PepsiCo Inc. (PEP) shares are proving more resilient to mixed earnings news than those of rival Coca- Cola Co. (KO) .
Shares of the beverage giant have trended positively following a fourth-quarter earnings report that was largely in line with estimates. PepsiCo stock has been helped by a boost to the dividend that will take it to an annual rate of $3.82 per share from $3.71.
PepsiCo's plus-side move is in stark contrast to Coke, which saw its stock slump by more than 8% on Thursday after a disappointing 2019 forecast that cited a stronger dollar as a chief concern.
"This [operating income] can mostly be attributed to worsening currency headwinds, increases in net interest expense and an increase in our tax rate in 2019," Coca-Cola vice president Tim Leveridge told investors on Thursday. "The dollar strengthened throughout 2018, creating year-over-year currency headwinds at the current spot rates."
Leveridge added its issues were exacerbated by a hawkish Fed into the close of the year.
"Collectively, the total headwind represents a 3% to 4% impact to revenue and a 6% to 7% impact to operating income for the full year," Leveridge said. "At the same time, the Federal Reserve increased its benchmark rate four times in 2018, once every quarter, putting upward pressure on our interest on floating and refinanced debt, even before contemplating any further potential hikes in 2019."
PepsiCo has acknowledged this impact in its similarly conservative guidance, but seems to have mitigated this risk more effectively.
"While adverse foreign exchange translation negatively impacted reported net revenue performance, our underlying organic revenue growth accelerated in the second half, and we ended the year with 4.6% organic revenue growth in the fourth quarter," PepsiCo chairman and CEO Ramon Laguarta said in a statement on Friday morning.
Promoting some optimism, Laguarta noted that PepsiCo will look to invest and steal share from its arch-rival while the James Quincey-led company is ailing.
"In 2019, we aim to capitalize on the momentum we have as we enter the year and to continue to invest in the capabilities that will better position us for success for years to come," Laguarta said.
The investment could serve as a strong catalyst to regain market share form Coke, specifically in North America, where it has lagged its rival in sales growth. Pepsi posted 2% growth in North America against Coke's more bubbly 7.4% figure.
To be sure, the investments will cause a bit of a hit to PepsiCo's growth in the near term as it tries to outpace Coke.
"Our 2019 EPS performance is expected to be impacted by incremental investments that are intended to further strengthen the business, lapping a number of 2018 strategic asset sales and refranchising gains and an increased core effective tax rate in 2019," Laguarta said.
The tempered guidance appears to have been factored in by the market, as PepsiCo's 1.4% decline after Coke's earnings announcement seems to have taken the sting out of PepsiCo's report.
To join in as new CEO Laguarta pilots an earnings call sans Indra Nooyi for the first time at 7:45 a.m. and explains the expected investments in 2019, click here.
