Sales are slowing at these beverage makers, mainly because health-conscious consumers are cutting back on sugary drinks and alcohol.
Still, they are taking measures to support their well-known brands and help them continue to prosper. They’re also cutting their costs in order to free additional cash.
PEPSICO INC. (New York symbol PEP; www.pepsico.com) is the world’s second-largest soft drink maker after Coca-Cola. It also makes other products, such as Frito-Lay snack foods, Gatorade sports drinks, Tropicana fruit juices and Quaker Oats cereals.
Consumers are becoming increasingly concerned about the health effects of soft drinks, as well as potato chips and other snacks. The company continues to develop more nutritious alternatives in response.
For example, it owns the exclusive soft drink rights to a new type of sweetener called Sweetmyx, which lets food makers use less sugar in their products. At the same time, PepsiCo is reducing salt and fat in its foods.
In the three months ended March 22, 2014, PepsiCo’s overall sales rose just 0.3%, to $12.62 billion from $12.58 billion a year earlier.
However, the company gets half of its sales from outside the U.S., and the higher U.S. dollar hurt the contribution of its international operations. Excluding currency exchange rates, sales gained 4.0%.
In response to the weaker sales, PepsiCo aims to boost its profits with a new five-year plan that includes automating more bottling plants and closing inefficient facilities.
Excluding costs related to this plan and other unusual items, PepsiCo’s earnings rose 5.4% in the latest quarter, to $1.3 billion from $1.2 billion a year ago. Earnings per share gained 7.8%, to $0.83 from $0.77, on fewer shares outstanding.
Savings from the plan will help the company buy back $5 billion worth of shares this year. It also recently raised its dividend by 15.4%. The new annual rate of $2.62 yields 3.0%.
Investing in stocks: Cost efficiencies with acquisition StarBev help boost Molson Coors earnings
MOLSON COORS BREWING CO. (New York symbol TAP; www.molsoncoors.com) is the world’s fifth-largest brewer by volume.
Beer sales are rising slowly in developed regions like North America. That’s why Molson Coors bought StarBev, which owns nine breweries in central and eastern Europe, for $3.5 billion in June 2012.
The company continues to do a good job of cutting StarBev’s costs and making it more efficient.
As a result, Molson Coors’ earnings before one-time items jumped 115.2% in the three months ended March 31, 2014, to $102.2 million from $47.5 million a year earlier. Per-share earnings rose 111.5%, to $0.55 from $0.26, on more shares outstanding.
Sales fell 1.5%, to $816.0 million from $828.5 million. If you exclude currency exchange rates, sales gained 0.3%, mainly due to higher sales in Europe, Mexico, Latin America and Australia.
Molson Coors is using its rising earnings to pay down the extra debt it took on to buy StarBev. As of March 31, 2014, its long-term debt was $3.16 billion, or 27% of its market cap, down from $3.21 billion at the end of 2013.
The stock has gained 25% in the past year.
Molson Coors recently increased its dividend by 15.6%. The new annual rate of $1.48 yields 2.3%.
In the latest edition of Wall Street Stock Forecaster, we examine Pepsico’s five-year cost-cutting plan and whether it is likely to generate sufficient cash for acquisitions and dividend hikes. We also look at Molson Coors’ prospects for the rest of 2014 and whether the stock can continue to rise. We conclude with our clear buy-hold-sell advice on these two stocks.
If you’re a member of Pat’s Inner Circle and you’d like to ask a question about today’s article, please go to the question page reserved for you (be sure you’re logged in first). Click here to ask your question.
COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members
Whose sales do you think will grow faster in the next decade or so—alcoholic or non-alcoholic beverages? What makes you think so?
Comments
Mildred
My husband of 55+ yrs answered you’re question “non-alcoholic. Why? Because people are trying to cut back on alcohol intake. Better health, because of becoming more health conscious. This being one of the main producers of the newer wave of reasoning today. We are seeing this, more so in the 25 – 40 yr age group.
This comment coming from a seasoned drinker, who has only cut back in recent years because of a very serious health problem, for which there is no cure.
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Sales are slowing at these beverage makers, mainly because health-conscious consumers are cutting back on sugary drinks and alcohol.
My husband of 55+ yrs answered you’re question “non-alcoholic. Why? Because people are trying to cut back on alcohol intake. Better health, because of becoming more health conscious. This being one of the main producers of the newer wave of reasoning today. We are seeing this, more so in the 25 – 40 yr age group.
This comment coming from a seasoned drinker, who has only cut back in recent years because of a very serious health problem, for which there is no cure.