Coca-Cola Co (KO) and PepsiCo, Inc. (PEP) Q1 2019 Earnings Report Outlook

The Coca-Cola Co (KO) and PepsiCo, Inc. (PEP) both announced 2019 first quarter earning reports recently. Let’s take a quick look about the performance of these two soft drink companies in the first quarter.

1.PEP price went up

To be honest, PEP share price has risen a lot during the past year and its diversified products brought good revenue performance. On the contrary, KO share price had limited upward movement during the last 12 months. Actually Coca-Cola’s Q1 2019 financial result was very nice, even better than Pepsi’s numbers, in terms of income growth rate, operating profit growth rate, EPS growth rate, operating profit margin, and profit margin.

2.Organic revenue growth rate

However, after the earnings report, PEP shares were more favored by investors, mainly because Pepsi’s organic revenue had a strong 5% growth, better than estimate. Investors should be aware that the so-called Organic Revenue is a non-GAAP metric. GAAP, Generally Accepted Accounting Principles, are accounting principles accepted by SEC (US Securities and Exchange Commission regulations). GAAP provides guidance about how revenue, expense and other expenses should be recognized. Although non-GAAP metric can be misleading sometime while it is an indicator that the company believes that it can reflect the company’s operation more accurately. Both Coca-Cola and PepsiCo announced their organic revenue, but the methodology used could be different. Therefore, comparing the company’s current period organic revenue and prior period one will be more appropriate than looking the organic revenue itself as long as the company did not change its calculation methodology between periods.

3.Share repurchase

During the past quarter, Pepsi bought back $3 billion of treasury stocks, while Coca-Cola bought back only $243 millions of its stock. This could be one of the reasons made Pepsi’s share price rose as its number of outstanding shares decreased. I don’t think we should overinterpret the motivation for Pepsi to repurchase its stocks. PepsiCo described $3 billion in treasury stocks and $5 billion cash dividends during the past quarter as returns to shareholders in its earnings report. Stock buyback is considered as a more flexible way to returned to shareholders comparing with issuance of cash dividends when a company is doing well.

4.Does PEP really have a lower P/E ratio?

Investors should also pay attention to P/E ratio. Pepsi’s P/E is around 14 and Coca-Cola’s is 30 now. However, based on both companies’ Q1 2019 financial result and earning estimate over next three quarters in 2019, you will find that both companies’ forward P/E of 2019 (estimated PE ratio) are around 22.23. People might feel Pepsi’s share price is cheaper if they look at current P/E, but might come to a different conclusion with forward P/E.




但是財報公布後,PEP在股價上更受投資人青睞,主要是因為百事可樂這一季度Organic Revenue增長很強勁。這裡要注意,所謂的Organic Revenue是non-GAAP指標。GAAP是美國公認會計準則,符合SEC美國證券交易委員會的規範,關於營收、費用等等該如何認列,都有相對應的標準。non-GAAP雖然不受相關規範,但是是公司認為能夠反映公司真實營運的一個指標,這兩家同產業的公司也都有公佈Organic Revenue,不過因為是non-GAAP兩者的計算基準可能有些差異,看成長率(和自己公司前期的organic revenue作比較)會比較準。

另外值得注意的一點是上一個季度百事可樂買回了$3 billion的庫藏股,相對可口可樂只買回了$243 million,不難看出百事可樂股價的成長有一部分也來自於庫藏股。這裡我倒不認為需要過度解讀百事可樂買回庫藏股的行為,百事可樂在營收報告中將$3 billion買回庫藏股和過去一個季度發放的$5 billion現金股利一起列為returns to shareholders。當公司營運狀況不錯時,購回庫藏股以流通股數變少的方式回饋股東,比發放現金股利更有彈性。

另外投資人需要注意的一點是關於本益比的部分,百事可樂目前是大約14可口可樂則是30左右,但如果根據百事可樂和可口可樂提供的2019年guidance來算2019年的forward PE(預估本益比),會發現兩家都是22.23左右。如果單看current PE可能覺得百事可樂的股價比較便宜,但forward PE就可以發現並不盡然。