A Cool Option for This Summer

Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

It seems quite a few companies are gunning for a turnaround. Most of the key players in the beverage industry seem to be restructuring their businesses. Some time back, I had discussed how PepsiCo’s (NYSE: PEP) restructuring plans would benefit the company going forward. However, there is a time lag between the money spent on the turnaround plan and reaping the benefits thereof. In case of PepsiCo, the effects of huge one time expenditures were seen in its third quarter results, which were not up to the mark.

Another prominent player which is going through a similar phase is Coca Cola Enterprises (NYSE: CCE). Apart from the ill effects of a restructuring plan in place, the company is also undergoing the negative effects of dependence on the European market. However, it stands above others with solid quarterly results. Its recent fourth quarter results delighted investors, giving reasons for a good investment proposition. Let us understand how.

Snapshot of the Quarter

Though weak demand in Europe led to lower volumes, the beverage maker managed to post increase in its top line, on a constant currency basis. Coca Cola had recently increased its product prices which led to a pullback on the volumes. Since consumers are already budget conscious, even a slight increase in price is not welcome.

However, the company is doing a good job in its Energy drinks segment. Monster brands have been performing well from quite some time now and this time the revenue growth was a whopping 50%. Even Coca Cola Zero witnessed a growth of 6.5% over prior year.

The beverage retailer is a true player since it not only managed its top line but also its bottom line well. Adjusted earnings for the fourth quarter jumped 25% to 45 cents per share over last year. The company has undergone huge restructuring charges which dragged down the reported earnings this time.

The Road Ahead…

Looking at the brighter side of things, the restructuring efforts are nothing but an indication of future growth. Coca Cola’s Business Transformation Program is undertaken to earn more in future. It is expected to strengthen the company’s sales channel and finance functions as well as help the company earn an additional $100 million on an annual basis in a couple of years.

Also, the beverage provider is planning to remain focused on its nonalcoholic beverage segment. The segment has been a special focus for all beverage players since customers are becoming highly health conscious. Health drinks have become the need of the hour since consumers are avoiding sweet drinks and are looking for healthier options such as juices.

For example, PepsiCo launched its low calorie drink called Pepsi Next which is being loved by the customers. In fact, peer Dr. Pepper Snapple Group (NYSE: DPS) has been a prominent player in this segment with a number of healthy options for consumers.

Dr. Pepper recently launched extensions of its five new drinks which are low calorie soda and caters to the health conscious young population.

Competitive Landscape

A quick look at the stock prices of some of these players in the last five years gives us a clear indication of the success of such healthy drinks.

CCE data by YCharts

As depicted by the chart above, Dr. Pepper Snapple has been the best performer providing maximum returns to its shareholders. All thanks to its wide range of low calorie sodas.

Even Coca Cola has been concentrating on this segment and hopes to reap the benefits soon.

However, PepsiCo’s stock price has shown the least growth in spite of its introduction of flavored water and energy drinks.

The Takeaway

Coca Cola does not only manage its costs well and attract customers but also knows how to win customers’ hearts. Its marketing strategies and measures to save the environment, such as having HFC-free coolers are commendable. Additionally, it has a share buyback plan in place and has increased its quarterly dividend. With such efforts in place and announcement of a bright outlook this company looks like a deserving one. Investors should consider this beverage maker as a long term investment.


justhimanshu has no position in any stocks mentioned. The Motley Fool recommends PepsiCo. The Motley Fool owns shares of PepsiCo. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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