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Earnings season is well underway, and each week brings an exciting new list of companies slated to release quarterly results. Supply-chain bottlenecks, soaring energy prices, high labor costs, and other economic restraints have weighed heavily on companies throughout the quarter.
A pair of rivals on deck to report quarterly results next week are Coca-Cola (KO - Free Report) and PepsiCo (PEP - Free Report) . Both companies reside in the Zacks – Beverages and Soft Drinks Industry, an industry that currently ranks in the bottom 20% of all Zacks industries.
Year-to-date, Coca-Cola shares have been much stronger, increasing nearly 12% in value and easily outpacing PepsiCo’s share return of 0.6%.
Image Source: Zacks Investment Research
However, KO and PEP shares have primarily traded in line with one another over the last year, increasing by 24% and 22%, respectively.
Image Source: Zacks Investment Research
Clearly, Coca-Cola has been the better investment in 2022, but what about moving forward? Let’s analyze critical metrics of each company heading into their quarterly reports to discover which company will give you a better bang for your buck.
Coca-Cola
Soda sales have been decreasing over the years, negatively impacting the company and eating into margins. Looking for a solution, Coca-Cola (KO - Free Report) has tackled this issue by investing in healthier alternatives to soda, such as coffee, sparkling water, and sports drinks. The beverage giant has expanded its portfolio to include over 4,700 beverage products and more than 500 brands.
KO is a very shareholder-friendly company, displayed by its annual dividend yield of 2.66% and its five-year annualized dividend growth rate of 3.09%. The dividend payout ratio sits at 72% of earnings with a free cash flow yield of 4.5%. Additionally, Coca-Cola is a Dividend Aristocrat and a Dividend King; 2022 marks the company's 60th consecutive annual dividend increase.
The beverage retailer’s top line climbed 17% from 2020 to 2021, and overall, revenue has increased by nearly 13% since 2018. Its most significant source of income comes from operations in North America, a segment that saw its net revenue increase 15% from 2020 to 2021. Furthermore, net revenue from its bottling line of business also saw a nice boost, up 14% in the same time frame. Coca-Cola’s investments in more diverse products are starting to pay off and boost the top line.
The company provided uplifting guidance for FY22 in its December report. Coca-Cola expects to deliver organic revenue growth of 7% - 8%, generate free cash flow of approximately $10.5 billion, and deliver comparable EPS (non-GAAP) growth of 5% - 6% for FY22.
The Zacks Consensus Estimate Trend for Q1 has improved modestly over the last 60 days, boosted by two positive estimate revisions and now reflecting quarterly EPS of $0.58, a 5.5% increase from the year-ago quarter. Over its last four quarters, KO has an average EPS surprise of 13.5%, and in its latest quarter, KO beat the Zacks Consensus EPS estimate by 12.5%. Additionally, KO is a Zacks Rank #3 (Hold) with an overall VGM Score of a D.
CocaCola Company The Price, Consensus and EPS Surprise
PepsiCo (PEP - Free Report) has benefitted from investments within its brands, supply chains, manufacturing capacity, and digital capabilities that have allowed its shares to outpace the industry over its last year. PEP underwent margin pressures in 2021 Q4 driven by impacts of supply-chain disruptions.
Like KO, PepsiCo is laser-focused on rewarding its shareholders via dividends and share buybacks. PEP has a dividend yield of 2.55%, a payout ratio sitting at 69% of earnings, and a five-year annualized dividend growth rate of a notable 6.7%. Additionally, in 2022, PepsiCo will become a Dividend King with its 50th consecutive annual dividend increase.
From 2020 to 2021, PEP’s top line expanded by a substantial 13%, and overall, since 2018, the top line has climbed 23%. Two vital sources of revenue stemming from operations in North America – Frito-Lay and PepsiCo Beverages – saw increases of 8% and 12% year-over-year from 2020 to 2021. What’s unique about PepsiCo is that its product portfolio of snacks such as Cheetos, Doritos, and Lay’s provides a solid blend of diversity that can offset losses within its beverages segments.
For FY22, PepsiCo anticipates organic revenue growth of 6% and core EPS growing 6.5% from earnings of $6.25 per share in 2021. Additionally, the company anticipates a free cash flow yield of 3.2% and total cash returns to shareholders of $7.7 million, including $6.2 million in cash dividends and $1.5 billion of stock buybacks.
Over the last 60 days, the Zacks Consensus Estimate Trend for the upcoming quarter has retraced marginally down to $1.24 per share, now reflecting year-over-year quarterly earnings growth of 2.5% from 2021. Over its last four quarters, PEP has an average EPS surprise of 6%, and in its latest quarter, the company reported EPS in-line with the Zacks Consensus Estimate. PepsiCo is a Zacks Rank #4 (Sell) with an overall VGM Score of a B.
Over the last year, KO and PEP shares have easily outpaced the Zacks Beverages – Soft Drinks Industry and the S&P 500, as shown below in the chart. Price action for the two proven companies has remained strong during a time when high-flying growth stocks have seen their valuations slashed.
For both companies moving forward, product diversification is vital. Soda sales have been declining, with consumers shifting towards healthier beverages. KO has recently pivoted to this aspect with investments such as the recent acquisition of Body Armor, and PepsiCo has this covered within its signature Gatorade brand.
Regarding which company would be a better investment, I believe that KO would be a more profitable investment heading down the road. Here’s why – Coca-Cola has higher forecasted earnings growth, a higher cash flow yield, and an increasing Q1 Consensus Estimate Trend. Additionally, and most importantly, it currently boasts a higher Zacks Rank than PepsiCo.
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Coca-Cola vs. Pepsi, Which Is The Better Buy?
Earnings season is well underway, and each week brings an exciting new list of companies slated to release quarterly results. Supply-chain bottlenecks, soaring energy prices, high labor costs, and other economic restraints have weighed heavily on companies throughout the quarter.
A pair of rivals on deck to report quarterly results next week are Coca-Cola (KO - Free Report) and PepsiCo (PEP - Free Report) . Both companies reside in the Zacks – Beverages and Soft Drinks Industry, an industry that currently ranks in the bottom 20% of all Zacks industries.
Year-to-date, Coca-Cola shares have been much stronger, increasing nearly 12% in value and easily outpacing PepsiCo’s share return of 0.6%.
Image Source: Zacks Investment Research
However, KO and PEP shares have primarily traded in line with one another over the last year, increasing by 24% and 22%, respectively.
Image Source: Zacks Investment Research
Clearly, Coca-Cola has been the better investment in 2022, but what about moving forward? Let’s analyze critical metrics of each company heading into their quarterly reports to discover which company will give you a better bang for your buck.
Coca-Cola
Soda sales have been decreasing over the years, negatively impacting the company and eating into margins. Looking for a solution, Coca-Cola (KO - Free Report) has tackled this issue by investing in healthier alternatives to soda, such as coffee, sparkling water, and sports drinks. The beverage giant has expanded its portfolio to include over 4,700 beverage products and more than 500 brands.
KO is a very shareholder-friendly company, displayed by its annual dividend yield of 2.66% and its five-year annualized dividend growth rate of 3.09%. The dividend payout ratio sits at 72% of earnings with a free cash flow yield of 4.5%. Additionally, Coca-Cola is a Dividend Aristocrat and a Dividend King; 2022 marks the company's 60th consecutive annual dividend increase.
The beverage retailer’s top line climbed 17% from 2020 to 2021, and overall, revenue has increased by nearly 13% since 2018. Its most significant source of income comes from operations in North America, a segment that saw its net revenue increase 15% from 2020 to 2021. Furthermore, net revenue from its bottling line of business also saw a nice boost, up 14% in the same time frame. Coca-Cola’s investments in more diverse products are starting to pay off and boost the top line.
The company provided uplifting guidance for FY22 in its December report. Coca-Cola expects to deliver organic revenue growth of 7% - 8%, generate free cash flow of approximately $10.5 billion, and deliver comparable EPS (non-GAAP) growth of 5% - 6% for FY22.
The Zacks Consensus Estimate Trend for Q1 has improved modestly over the last 60 days, boosted by two positive estimate revisions and now reflecting quarterly EPS of $0.58, a 5.5% increase from the year-ago quarter. Over its last four quarters, KO has an average EPS surprise of 13.5%, and in its latest quarter, KO beat the Zacks Consensus EPS estimate by 12.5%. Additionally, KO is a Zacks Rank #3 (Hold) with an overall VGM Score of a D.
CocaCola Company The Price, Consensus and EPS Surprise
CocaCola Company The price-consensus-eps-surprise-chart | CocaCola Company The Quote
PepsiCo
PepsiCo (PEP - Free Report) has benefitted from investments within its brands, supply chains, manufacturing capacity, and digital capabilities that have allowed its shares to outpace the industry over its last year. PEP underwent margin pressures in 2021 Q4 driven by impacts of supply-chain disruptions.
Like KO, PepsiCo is laser-focused on rewarding its shareholders via dividends and share buybacks. PEP has a dividend yield of 2.55%, a payout ratio sitting at 69% of earnings, and a five-year annualized dividend growth rate of a notable 6.7%. Additionally, in 2022, PepsiCo will become a Dividend King with its 50th consecutive annual dividend increase.
From 2020 to 2021, PEP’s top line expanded by a substantial 13%, and overall, since 2018, the top line has climbed 23%. Two vital sources of revenue stemming from operations in North America – Frito-Lay and PepsiCo Beverages – saw increases of 8% and 12% year-over-year from 2020 to 2021. What’s unique about PepsiCo is that its product portfolio of snacks such as Cheetos, Doritos, and Lay’s provides a solid blend of diversity that can offset losses within its beverages segments.
For FY22, PepsiCo anticipates organic revenue growth of 6% and core EPS growing 6.5% from earnings of $6.25 per share in 2021. Additionally, the company anticipates a free cash flow yield of 3.2% and total cash returns to shareholders of $7.7 million, including $6.2 million in cash dividends and $1.5 billion of stock buybacks.
Over the last 60 days, the Zacks Consensus Estimate Trend for the upcoming quarter has retraced marginally down to $1.24 per share, now reflecting year-over-year quarterly earnings growth of 2.5% from 2021. Over its last four quarters, PEP has an average EPS surprise of 6%, and in its latest quarter, the company reported EPS in-line with the Zacks Consensus Estimate. PepsiCo is a Zacks Rank #4 (Sell) with an overall VGM Score of a B.
PepsiCo, Inc. Price, Consensus and EPS Surprise
PepsiCo, Inc. price-consensus-eps-surprise-chart | PepsiCo, Inc. Quote
Bottom Line
Over the last year, KO and PEP shares have easily outpaced the Zacks Beverages – Soft Drinks Industry and the S&P 500, as shown below in the chart. Price action for the two proven companies has remained strong during a time when high-flying growth stocks have seen their valuations slashed.
Zacks Beverages - Soft Drinks Industry, S&P 500, Coca-Cola, PepsiCo Performance Since 4/22/21
Image Source: Zacks Investment Research
For both companies moving forward, product diversification is vital. Soda sales have been declining, with consumers shifting towards healthier beverages. KO has recently pivoted to this aspect with investments such as the recent acquisition of Body Armor, and PepsiCo has this covered within its signature Gatorade brand.
Regarding which company would be a better investment, I believe that KO would be a more profitable investment heading down the road. Here’s why – Coca-Cola has higher forecasted earnings growth, a higher cash flow yield, and an increasing Q1 Consensus Estimate Trend. Additionally, and most importantly, it currently boasts a higher Zacks Rank than PepsiCo.