Writing in a note, Herzog, who is senior analyst at Wells Fargo Securities, predicted volume growth of 1.5% in Q1 2014 for Coke and 2.6% for the full year.
She warned that Coke’s volumes would likely remain under pressure this year, due to global instability in key regions – especially Latin America where the Mexican sugar tax will put pressure on soda sales – and continued pressure at home.
Coke FEMSA’s Mexican soda sales slide
High Mexican soda consumption of 163 liters per capita each year makes it a vital market for Coke, and on February 26 bottler Coca-Cola FEMSA reported Mexican sales volumes down 5-7% as a result of the $1 (Mexican) per liter excise tax.
“We are becoming increasingly concerned about Coca-Cola’s ability to reach its 2020 Vision, and will look closely for any commentary from management to support its ability to achieve its long-term 3-4% volume growth target,” Herzog warned.
Announced in 2009, Coke’s 2020 Vision involves doubling its system revenue, boosting margins and doubling servings to 3bn per day by 2020, but this necessitates meeting 3-4% annual volume growth.
In 2013 Coke grew volumes just 2%, but this is offset by 4% growth in 2012, 5% growth in 2011 and 6% in 2010 – so although the company has some breathing space, the declines are worrying.
Meanwhile, Herzog said that PepsiCo’s US beverage business had outpaced peers in volume and value share gains this year (Wells Fargo predicts a 2% volume improvement in Q1; 3.2% for FY 2013) but warned it was too early to “call a turnaround” after a challenging couple of years.
PepsiCo: Rope a dope recovery?
Herzog said scanner data and her own company’s ‘Beverage Buzz’ survey of C-stores led her to believe that PepsiCo had seen sequential improvements.
“For example, in CSDs, PepsiCo outpaced its peers in volume and value share gains, and was the only one of its peers [here we’re talking Coca-Cola and Dr Pepper Snapple, ostensibly] to have positive volume growth in combined C-store and take-home results,” Herzog wrote.
“While we believe it’s far too early to call a turnaround, particularly given the secular trends impacting the carbonated soft drinks industry, we do find reason to remain cautiously optimistic about PepsiCo’s beverage business,” she added.
Herzog also reiterated her support for PepsiCo’s management and its opposition to activist investor Nelson Peltz’s push to split the company’s snacks and beverage arms.
“We generally support management’s decision, and fear Peltz’s pressure may simply be creating a distraction to the business unit management teams,” she said.