- Coca-Cola reports better than expected sales
- This follows PepsiCo’s better than expected earnings reported last week
- All is not well though, as sales volumes have fallen in North America
“In the taste-test challenge of Coke versus Pepsi in their latest quarterly earnings results, Coke won. However, both sets of results pointed to a worrying factor which is falling sales volumes in a key market,” says Dan Coatsworth, AJ Bell investment analyst.
“Coca-Cola delivered earnings expectations bang in line with forecasts and a small beat on sales. PepsiCo beat on earnings but missed revenue expectations. PepsiCo suffered a 6% decline in sales volumes for the North American region across both drinks and its Quaker Foods arms, and a 2% decline in its Frito-Lay division, while Coca-Cola didn’t fare as badly with its 1% volume decline in the same region.
“Both companies have been pushing their luck with regards to price hikes in the US and it looks like consumers are reaching a tipping point where they are turning their back on some brands or buying them less frequently. The environment has shifted in the US from consumers sitting on plenty of cash, helped by pandemic stimulus payments, to now having run down that money and relying more on credit. Naturally, that means people are giving more thought to how they spend money before opening up their wallet.
“Coca-Cola and PepsiCo own some of the world’s best-known fast-moving consumer goods brands and enjoy tremendous brand loyalty, particularly when the economy is doing well. If anything, Coca-Cola has an edge over PepsiCo because cheaper alternatives to its core beverage brands often don’t taste as good so switching is less likely. The same cannot be said for all of PepsiCo’s snack brands as there are plenty of lower-price rival products which taste just as good.
“The challenge now is for Coca-Cola and PepsiCo to arrest those volume declines and stabilise the situation.
“The US economy has proved resilient thanks to strong levels of consumer spending. This momentum is now fading and so the two drinks companies will have to rely on smarter marketing to convince consumers they still need to buy their products as often as before, or something has to give on the pricing side.
“Shares in both companies are finding it harder to press ahead, which is the market’s way of saying it has concerns about future earnings growth in the current economic climate.”