Coca-Cola set to gain edge over PepsiCo in Q4 on fewer price hikes

By Ananya Mariam Rajesh

(Reuters) - Coca-Cola (NYSE:KO) is set to record stronger sales and profit growth in the fourth quarter compared to PepsiCo (NASDAQ:PEP) as it lured more price-conscious consumers with fewer price hikes.

The duopoly enjoyed by Coca-Cola and PepsiCo in the carbonated drinks sector helped the companies push ahead with price hikes to offset higher input costs during the pandemic and protect margins.

However, data showed more frequent price hikes in the past few quarters by Frito-Lay owner PepsiCo have allowed its main rival to pull in more consumers.

The number of units sold by PepsiCo's beverage business in the United States fell 8% in November and was down 7% in October and December, while for Coca-Cola it rose 3% in December from 1% in October, according to YipitData.

"Pepsi has to be a little more mindful and not jam as much price increases onto the consumers because it's translating to low negative volume growth," Raz Poundardjian, portfolio manager for Carnegie Investment Counsel, said.

THE CONTEXT

Both Coca-Cola and PepsiCo have enjoyed little to no pushback from consumers on higher prices, but extended periods of elevated levels of inflation have led to customers prioritizing their spending.

PepsiCo's beverages had an average price increase of 6.2% in the U.S. during the fourth quarter, while for Coca-Cola it rose 4.5% according to YipitData.

In the carbonated soft drinks category, Coca-Cola's sales growth was 3.8% in the United States, while PepsiCo saw a 0.2% decline for the 12 weeks ended Dec. 30, NielsenIQ data showed.

THE FUNDAMENTALS

** PepsiCo's overall organic volumes were flat in fiscal 2022 and average pricing rose 14%. Coca-Cola saw volume growth of 5% and an average price mix increase of 11%

** PepsiCo will report fourth-quarter earnings on Feb. 9 and Coca-Cola on Feb. 13

** Coca-Cola's net revenue is expected to rise 4.7% to $10.68 billion, while adjusted profit is estimated to rise 8.5% to 49 cents per share, according to LSEG data

** PepsiCo is likely to report a 1.4% rise in net revenue to $28.40 billion and a 2.9% rise in adjusted profit to $1.72 per share

WALL STREET SENTIMENT

** The current average rating of 25 analysts on Coca-Cola's stock is "buy", with 19 analysts rating it "buy" or higher

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** PepsiCo's current average rating of 22 analysts is "buy", with 10 analysts rating it "buy" or higher

** In 2023, Coca-Cola's shares fell 7.4% and PepsiCo was down 6%