Coke vs. Pepsi – Earnings Taste Test

Soft-drink makers Coca-Cola Company (NYSE:KO) and PepsiCo Inc. (NYSE:PEP) have now reported second quarter earnings and both companies managed to finish somewhat better than analysts had expected. Coke posted EPS of $1.06, excluding non-recurring items, on revenues of $8.67 billion. Analysts had been expecting EPS of $1.02 on revenues of $8.74 billion. Pepsi reported EPS of $1.09, excluding one-time items, on revenues of $14.8 billion. Analysts had estimated EPS at $1.08 and revenues of $14.4 billion.

Both companies reiterated standing full-year guidance, and both cited pressures from the weak global economy as potential anchors on growth. Pepsi specifically called out high unemployment as a drag on consumer spending, while Coke said only that it planned to “remain cautious” for the rest of 2010.

Pepsi is further along in integrating the bottlers it reacquired in 2009 for about $8 billion. The company noted that integration of the bottlers “is on track and unlocking opportunities and efficiencies.”

Coke’s deal to buyback bottler Coca-Cola Enterprises, Inc. (NYSE:CCE) is not scheduled to close until the fourth quarter of this year.

The primary reason both companies bought their big bottlers is to give themselves the flexibility to introduce new products more quickly and cheaply. Pepsi recently introduced a new sports drink, Gatorade Prime, and the company says it is selling as fast as it can be bottled. This result is precisely what the company had hoped for when it paid all that cash for its bottler.

Once the deal between Coke and CCE is completed, competition between the two soft-drink giants is sure to intensify as they introduce new products and fight for limited shelf space. When that battle starts, prices are likely to rise and it remains to be seen how consumers react.

The companies are also spending money fighting a proposed tax on sugared soft drinks. Some local jurisdictions have already imposed such a tax, but what the companies really fear is a federal tax.

For today, though, Coke is enjoying a share price bump of about 2.5%. Pepsi got a boost of about 3.5% yesterday, but is giving some of that back this morning.

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