Coke or Pepsi - Which Is Sweeter?
Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
We have all seen hundreds or thousands of commercials, consumed both products, but which one is better? Some people like Coca-Cola (NYSE: KO), some prefer Pepsi (NYSE: PEP), others don't care, but which one will make you more money?
Pepsi's SGA (Sales, General, and Administrative expenses) have sky rocketed in the past five years. It has grown from $14.21 (in billions) to $25.15 a remarkable 77% increase. In this same period of time, sales have increased almost 69%. Pepsi's net income has practically stayed the same despite its drastic expenses. Five years ago it was at $5.66 (in billions) and has grown to $5.93 - not even 5%. Not much of a return considering the money and effort put forth. Pepsi's capital expenditures have increased by 37.5%.
Coke's SGA has gone up a lot as well from $11.2 (in billions) five years ago to $17.73. While a 58% increase is very substantial, it is not nearly as much as Pepsi's 77%. With a 58% increase in SGA, Coke's sales increased 61%. So, how did their net income compare? It grew from $5.98 (in billions) to $8.57 which is a 43% increase. Coke is only increasing their SGA by 1.35% for every 1% of net income compared to Pepsi's 15.4% for every 1% of net income. Over this five year period capital expenditures have increased 77%, meaning it should technically be a better investment long term.
Pepsi has not been able to match five year comparisons to either the average soft drink, or to Coke. Coke has out performed both. While Dr. Pepper Snapple Group (NYSE: DPS) has actually done better in most areas than Pepsi. Dr. Pepper's SGA is only up 25% in the last five years, their net income has increased 26%, while their sales have only increased by 3%. Snapple is far more efficient with their SGA as it is only .96% for every 1% of net income. Snapple's capital expenditures have decreased by 5.5%, meaning they don't show a big interest in longevity.
That is the past five years of history, however, last quarter shows a little different result. Dr. pepper's SGA was down 7%, and net income was up .5%. Coke's SGA was up 3%, and net income was down 21%. Pepsi's net income was up 28%. We know what's coming up in the next few months with the Super Bowl. All of us can probably remember some memorable Coke commercial - and for that reason (along with the capital expenditures), I would expect Coke to rebound if not this quarter, in Q1 of 2013.
What does all this mean for someone looking to invest? Based on this information it shows that Coke is far better established internationally, and here for the long haul. Snapple, hasn't shown the same interest in terms of long term success, however, that could be because they simply don't have the capital to do so.
As we all know, past performances don't reflect future results, so if I had to pick between Pepsi, Dr Pepper, and Coke, there is only one that stands out to me. Even though the short term investment might not seem as though Coke is the right option, it's had un-paralleled success in the soft drink industry for the past several decades - and for that reason, I would suggest Coke above the other two. Their capital expenditures are dramatically higher than the rest in the industry. They have shown an obvious long term interest as a company, which, as an investor, I like. If you are in the market for a mid to long term investment, Coke is likely the best choice.
tlwofford has no positions in the stocks mentioned above. The Motley Fool owns shares of PepsiCo. Motley Fool newsletter services recommend The Coca-Cola Company and 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!