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  1. Home
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Chart of the Day 2: North America Is the Big Battleground for Pepsi and Coke

Pepsi's clash with Coke is most pivotal closer to home.
By KEVIN CURRAN Feb 15, 2019 | 02:50 PM EST
Stocks quotes in this article: PEP, FIZZ, KO

One metric that every PepsiCo (PEP) investor should keep an eye on is North American Beverages.

The segment has certainly come under scrutiny in recent years, as a significant deceleration in 2017 led to a significant stock slump, promoting a 15% drop from the May 2017 to May 2018.

"North American Beverages has faced a number of challenges over the past 18 months," CEO Ramon Laguarta acknowledged. "New entrants have come to market in some of our strong hold categories, there are opportunities to improve some of our brand marketing and consumer engagement, and there are areas where we can step-up our local marketplace execution."

That loss has not only been to new entrants like La Croix maker National Beverage Corporation (FIZZ) , but to arch-rival Coca-Cola (KO) as well.

It has been a long road back to positive as the chart reveals, but the turnaround plan outlined at the bottom figure of -5% organic growth is promising. The organic growth has now moved 7% to the upside, closing 2018 at 2% to the plus side and came largely in line with an expected recovery.

"Organic revenue growth of 4.6% was solid...led almost entirely by price/mix including +3% in North American beverage, as benefits from pricing actions begin to flow through," BMO Capital Markets analyst Amit Sharma said.

Shares of the Purchase, New York-based beverage behemoth have reacted positively to this very price action on behalf of management.

Pepsi executives did not address Coca-Cola directly, as is typical, but acknowledged the necessity of growth in the segment against competition.

"We've increased our innovation to address new category entrants and to drive success in higher-growth segments with innovations like Life Water, Bubly, Gatorade Zero, new variants of Propel and extensions within our successful Starbucks and Pure Leaf Tea," Laguarta told analysts on Friday. "We're making changes to our NAB organization structure and adding frontline resources to make us more agile in responding to local commercial opportunities and local competitive actions."

The focus on Gatorade Zero and Propel sports drinks is of particular prescience as they will look to act as a bulwark against the advances of Coke's recent purchase of Body Armor sports drinks.

So far the comparatively flat growth in North American Beverages of Coke after quarters of scooping up sales suggests this plan is working.

The reinvestment in the home market should sustain this trend if Laguarta can keep his word, which analysts are overall confident in.

It will certainly be a storyline to monitor as Laguarta leads off his first year in full control of the company.

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TAGS: Earnings | Investing | Stocks | Consumer | Food & Drink | Central America | United States | Canada | Caribbean | Stock of the Day

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