As the Soft Drink Market Evolves Watch These 3 Companies
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Soft drink companies are seeing changes taking place regionally in parts of the world. As new product lines are marketed, it appears that price is still an issue as PepsiCo found out marketing its new line of Gatorade products. Traditional products appear to be doing better globally while U.S. (and North American) markets as a whole are changing with health awareness.
Not all Gatorade lines are a hit though as PepsiCo (NYSE: PEP) discovered when it developed a new line to appeal to hard core athletes. Back in 2011, the company developed a line of Gatorade products that included a protein bar, fruit-based protein drink, and a low cal version of the sports drink. The market it was trying to appeal to were hard core athletic types. These are fitness fanatics who work out a lot or could be hard core runners and triathletes. It may have been a bit pricey, but it never took. The whole Gatorade brand is the company’s fourth largest product line in the world with $4 billion in revenue yearly. So it’s back to the drawing board for this line. The company is going to research and attempt to repackage it, possibly reintroducing in again to the shelves in 2014. Gatorade actually has been a top performer of late. In 2011, its sales volume was up double digits in the division that includes North America.
PepsiCo is in an aggressive marketing campaign planning to spend another $600 million in advertising soon on its top dozen brands. Its sales have been trailing Coca Cola (NYSE: KO), a chief rival. For this reason, it is no surprise that net income dipped 5% in the third quarter with the new aggressive marketing plan.
Coke has its own plan to stay on top in this seemingly endless global weakness. It is focusing increased sales of its products in merging markets and evolving at home here where consumers continue to become more conscious of sugar in drinks. Even though sales increased by 4%, the company sill had only a 1% revenue increase. This was due to currency exchange rates and pricing pressures kept main product prices lower in Europe and Asia. Companies that do a lot of their business overseas are hurt when the dollar is strong because sales in other countries' currencies translate into fewer dollars back home.
Here in the United State, there is wide spread and growing criticism of sugary drinks and obesity. For this reason the company is shifting its product line here. It is not a surprise then that soda beverage sale has been flat here. PepsiCo did not fare much better. Here in North America, sales volume fell 3 percent in the third quarter; sodas declined 2 percent and non-carbonated drinks decreased by 7 percent. Without giving details, the company said the drop in the latter figure was partly because it got rid of less-profitable juice packages.
Monster Beverage (NASDAQ: MNST), although a smaller player, has been doing well. Revenue has exceeded the industry average of 3.6% and from a year ago has increased 28.2%. This also helped boost earnings. It has improved earnings per share by 31.1% in the most recent quarter compared to the same quarter a year ago. In fact, interested investors should be aware that this company has had positive earnings growth over the last two years and analysts expect the trend to continue. But, is that the past? Stifel Nicolaus downgraded Monster Beverage to Hold from Buy. The firm expects the company's sales to decelerate more than expected through 1Q13. Now really, how bad is this when the analyst still expects the company to achieve sales growth in the mid-teens through at least 2015, as the energy drink market continues to grow in the U.S. and abroad. Even though energy drinks only make up about 3% of the total soft drink market, soda have leveled out while energy drinks are blowing up the market in sales. This makes the company look appealing. But I would be neglectful if I did not mention the New York State Attorney General’s probe into the manufacturing and marketing practices of the energy drink industry.
So the soft drink industry continues to grow abroad and this is where most companies will find profits taking place and it is where KO and PEP are focusing their attention. At home a transition is taking place as society is getting more concerned about obesity and sugar in soft drinks. But at the same time, the energy drink market is booming.
The Motley Fool has no positions in the stocks mentioned above. johnmylant has no positions in the stocks mentioned above. 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.