Fizzy Wars: PepsiCo Vs Coca Cola

Last week, PepsiCo PEP and The Coca-Cola Company KO revealed their fourth quarter results. Although these two rivals are very comparable in terms of value, stock, and dividends, their business models are significantly different.

These differences were emphasized by their Q4 results. Coca Cola just closed a rough fiscal year characterized by sharply reduced consumer mobility in which it lost market share and saw rare declines in sales volume, earnings, and cash flow. Its focus on away-from-home drink sales made it extremely vulnerable to the pandemic compared to more diversified PepsiCo.

Coca Cola Had A Mixed Quarter

Coke's business is heavily dependent on food-away-from-home consumption and that market is still far from going back to normal. Although things should improve later in the year, for now, the pandemic is still dragging the company down. The Q4 revenue came in at $8.6 billion, 5.5% from last year's results and slightly worse than expected. Weakness in the EU, Mideast/Africa region and North America was a bit offset by a slight improvement in Latin America. But on an organic basis, revenue fell by 3% worldwide versus the 3.7% expected, which is a rare piece of truly good news in the report. The figure is also better than the 4% slump it reported in the third quarter as COVID-19 continues to keep people away from restaurants, sports events, and concerts.

Sales volumes continued to drop, but trends improved compared to  the most recent quarters. If anything, Cokeended its market share slide in the fourth quarter, which points to a brighter year ahead.

Moving further down the report, the company's margins improved on a YoY basis, but only in line with the consensus as the adjusted operating margin of 27.3% drove slightly better-than-expected earnings. The takeaway is that Coca-Cola's revenue and earnings shrank on both a quarterly and annual basis in 2020. But despite the tough environment, Coke's finances did benefit from aggressive cost cuts, resulting in just a minor earnings shortfall for 2020. Cash flow for the year was also down but still positive enough to support rising dividend payments. In order to preserve financial flexibility, management dramatically reduced stock repurchase spending.

As for 2021, management expects mid-to-high-single-digit revenue growth and mid-to-low-single-digit EPS growth.

Pepsi Was Growing

On the other hand, Pepsi, whose business is tilted toward retail revenue has been steadily growing its beverage and snack food businesses all year long amid the COVID-19 apocalypse.

PepsiCo actually grew its revenue in the fourth quarter and in 2020, which puts it in a much better position. It generated $22.46 billion in revenue, which represents an 8.8% quarterly growth and 4.8% annual growth. The revenue strength was driven by a 5.7% surge in organic sales.

Moving down the report, Pepsi's earnings are similar to Coke's with GAAP missed by a small margin, but with the end result is quite different as its earnings are up for the year whereas Coke's are down. PepsiCo is also forecasting growth in 2021.

The Key Difference Is Size

Along with Coca-Cola, Diet Coke, Sprite and Fanta, The Coca Cola Company has a growing portfolio of non-sparkling soft drinks that includes Vitamin water, Minute Maid, Costa Coffee and others, along with owning a stake in energy drink maker Monster Beverage MNST and growing sports drink company BodyArmor. But due to its huge portfolio of food brands, PepsiCo is a much larger and better diversified company.

Both stocks are great dividend payers with long histories and great track records behind them. Both companies have sound balance sheets, which put them on a par in terms of safety and payout. But PepsiCo delivered stronger results along with better growth prospects.

Outlook

Coke's business is closely tied to consumers attending in-person entertainment events, so things can't go back to normal before COVID-19 leaves the picture. Management warned of volatility given the uncertainty about further outbreaks and the shaky outlook of the global economy. Yet despite sales still trending lower through early February, the beverage titan is feeling confident enough to reinstate its annual outlook after withdrawing it earlier last year. The beverage giant's revenue trends are expected to continue lagging Pepsi, which has already recovered the momentum it lost during the early days of the pandemic. Coca-Cola might have a strong brand and international presence, along with a slightly higher dividend yield of the two but the growing food portfolio of PepsiCo and the consecutive years of revenue growth could make the food and beverage giant the winner of fizzy wars.

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