverages performed notably well, with juice and dairy, and coffee and tea business lines both seeing consumption growth of 1% year-over-year, but surprisingly, water and sports drinks consumption declined by 1%.
Comparing the Q3 data released by PepsiCo and Coca-Cola, PepsiCo's revenue and net profit far exceeded Coca-Cola's, but why do we say Coca-Cola won this time?
We found that Coca-Cola's revenue in North America increased 3%, gaining market share from competitor PepsiCo. Overall, PepsiCo's revenue growth rate was also lower than Coca-Cola's, with the former at 1.3% and the latter at 4% (excluding the impact of bottling refranchising). RBC analyst Nik Modi believes that due to its aggressive push in non-carbonated beverages, Coca-Cola is performing better than PepsiCo.
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