Pepsi Bottling Group (NYSE: PBG), a competitive colleague of Coca-Cola Enterprises (NYSE: CCE), reported earnings for the third quarter earlier in the week. I didn't find the release too exciting, to be honest. Revenues went up 2% to $3.8 billion. Earnings came in at $1.06 per share. In last year's quarter, Pepsi Bottling Group booked a bottom line equal to 98 cents per share, after adjustments. In terms of expectations, the company beat the analysts on Wall Street by two pennies better.
While an earnings beat is certainly a nice thing, let's take a look at what is perhaps one of the more important metrics when it comes to beverage manufacturers: case volume. I'm afraid there's nothing to write home about as far as this statistic is concerned. Case volume took a dive around the globe by a disappointing 6%. Management cited hard economic times as a contributing factor. Imagine that. You'd think that products found in the portfolios of Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP) would be pretty defensive in a tough economic period. Apparently, Pepsi Bottling Group found it difficult to distribute more of its drinks this past quarter.
Long term, I think Pepsi Bottling Group will be okay. But I think both PepsiCo and Coke need to find better ways of convincing people to continue to drink their flagship carbonated beverages. They've been on the decline over the past several years. As a stock, Pepsi Bottling Group isn't on my watch list. I already own shares of Coke, but even with that bias, I can honestly say that I wouldn't want to enter the bottler at this time. I'm not impressed with either the growth or the year-to-date stock performance.
Disclosure: I own Coke; positions can change at any time.
I don't think I'll ever own a bottling group over a Coca-Cola (NYSE: KO) or a PepsiCo (NYSE: PEP). The cash-flow and margin scenarios with the sellers of concentrate is a much better long-term story. With that bias stated, let me check out Pepsi Bottling Group's (NYSE: PBG) first-quarter results, which were reported on Wednesday.
Net sales expanded by 7% to $2.7 billion. On a reported basis, earnings per share didn't budge whatsoever -- it was 12 cents this year, and it was 12 cents last year. On an adjusted basis, earnings were 13 cents -- hey, a penny is a penny, I guess. In fact, I see that Briefing.com is reporting that Pepsi Bottling Group beat the Street's outlook by a penny. Talk about symmetry. Operational cash flow was flat, coming in at $20 million, which was a million bucks less than the operational cash flow seen in the previous year's comparable quarter (by the way, I know that the pun "flat" has been used way too many times when talking about a beverage concern). As can be seen, the bottler lost the growth game this time around. It's only the first quarter, though, so we'll have to wait and see how the rest of the year shapes up. Right now, the company expects earnings of $2.30 to $2.38 on an adjusted basis.
Now, I don't hate Pepsi Bottling Group or anything like that (well, except for the fact that it distributes products that compete with my beloved Coca-Cola company, shares of which I own); it's a respectable company linked to a powerful beverage brand, and it has been pretty good on the dividend-increasing front (it recently upped its quarterly payout by over 20%). But I've always been prone to PepsiCo and Coke since they don't have to deal with the capital requirements for distribution; instead, they are the big marketers supporting the bottlers. If you want exposure to sugar water, I figure you may want to check out those two businesses first.
Disclosure: I own shares of Coca-Cola; positions can change at any time.
Coca-Cola Co. (NYSE: KO) really needs to get things going in the North American territory. If you take a look at Coke's latest earnings report, you'll see that unit case volume moved up 1% for the fourth quarter, and down 1% for the entire fiscal year. That's well below the 6% growth in volume experienced overall. It's no wonder that the Associated Press highlighted the problem in North America in a recent article on comments made by Coke's COO Muhtar Kent (he will be the new CEO starting July 1) at a conference in Boca Raton, Florida.
Kent mentioned Coke Zero and the VitaminWater brand -- which Coke gained after acquiring Glaceau last year -- as being two key beverages to leverage to drive growth. They will probably help. I recently tried some of that VitaminWater stuff the other day -- not bad, although I suppose its appeal goes beyond the taste factor, as it basically relies on the consumer feeling healthier after drinking it (at least in terms of perception).
Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models and who have a competitive advantage in established markets, preferably with a favorable global trend as a support. And with the above in mind, Owens-Illinois is worth an evaluation.
Owens-Illinois, Inc. (NYSE: OI) is the world's largest maker of glass containers. Owens makes a variety of containers, including bottles in a wide range of shapes and sizes used to hold beer, soft drinks, liquor, wine, juice, and other beverages.
Analysts really like Owens' market-leading positions in the Americas, Europe, and Asia/Pacific. Analysts also like OI's blue-chip clientele list.
Jamba Juice (NASDAQ: JMBA) has been an extremely disappointing performer since it went public through its acquisition by a special purpose acquisition vehicle.
Shares closed at $3.39 on Monday, down from a 52-week high of $11.25 on this day of last year -- A spread of 365 days between the current price and the 52-week high is usually a sign of a difficult stretch.
Perhaps things are getting better: Jamba Juice has reached a deal with Nestle to sell its products at groceries stores in eight states in the western United States. The plan is to eventually expand the program nationally, perhaps internationally, and also target convenience stores and other possible outlets. Nestle (OTC: NSRGY) will manufacture and distribute the beverages.
With its stock in the toilet in light of operational underperformance, this may be just what Jamba needs. But as anyone who witnessed the Krispy Kreme (NASDAQ: KKD) saga can attest, rapid expansion by a premium stand-alone specialty food retailer into mass market distribution can lead to bad results: big losses and irreparable damage to the brand.
Savvy marketing and responsible stewardship of the Jamba franchise on the part of management could make this a big success. But if the company's performance as a public company is any indication, that's not something investors should bet on.
This post is part of our Hottest Products of 2007 feature. Also check out our other Hottest Products of 2007 posts and let us know which product you think is the greatest thing since sliced bread.
When I first discovered the products of glacéau, maker of Vitaminwater, it was the summer of 1998, and there were four flavors of Fruitwater. The lemon ginger flavor was strange, at best, but I could drink an entire cold bottle of watermelon water after a run. Cranberry mint was curious and refreshing. They were lovely, with the tiniest hint of color and no sugar: what I'd always wished for in a bottled water.
Cut to 2007, when, in order to cater to the mass market's taste for sweets and the craze for vitamin-enhanced beverages, glacéau's Vitaminwater has been stocked with sugar and color. This summer, Vitaminwater was being guzzled by all my friends' children at family barbecues and birthday parties. The day-glo orange and green look oh-so much like the Kool-Aid and Gatorade we drank in decades past, and I have to say they're just as sweet. The watermelon water I loved has been replaced by four new flavors, all "naturally" sweetened; peach, raspberry, grape, lime. Sounds like Lifesavers! The kooky Whitestone, Queens management has sold (out?) to Coca Cola (NYSE: KO) for $4.2 billion. 50 Cent, famously, had a big payout thanks to his prescient investment in the stuff (he wanted to put his money in something healthier than his rap rivals' liquor ventures). For Coke, of course, it was just the latest salvo in the next generation of the cola wars (now it's enhanced waters and super-premium juices, but it's still the same ol' Coke vs. Pepsi).
More than three weeks after its earnings release, fast-food giant McDonald's (NYSE: MCD) is presenting a financial update to analysts later today. International sales have remained strong for the Dow component and a value menu has kept consumers in McDonald's seats even amid economic tightening. Two of the popular items on the low-price menu are a "snack wrap" for $1.49 and a sundae for $1.00. But commodities prices are on the rise, crimping food producers and restaurateurs.
To keep its growth pace fleet of foot in light of various challenges, McDonald's is taking a liquid focus. In recent years, the company has gained ground on Starbucks (NASDAQ: SBUX), even winning a taste test with its drip coffee last year. Now the behemoth of the Big Mac is exploring the option of moving further into the gourmet-coffee arena, offering beverages such as iced mochas, caramel lattes, and other espresso-based drinks.
Current experimental pricing has these new drinks at $3.00 a pop, which is cheaper than Starbucks but on par with (or slightly higher than) a full-sized burger or sandwich. While consumers are used to emerging from Starbucks five dollars lighter, can they justify spending more on the empty calories of a sweetened coffee drink than the (basically empty, but still protein-filled) calories of a quarter pounder?
Net income rose 17% to $1.74 billion, or $1.06 a share, from $1.49 billion, or 89 cents, a year earlier. Sales rose 11 percent to $10.2 billion. Excluding a one-time gain, the Purchase, New York company's results beat Wall Street expectations by 3 cents.
"Our third quarter performance was very strong, with double-digit revenue and operating profit growth," said Indra Nooyi, the company's chairman and chief executive in the earnings release. "All of the Company's operating divisions successfully navigated through an environment of higher input costs in order to deliver balanced top- and bottom-line performance."
PepsiCo reiterated its previous guidance for full year earnings of at least $3.35 per share and slightly rose its cash flow from operations forecast to be at least $7 billion. Capital spending is seen at about $2.6 billion.
Sales of traditional soft drinks (sodas? pops?) haven't exactly been effervescent of late, so beverage giants PepsiCo (NYSE: PEP) and Coca-Cola (NYSE: KO) have recently ramped up their efforts on non-carbonated drinks. Today, Pepsi introduced a low-calorie version of its Gatorade Sports Drink, called "G2."
While the original Gatorade has always been marketed as an electrolyte-rich drink to gulp down during or after workouts, G2 - with 25 calories per eight-ounce serving - is designed to keep calorie-conscious folks hydrated even while they're at rest. G2 will initially come in three flavors - fruit punch, grape, and orange, and a single bottle is expected to run between $1.29 and $1.49.
Pepsi also said it will launch a new addition to its Propel line of "Fitness Water." "Propel Invigorating Water," a vitamin-enhanced offering, will include a mild shot of caffeine and a subtle flavor, totaling 20 calories in each eight-ounce service. The new Propel will come in strawberry, citrus, and berry flavors, and cost 99 cents to $1.59 per bottle.
Pepsi shares are trending modestly lower today, following the example of the downward-spiraling broader market, but the soft-drink firm's long-term trend is an attractive one. Pepsi has been on the rise since early 2003, nearly doubling in value as it hugs the support of its 10-month and 20-month moving averages. If Pepsi continues to pace the trend for "healthier" non-alcoholic beverage offerings, this trend could remain the stock's friend for the foreseeable future.
While the sweetest of soft drinks may now be off limits in high-school vending machines, some hip new options may soon be available to the nation's students.
In May 2006, the beverage industry voluntarily agreed to stop selling full-calorie sodas in schools. The agreement stated that companies could sell milk, water, diet sodas, sports drinks, and unsweetened and low-calorie juices.
The industry has now expanded this list to include additional beverages meeting the criterion of fewer than 100 calories per 12 ounces. Certain flavored iced teas and vitamin-flavored waters fit the bill. Most varieties of Glaceau VitaminWater, a recent acquisition of Coca-Cola (NYSE: KO), have 75 calories or less. The same is true for the various flavors of SoBe LifeWater, owned by PepsiCo (NYSE: PEP).
According to The Wall Street Journal, the beverage industry is bringing unhealthy drinks back to school vending machines. In May of last year, the industry agreed to stop selling full-calorie sodas and limit the sizes of certain other beverages.
Well the agreement has since been modified to allow certain iced teas and vitamin-fortified waters with fewer than 100 calories per 12 ounces.
A critic from the Center for Science in the Public Interest was disappointed with the move, and with good reason. The original guidelines were flawed to begin with. Most kids are simply not active enough in schools to justify drinking beverages like PepsiCo, Inc. (NYSE: PEP)'s Gatorade and The Coca-Cola Company (NYSE: KO)'s Powerade.
With the burgeoning obesity epidemic among children, we need more stringent regulations of what's sold in schools. If you don't believe me, look around. Parents should be able to send their kids off to school without having to worry that they will be lured in by unhealthy drinks.
If your Final Jeopardy question read "What U.S. state is home to the biggest wine producer in the world?", would you answer California? You'd be wrong. It's New York! In fact, the Fairport, N.Y. firm in question sells more than 250 brands of flavored ethanol.
Constellation Brands (NYSE: STZ) produces and markets wine, spirits and beer. The Wines division is responsible for such brands as Robert Mondavi, Inniskillin, Simi, Arbor Mist and Blackthorn (cider). The Spirits division distills such brands as Black Velvet, Chi-Chi's, Fleischmann's, Canadian LTD and Mr. Boston. The Imports division has the right to import, market, and sell Corona Extra, Corona Light, Modelo Especial, Pacifico and St. Pauli Girl. The firm distributes its products through wholesalers, government beverage control agencies and various retailers in some 150 countries. Diageo (NYSE: DEO) and Fortune Brands (NYSE: FO) are major competitors.
The company pleased investors late last month, when it reported solid Q1 results and guided FY08 EPS in-line with the average Street estimate. The CEO announced an acquisition strategy focused on European expansion, premium spirits and niche wines. Banc of America Securities subsequently reiterated its "buy" rating on the issue and boosted its price target to $27. The news kept STZ shares cycling through a positive 10-week trading channel. The price is currently moving near the base of that channel, where oversold CCI, Stochastic and Momentum technical parameters suggest the potential for a rise back toward the top.
Altogether, brokers recommend the issue with two "strong buys," one "buy," eleven "holds" and one "sell." Analysts see a 22% growth rate through the next year. The STZ P/E ratio (20.60), Price to Sales ratio (1.02), Price to Book ratio (1.73) and Price to Cash Flow ratio (11.93) compare favorably with industry, sector and S&P 500 averages. Institutions own about 84% of the outstanding shares. The stock is one of those used to calculate the S&P 500 Index. Over the past 52 weeks, it has traded between $18.83 and $29.17. A stop-loss of $20.50 looks good here.
With soft drink sales stagnating as more health-conscious consumers switch to lower-calorie premium beverages, Coca-Cola (NYSE: KO) is looking for a piece of the action. After the February acquisition of Fuze, Coke is looking at privately-held beverage companies including Glaceau [subscription required], the maker of vitamin water and Arizona Teas, the best iced tea company out there.
While Coke has been delivering slow and reliable growth, Glaceau's has been extremely rapid of late, doubling its cases sold in 2006. Glaceau's price-tag of $2 billion might seem expensive, but it's the number one brand in a category that is expected to account for 22% of North American beverage sales over the next five years, making it second in volume only to bottled water.
With Hansen Natural (NASDAQ: HANS) and Jones Soda (NASDAQ: JSDA) valued at $3.5 billion and $681 million respectively, $2 billion for Vitamin Water might not be so bad.
George Carlin is going to have a blast with this. In an effort to improve the unhealthy image of soft drinks/soda/pop/tonic, the Coca-Cola Company (NYSE:KO)is going to start referring to its product as a "sparkling beverage." Sales of these sparkling beverages were down 5% last year, as consumers sought healthier alternatives.
To be fair, Pepsi(NYSE:PEP) and Coke are making substantive changes as well. Coke is launching a new version of Diet Coke with vitamins and minerals and Diet Pepsi Max will be enhanced with ginseng and more caffeine. Both companies are also working on "hybrid brands" that will combine the appeal of soda (er...sparkling beverages...) with the healthier aspects of other beverages. And then there's the controversial Enviga, which claims to burn calories. Pepsi will also be changing the design of the Pepsi can 35 times this year, compared to four changes in the past 60 years.
Time will tell whether these marketing changes and product innovations will pay dividends for the soda companies. But I'm extremely skeptical that referring to soda as something other than soda will enhance its reputation. What do you think?
Coca-Cola Co. (NYSE:KO) has been running a television ad recently that features a senior citizen who has somehow gone his whole life without ever tasting a Coke. Just one sip of Coke sends him off on a frantic quest to experience everything he's overlooked during his lifetime. But the most incredible part of that ad may be the notion that someone could have never heard of Coke, let alone not had one. Coke surely ranks right up there with such American icons as baseball and apple pie.
It's not only hard to imagine someone never trying a Coke, but also that there are any unconquered markets left for the world's largest soft-drink company, at least as far as its traditional beverage offerings. That's no doubt why, like Pepsico Inc. (NYSE:PEP) and its other rivals, Coke is focusing so much of its energy these days on alternative beverages: teas, juices, energy drinks, and coffee.
When I first discovered the products of glacéau, maker of Vitaminwater, it was the summer of 1998, and there were four flavors of Fruitwater. The lemon ginger flavor was strange, at best, but I could drink an entire cold bottle of watermelon water after a run. Cranberry mint was curious and refreshing. They were lovely, with the tiniest hint of color and no sugar: what I'd always wished for in a bottled water.
More than three weeks after its 
Sales of traditional soft drinks (sodas? pops?) haven't exactly been effervescent of late, so beverage giants 
While the sweetest of soft drinks may now be off limits in high-school vending machines, some hip new options may soon be available to the nation's students. 
average Street estimate. The CEO announced an acquisition strategy focused on European expansion, premium spirits and niche wines. Banc of America Securities subsequently reiterated its "buy" rating on the issue and boosted its price target to $27. The news kept STZ shares cycling through a positive 10-week trading channel. The price is currently moving near the base of that channel, where oversold CCI, Stochastic and Momentum technical parameters suggest the potential for a rise back toward the top.
Coca-Cola Co. (NYSE:
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