Not so fast. Because if PepsiCo earnings pop, it might in fact be your best opportunity to exit this stock.
Sure, the soft drink manufacturer has done well this year … but Pepsi stock has only really tracked the market, not outperformed. And yes, Coke reported a record 181 billion “servings” sold in the most recent quarter, so it’s natural to think PepsiCo did well too.
But remember, Pepsi said that U.S. sales volume dropped 3.5% in its previous earnings report, and the volume drop across all North America was in the mid-single digits. At the same time, rival Coke posted soft sales last quarter — and though it was quick to blame the wet spring weather, investors shouldn’t necessarily see a decent Coca-Cola earnings report this time as a validation of that pretty transparent excuse.
The real pressure on PepsiCo stock and rivals like Coke and Dr Pepper Snapple (DPS) is that we may have reached “peak soda” in the West, and emerging markets might not have the growth potential to offset stagnant or slipping soft-drink sales in other markets.
To wit: Soda consumption in the U.S. fell again in 2012, the eighth-straight year of declines, and consumption per person dipped to the lowest level since 1987.
Not a favorable trend for giants like Coke and Pepsi.
Now, PepsiCo owns brands including Lipton Teas, Cheetos snacks and Quaker granola, and DPS at least has some healthier soda alternatives via fruit juices including Snapple and Nantucket Nectars. But it’s hard to imagine a company like PepsiCo or Coca-Cola not being weighed down by a secular decline in sales of its flagship product.
PepsiCo earnings might show a bit of short-term strength, but don’t be fooled into thinking this is a long-term endorsement of PEP stock as an investment.
PepsiCo stock set an all-time high in July, but might have a lot of trouble topping that mark again anytime soon.
Related Reading on PepsiCo Stock
- On Coca-Cola stock amid earnings. (The Slant)
- On the decline in soda consumption. (CNBC)
- Of course, don’t forget how PepsiCo stock pays a big dividend, too. (The Motley Fool)
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.