Summer results show mixed paths

As temperatures rise and consumers seek refreshment, the beverage industry and consumer goods sector is gearing up for its busiest season yet. Summer often brings a surge in sales and greater investor interest in beverage stocks. The “summer beverage wars” are heating up this year, with three key players vying for supremacy. The latest earnings reports from these companies offer a valuable overview of their performance, strategic moves and broader industry trends.

Earnings reports reveal different growth paths

The latest quarterly earnings reports for 2024 paint a picture of the successes and challenges of these beverage giants. Each company has adopted strategies to navigate the changing consumer landscape and macroeconomic pressures.

Coca-Cola: A Global Giant Facing Adversity

Coca-Cola NYSE:KO Recent stock market performance has been relatively stable: the stock is up 8.27% in 3 months and 7.08% year to date. Coca-Cola’s Profits The first quarter of 2024 report showed revenue of $11.3 billion, up 3% year-on-year. Net income reached $3.177 billion, up 2%, which translates into earnings per share (EPS) of $0.74, also up 3%. While modest growth, these numbers were impacted by a decline in operating margin due to a combination of comparability factors and currency headwinds.

Despite these challenges, Coca-Cola highlighted several positive trends driving its results. The company reported strong organic revenue growth of 11%, driven by volume growth in developing and emerging markets, particularly in Latin America. The Coca-Cola trademark and Coca-Cola Zero Sugar emerged as key growth drivers, underscoring the continued strength of the company’s flagship brands.

Coca-Cola management emphasized a strategic focus on digital capabilities and targeted marketing activities. The company is using digital tools to deepen consumer relationships, collect valuable data and drive transactions. Marketing campaigns effectively connected consumption occasions with consumer interest points, driving volume growth and value share growth. Looking ahead, Coca-Cola updated its full-year 2024 guidance, forecasting organic revenue growth of 8-9% and comparable EPS (non-GAAP) growth of 4-5%.

PepsiCo: Margin Expansion and Strategic Investments

PepsiCo NASDAQ: PEP also showed positive momentum, with 3-month performance coming in at +3.56% and year-on-year performance coming in at +1.23%. PepsiCo Profits The second-quarter 2024 report revealed revenue of $22.5 billion, a modest 0.8% increase year over year. However, net income rose to $3 billion, a significant 12% increase, translating to earnings per share of $2.23, or 13%.

Despite headwinds in the North American convenience food segment and the need to address product recalls at Quaker Foods North America, PepsiCo delivered strong gross and operating margin expansion, resulting in double-digit EPS growth. The company’s organic revenue growth was 1.9%, with basic EPS of $2.28.

PepsiCo management announced plans to further enhance productivity initiatives and make strategic commercial investments to drive growth. These investments will optimize value propositions across portions of its North American convenience food portfolio, strengthen advertising and marketing efforts, and leverage its extensive distribution network to achieve closer market execution. Based on these initiatives, PepsiCo updated its full-year 2024 guidance to include organic revenue growth of approximately 4% and earnings per share growth in constant base currency of at least 8%.

Celsius Holdings: We’re Riding the Energy Drink Wave

Celsius Holdings NASDAQ: CELH recorded the most spectacular share performance of the three companies: over three months the share price fell by -26.59%, and since the beginning of the year it has increased by +7.34%. Celsius Holding revenues The first quarter of 2024 report revealed significant growth, with revenues increasing to $355.7 million, an increase of 37% year over year. Net income reached $64.8 million, an impressive increase of 106%, translating to earnings per share of $0.27, an increase of 108%.

Celsius’ strong performance is attributed to its successful market share capture in the rapidly growing energy drink category. The company has an 11.5% share of the U.S. energy drink market, a significant increase driven by its popular CELSIUS Essentials line, innovative product launches and successful marketing campaigns.

The company is also actively pursuing international expansion, with plans to launch operations in Australia, France, Ireland, New Zealand and the UK in 2024. While inventory fluctuations at its largest distributor pose a potential challenge, Celsius remains optimistic about its long-term growth prospects.

Evolving Tastes, Rising Costs, and Strategic Maneuvers

The latest earnings reports from Coca-Cola, PepsiCo and Celsius show a transformation in the beverage industry, driven by changing consumer preferences, increasing cost pressures and different strategic approaches by each company.

Healthier choices and energy drinks drive growth

There’s a clear trend toward healthier options and functional beverages. Celsius’s explosive growth, fueled by “better-for-you” energy drinks, is an example of this shift. That’s prompted traditional soda giants Coca-Cola and PepsiCo to diversify their portfolios with low-sugar alternatives and even enter the energy-drink market. PepsiCo’s recent acquisition of a significant stake in Celsius underscores the growing demand for performance-enhancing beverages.

Inflationary Pressures and Pricing Strategies

Rising costs are a concern across the industry. Coca-Cola and PepsiCo have both raised prices to offset inflation, which has hit their margins. But Celsius, taking advantage of lower transportation and material costs, has managed to boost its margins, showing the potential for agile companies to thrive in this challenging environment.

Different paths to success

Each company is navigating the changing landscape with unique strategies. Coca-Cola is using its digital capabilities to drive consumer engagement and sales, while PepsiCo is focusing on productivity initiatives and targeted commercial investments. Celsius, on the other hand, is tapping into the growing energy drink market through product innovation and aggressive international expansion, including the successful launch of CELSIUS Essentials.

Investor Considerations: Striking a Balance

For investors, the summer beverage wars are a mix of opportunity and consideration. With strong financials and expansion plans, Celsius offers high-growth potential, but its dependence on a single distributor and high valuation require careful evaluation. Coca-Cola (KO) and PepsiCo (PEP), with their global reach, diversified portfoliosand brand recognition provide stability and the potential for long-term value appreciation, making them attractive to more conservative investors.

The beverage industry is in flux, with consumer preferences evolving and companies adapting to maintain a competitive edge. As the war for summer dominance rages on, the battlefield is clearly shifting toward healthier options, functional beverages, and innovative strategies that appeal to a new generation of consumers. Investors should closely monitor these trends and company performance to make informed decisions in this dynamic market.

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