Cold Snap a Fizzer for Coke, Pepsi, and Dr Pepper Sales
Revenue results may be looking grim for Coca-Cola Co. (NYSE:KO), PepsiCo Inc. (NYSE:PEP) and Dr Pepper Snapple Group Inc. (NYSE:DPS) in the second-quarter and they can rightfully lay the blame on mother nature.
Analysts expect weak U.S. sales after the nation experienced a chilly spring and the wettest June in decades. The unusual cold snap has not encouraged consumers to purchase cold beverages and the expected decline in sales will likely exacerbate an almost decade-long decline in domestic soda consumption amid obesity concerns. Demand in Europe also dampened as a result of cold and wet conditions, prompting regional bottler Coca-Cola Enterprises Inc. (NYSE:CCE) to scale back its full-year guidance last month. Coca-Cola and PepsiCo also faced the consequences from a strengthening U.S dollar and dwindling consumer demand in countries like China and Brazil.
Coca-Cola will report its results on Tuesday and is expected to reveal its earnings per share inched up to 63 cents from 61 cents on flat revenue of $13 billion, compared with the year-earlier quarter, according to an analyst survey by Thomson Reuters. Analysts expect revenue to increase 2 percent to $16.8 billion and earnings to rise to $1.19 from $1.12 per share at PepsiCo, which benefits from a large snacks business and reports on July 24. Smaller rival Dr Pepper is expected to report flat earnings per share of 85 cents on July 24.
According to weather service Earth Networks, heavy snowfall kept many U.S. consumers indoors in April. Despite unusually hot and dry weather in the western part of the country, the first two months of the quarter were also the coldest in the U.S. since 2008 and the 11th wettest in the past 119 years. June might have been worse.
Planalytics, a weather-analysis firm, said U.S. precipitation last month was the most in more than 50 years, with 44 percent more rainfall than in June of last year. ”There’s a lot more weather sensitivity around soda than dishwasher detergent,” said Evan Gold, head of client services at Planalytics, which estimates weather alone cut U.S. soda demand by 1 percent in the second quarter. Beer consumption has also slipped this year.
Stifel Nicolaus analyst Mark Swartzberg lowered his second-quarter estimates for beverage volumes, citing store scanner data suggesting U.S. soda volumes fell 3 percent to 5 percent. He estimated Coke still eked out a 0.5 percent volume gain in North America on the back of non-carbonated beverages, but that PepsiCo and Dr Pepper will both post declines.
In a report Friday, Morgan Stanley analyst Dara Mohsenian estimated second-quarter revenue at the company’s Americas-wide beverage unit will slump 4 percent compared with a 6 percent jump at its Americas snacks division. PepsiCo says it will update investors on its strategic business plans in early 2014 after it rejected calls from some investors to split up the company last year, instead boosting marketing investments in its namesake cola and other drinks.
The Wall Street Journal reports that many Wall Street analysts believe PepsiCo isn’t under any immediate pressure to rethink its strategy. Its beverage market-share losses have narrowed since last year and the company still appears on track to easily meet its 5 percent profit growth target this year after earnings fell in 2012, helping boost its share price by more than 20 percent since January. Many investors are also betting beverage companies will post stronger results in the second half of the year, especially if forecasters are correct in their predictions of normal to warmer than normal weather in the third quarter.
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