Will Sodas Still Make You Fat?
Kathleen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
While sodas already have a bad rep with health enthusiasts for contributing to excess body fat, some brands may also become unpopular to investors for not making their pocketbooks fat enough. The new soda regulations that will affect the financial applications of manufacturers was not joyfully received by major soda companies like Pepsi (NYSE: PEP), Coca-Cola Company (NYSE: KO) and Dr. Pepper Snapple (NYSE: DPS). Considering the declining sales these companies are already experiencing; the policy could be a big blow to each company's profit margin.
Coca-Cola and Pepsi
Even with new policies threatening their sales margin, Coca Cola has enjoyed growth by gaining a significant portion of Pepsi's market share. Starwood Hotels (NYSE: HOT) changed from Pepsi to Coke last year. Dunkin' Donuts, a company that has been in business with Pepsi for several years, decided to also switch over to Coca-Cola. The transition, which is expected to be complete in 2012, will mean that Coke's juices, energy drinks, and soft drinks will sell at Baskin Robbins and Dunkin' Donuts all over the U.S.
Since Pepsi has a lot at stake, it has begun forming stronger ties with emerging economies. So far, Pepsi has invested over $1.6 billion in China. The regulatory and shareholder approval for Pepsi's strategic venture with China's biggest packaged foods maker, Tingy, was announced in early 2012. With this new deal, Pepsi is expected to save up to $200 million in operating losses.
Although Pepsi’s investment in the new market of China sounds like a big deal, it still pales in comparison to Coke's investment. The brand is iconic in the United States, and it is becoming increasingly popular around the world. Coca-Cola plans to spend about $4 billion in a span of three years in China. In the past 18 years, Coke has put over $2 billion worth of investments in India.
Dr. Pepper Snapple
Like the other soft drink manufacturers, Dr. Pepper Snapple is also facing a challenge. The Company has reported $1.09 earnings per share as compared to the $1.14 last year. DPS' difficulties stem from consumers turning to sports drinks that they consider to be healthier, and cheaper sodas. While Coke and Pepsi have found a way to mitigate effects of the declining soda market by investing abroad, Dr. Pepper Snapple does not have that advantage. The reported operating income for DPS last year was $297. Since it lacks operations anywhere outside North America, investors have been left wondering how likely it will be for Dr. Pepper Snapple to make them a little fatter.
On the bright side, DPS has had a 3% increase in the volume of net sales. Since the segment operating profit of Dr Pepper Snapple has also increased by 5%, this at least shows that productivity has intensified.
While Coke is an obvious choice for careful investors, investment in any soda company has the potential to make your wallet fatter. New soda regulations coupled with the growing trend of setting up operations overseas conjures up the age old soda question: Which soft drink do you think is best, Coke or Pepsi?
mimosacreations has no positions in the stocks mentioned above. The Motley Fool owns shares of The Coca-Cola Company and PepsiCo. Motley Fool newsletter services recommend Coca-Cola Hellenic, PepsiCo, and The Coca-Cola Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
