The Coca-Cola Company (NYSE:KO) reported its earnings last week with profits in line with the analysts’ estimates, while revenue fell 3%. According to the company, sales declined due to poor weather conditions and floods in North America and in Europe, coupled with weak overall demand for sparkling beverages. Let’s try to look beyond bad weather to see if demand for the company’s products is waning.
In the most recent quarter, volume declined 4% for sparkling beverages in North America, which was offset by 5% volume growth in the company’s still beverage portfolio. It was the first time in 13 quarters that The Coca-Cola Company (NYSE:KO) saw a decline in its sparkling beverage business, which I believe is due to the negative publicity that soda companies are the cause for rising obesity and other health issues.
The Coca-Cola Company (NYSE:KO) has come up with counter advertisements, which state that rising health problems are due to consumption of excess calories from all the food we consume and not just soda. PepsiCo, Inc. (NYSE:PEP) CEO, Indra Nooyi, has also condemned these statements as “maniacal,” which will badly affect the entire beverage industry. Whatever both the giants do to combat the effect of sparkling soda, the damage has been done.
PepsiCo, Inc. (NYSE:PEP), in its first quarter, reported an overall growth in organic revenues by 4.4% despite the recent pullback in domestic soda sales. However, almost two-third of the company’s revenue from its beverage business accounts from non-carbonated offerings, a segment that represents tremendous growth potential as the North American population becomes more health conscious. More importantly, its non-carbonated segment also offers tremendous scope in emerging markets such as India, which offers almost 28 times more growth potential based on average consumption compared to a U.S. citizen.