Coca-Cola and PepsiCo Post Upbeat Earnings Despite Cost Headwinds

Looking at the Beverage Giants’ Boosted Sales

Both Coca-Cola (KO) and PepsiCo (PEP) reported increased sales for the most recently completed quarter. Looking at organic revenue, Coke’s sales grew by 9% largely in part to a 10% increase in prices. Meanwhile, PepsiCo credits sales of Frito-Lay products, as organic revenue grew by 11.9%, driven by a 7% price hike across the board.

While both companies reported a decline in profits, the figures came in above analyst expectations. Executives say rising costs for raw materials, packaging, and trucking continue to be a drain on the bottom line. On the upside, Coke notes Q4 2021 marked the first time sales at places like restaurants and movie theaters eclipsed pre-pandemic levels since lockdowns first went into effect.

Coke and Pepsi in Demand, Ad Spending Roars On

Higher prices haven’t led to a major drain on demand, according to PepsiCo executives. For the time being, consumers haven’t pivoted to less-known brands. That said, there’s an expectation costs will continue to rise into next year with inflation a major factor, meaning upward pressure on prices will remain. Coke specifically mentioned the supply chain is unlikely to fully snap back into shape by the end of 2022.

With robust demand, both Coke and PepsiCo are leaning into advertising. PepsiCo expanded its marketing budget in and around this weekend’s Super Bowl. Coke is running an Olympics-themed ad campaign in China.

Both Companies Focused on Product Diversification and Logistics

Both beverage giants are part of the business world’s ongoing efforts to overcome supply-chain problems. Executives explain the pandemic uncovered long-standing issues including tight aluminum supply and limited numbers of truckers. PepsiCo says it has observed an improvement in the North American supply chain over the past few months.

Product diversification is another major focus for both PepsiCo and Coke. Coke now owns Smartwater, Minute Maid, Costa Coffee, and Gold Peak Tea. PepsiCo’s product offerings include Quaker Oats, Gatorade, Cheetos, and Mountain Dew. Analysts have long argued it is vital that both companies insulate themselves from the potential decline of sales in the sugary drinks category. The beverage giants hope to build off the strong quarter moving forward.

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