On February 10, before the U.S. stock market opened, Coca-Cola and PepsiCo, two major food and beverage retailers, almost simultaneously released their Q4 and full-year 2021 earnings. Behind the two better-than-expected performances are different highlights and drivers: for example, Coca-Cola's sparkling soft drinks business grew 9% for the year, with zero-sugar Coca-Cola achieving double-digit growth in both the quarter and the year, while PepsiCo disclosed that sales of soda and snacks after consecutive price increases were better than expected. The performance of the "two colas" remains strong, but the shadows of inflation and cost pressures linger; under the health trend, sparkling water and functional drinks are taking over from carbonated beverages, and Genki Forest and others are also challenging the territory of the "two colas."
Performance Growth Under Pressure Over the past year, both "two colas" achieved better-than-expected results. According to newly released data, Coca-Cola's full-year 2021 net revenue was $38.655 billion, up 17% year-over-year, exceeding market expectations of $38.08 billion; operating profit was $10.308 billion, up 15% year-over-year; comparable earnings per share were $2.32, higher than the market expectation of $2.29. In the fourth quarter, Coca-Cola's net revenue was $9.464 billion, up 10% year-over-year, exceeding market expectations of $8.94 billion; comparable earnings per share were $0.45, higher than the market expectation of $0.41; net profit attributable to shareholders was $2.414 billion, up 66% year-over-year. Unlike Coca-Cola, which focuses on being a "total beverage company," PepsiCo, positioned as a "food and beverage enterprise," takes a diversified path with a broader revenue base. According to the earnings report, PepsiCo's full-year 2021 revenue was $79.474 billion, up 12.9% year-over-year; net profit was $7.679 billion, compared to $7.175 billion in the same period last year; earnings per share were $5.49. Although PepsiCo's fourth-quarter sales were better than market expectations, net profit declined year-over-year. According to PepsiCo's disclosure, fourth-quarter net sales increased 12.4% year-over-year to $25.2 billion, far better than the market expectation of $24.2 billion; net profit was $1.322 billion, with core EPS of $1.53 slightly exceeding expectations, but down significantly by 28% from the same period last year, reflecting the impact of inflation on the company's profits. As of the time of writing for Consumer Titanium, Coca-Cola's total market value was $265.1 billion, and PepsiCo's was $232.8 billion. Challenges from the macro environment are reflected in the earnings reports of both "two colas." Coca-Cola warned that rising exchange rates and commodity costs could affect 2022 performance. PepsiCo stated that due to inflation, it expects organic sales growth of 6% in 2022, lower than the nearly 10% growth expected last year. Recently, PepsiCo's CFO said that in the first quarter of this year, PepsiCo may continue to raise product prices to cope with increased costs. Almost simultaneously with the earnings release, news of Coca-Cola price increases emerged. On February 8, Coca-Cola Bottlers Japan announced that from May, it would raise prices for large-capacity products: including carbonated beverages such as "Coca-Cola" and the green tea brand "Ayataka" produced by Coca-Cola Company, targeting 2-liter and 1.5-liter large bottles. In fact, since April last year, Coca-Cola Company announced it would raise product prices, and then PepsiCo raised prices for soda and snacks. As for whether PepsiCo will implement its price increase plan in the first quarter of this year? As of the time of writing, PepsiCo had not responded to Consumer Titanium.
Two Models, Two Answer Sheets Facing the same external pressures, what brought better-than-expected performance to the two traditional giants? The answers are not the same. According to Coca-Cola's earnings report, beverages with health labels such as zero-sugar and nutrition grew faster than traditional "happy water" (carbonated drinks). Data shows that Coca-Cola's sparkling soft drinks business grew 8% in volume in the fourth quarter and 9% for the year. Among them, zero-sugar Coca-Cola achieved double-digit growth in both the quarter and the year; nutrition drinks, juices, dairy, and plant-based beverages grew 11% in quarterly volume and 12% annually; hydration drinks, sports drinks, coffee, and tea businesses grew 12% in volume in the quarter and 7% annually. By region, in the fourth quarter of last year, Coca-Cola's global single-serve volume grew 9%, and 8% for the year, mainly driven by strong growth in China, India, and the Philippines, as well as growth in the United States, Mexico, and the United Kingdom. In the fourth quarter, Asia-Pacific market single-serve volume grew 11% year-over-year. Regarding Coca-Cola's performance over the past year, Jiang Han, a senior researcher at Pangoal Institution, analyzed: "Coca-Cola's market influence is unparalleled, with a global market share of up to 44% in the carbonated beverage market. Under the influence of health concepts, it has not sat idly by. Through R&D, acquisitions, and other means, it continuously launches new products, and the total beverage strategy has achieved significant results. In marketing, Coca-Cola strongly binds with the concepts of Generation Z. In short, the long-term value allows Coca-Cola to rise against the market on a large scale." PepsiCo's fourth-quarter revenue by business and region shows: Frito-Lay North America revenue was $6.167 billion; Quaker Foods North America revenue was $0.912 billion; PepsiCo Beverages North America revenue was $7.644 billion; Latin America revenue was $2.799 billion; Europe revenue was $4.345 billion; Africa, Middle East, and South Asia revenue was $1.928 billion; Asia Pacific, Australia, New Zealand, and China region revenue was $1.453 billion. PepsiCo revealed that although the shadow of inflation remains, sales of soda and snacks after consecutive price increases were better than expected. Market analyst Daniel Schönberger publicly pointed out that Coca-Cola and PepsiCo seem very similar in many different aspects, with more or less similar dividend yields, similar payout ratios, and similar P/E ratios for both stocks. But over the past five years, PepsiCo has increased dividends at a higher rate and can also increase revenue and earnings per share at a higher rate. However, Coca-Cola's operating margin is much higher... Compared with Coca-Cola, some of PepsiCo's advantages are reflected in a more diversified business, with 45% of total revenue from beverages and 55% from food. Not only does it see higher growth potential, but it can also generate higher profits." But in the view of Zhu Danpeng, a Chinese food industry analyst, PepsiCo's "walking on multiple legs" may not be smooth sailing: "Developing the food business requires facing fierce competition from other large international enterprises and regional leading companies, often requiring substantial marketing and personnel expenses, so the net profit margin will inevitably be significantly lowered. This is a major challenge PepsiCo will face in the future."
The Health Competition The performance of the "two colas" remains strong, but it is also an indisputable fact that sparkling water and functional drinks are taking over from carbonated beverages, and the emergence of Genki Forest and others is a reality. Xu Xiongjun, a strategic positioning expert and founder of Shanghai Jiude Positioning Consulting, analyzed for Consumer Titanium: "The traditional food and beverage industry as a whole is continuously declining, the demographic dividend has disappeared, and the unhealthy label goes against the health trend. These are all pressures the 'two colas' currently face. Part of Coca-Cola's new performance growth is also due to the popularity of low product prices in a weak consumption environment, but such growth is only temporary." In Xu Xiongjun's view, the previous global decline of the "two colas'" ace product, carbonated beverages, is irreversible. According to Euromonitor data, in 2020, carbonated beverages were the world's largest soft drink category, holding a 35.28% share; packaged water and juice drinks were the second and third largest soft drink categories. From the changes in the product structure of soft drinks from 2016 to 2020, it can be seen that in recent years, people's consumption concepts have changed, pursuing "sugar-free, low-sugar," and the market share of carbonated beverages declined from 36.91% in 2016 to 35.28% in 2020. Energy drinks are also increasingly popular, with market share rising from 5.66% in 2016 to 6.58% in 2020. As consumers turn to healthier categories, it has directly spawned many low-sugar, low-calorie, low-fat sparkling beverages, forming a new "sparkling water" trend. Latecomers such as Genki Forest, Heytea, and Qingquan Chushan have gained capital favor. In the view of industry insiders, looking ahead to 2022, the healthier "two colas" have more competitive advantages. "The growth momentum of safer, healthier, and more natural beverage categories under Coca-Cola and PepsiCo is indeed good. Compared with new brands with annual revenue of several billion and just gaining a foothold, the 'two colas' have undeniable advantages in scale, resources, channels, and brand momentum. But as giants, they also need to learn from latecomers like Genki Forest, cater to internet-savvy consumers, and develop a new generation of safer and healthier products." Xu Xiongjun also pointed out that timely extension and cross-industry expansion into promising sectors will also bring new prospects for traditional giants. Along with the earnings release, both companies also provided estimates for 2022. Coca-Cola expects full-year 2022 organic revenue growth of 7%-8%, with earnings per share growing 8%-10% year-over-year. At the same time, the company expects that headwinds from commodity price inflation will cause mid-single-digit growth in its costs. PepsiCo said it expects full-year 2022 organic revenue to grow at approximately 6%. Due to value chain inflation pressures and their impact on planned business investments, core constant currency EPS growth is 8%. In addition, PepsiCo announced that from June 2022, it will continue to increase the annual dividend by 7%, marking the 50th consecutive year of dividend increases. The board also authorized a four-year share repurchase program of up to $10 billion. Source: Consumer Titanium (ID: xiaofeitaidu) -END-