Sozzi Says Coca-Cola Should Imitate Pepsico, Build Snacks Division

Analyst Brian Sozzi commented Monday that The Coca-Cola Company KO should emulate Pepsico, Inc. PEP in order to reverse weak earnings.

Sozzi noted that “total U.S. carbonated soft-drink sales volume fell 3 percent last year to 8.9 billion cases, the ninth-straight year of decline and the lowest number of cases sold since 1995, according to Beverage Digest.”

In the face of declining sales, Coca-Cola's Chairman and Chief Executive Muhtar Kent during an Oct. 21 earnings call said, “Next year is the 100-year anniversary of the contour [bottle shape], and we'll be expanding our immediate consumption focus in the market, which is a really important way to build habit.”

According to Sozzi, the “obsession by Coca-Cola on daintier package sizes for plain old soda and what still amounts to diet cola, however, has left it overly exposed to waning carbonated soft-drink sales and competitive pricing in the United States. Furthermore, it may be causing a stalemate in new product introductions elsewhere in the Coca-Cola portfolio.”

Sozzi went on to mention how Pepsico is targeting coconut water, sports drinks as well as its snacks business to increase sales. These are areas where Pepsico is innovating rather than seeking to cut costs.

Sozzi concluded that the “stock market has rewarded Pepsico's foresight on beverage products and its exposure to snacking in America, while punishing Coca-Cola. Shares of Pepsico have increased 17 percent this year, compared with a 3.9 percent gain for Coca-Cola.”

The Coca-Cola Company recently traded at $42.97, up 0.02 percent.

Pepsico, Inc. recently traded at $97.02, down 0.03 percent.