The Secret Behind PepsiCo, Inc. (PEP)’s Better Performance: The Coca-Cola Company(KO)

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PepsiCo, Inc. (NYSE:PEP) posted better than expected fourth quarter earnings where profit rose 17% compared to the prior year figure. This lit up investor hopes particularly after lackluster performance of the company for quite some time. The company enjoyed sales gain in each of its business segments. Higher sales volume and increased prices helped the company record better numbers for the period as well as forecast a positive outlook for 2013.

PepsiCo, Inc. (NYSE:PEP)A look beyond numbers
The world’s largest snack food maker recorded a net income of $1.66 billion, up 17% from $1.42 billion in the prior year quarter. This was majorly led by higher prices and marketing initiatives undertaken to boost sales and promote new products. The company heavily invested in promoting the Lay’s brand as well as stressed on reviving its US soft drink market in order to recapture its lost market from Coca-Cola. However, the top-line declined 1% to $19.95 billion for the quarter hurt by structural changes related to China and Mexico and a stronger dollar.

Organic sales in the company’s America beverage business improved 2.5% against arch rival The Coca-Cola Company (NYSE:KO)’s 2% rise in drink volume in North America though the soda business fell 2%. Even Dr Pepper Snapple Group Inc. (NYSE:DPS), like PepsiCo and Coca-Cola, has been suffering from declined soda sales in the past 8 years. The rising prices also failed to compensate for the fall in sales volume.

However, the non-carbonated beverage sales have been pretty decent for Coca-Cola as it helped to compensate for the sluggish European market where demand remained dull. The non-carbonated segment is considered as a strong part of PepsiCo’s product portfolio as well, and is considered to have great growth prospects. All in all, the company experienced decent growth of 5% in organic sales driven by a fantastic 9% growth in the emerging markets. The American food business also saw 8% organic growth with Latin America stealing the show with a 13% sales gain. In contrast, Coca Cola (NYSE:KO) saw a rise of just 3% in its global sales volume.

What’s new?
The beverage and snack giant made several new offerings to widen its existing offering and made sure to provide new products that would stay for a longer period in the market. For instance, the company freshly introduced Quaker Real Medleys which is oatmeal with real fruits and nuts. This was branded as the breakfast product for 2012. Another hit product was Doritos Locos Tacos, which sold over 325 million shelves, happened to become one of the best launches for Yum! Brands, Inc. (NYSE:YUM)’s Taco Bell in 50 years.

In addition, Pepsi Next, which contains 60% less sugar enjoyed a retail sale of $100 million. This drink has just about half the calories than the regular Pepsi contains. Dr Pepper Snapple has been working on a carbonated soft drink that has ten calories a serving and the company is very confident about it. It proposes to invest around $30 million to promote and expand this new line of drink that it called the Ten platform. However, the higher packaging and input costs could stress the company’s bottom-line.

Other than Pepsi Next, the company has been working on its Good-for-Your Portfolio which forms part of its nutritious offering and includes successful brands including Tropicana, Gatorade, Quaker, Sabra and Stacy’s. Such a diversified product portfolio helped the company to post better figures. Additionally, the company also undertook aggressive steps in terms of positioning its business and enhancing its brand value by heavily investing to maximize shareholders value. Let’s take a look at the strategy undertaken by the company.

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