U.S. beverage sales are strong, but it is not strictly smooth sailing in the current market.
A new report from Wells Fargo has revealed the state of the beverage industry from the fourth quarter 2015. The new report shows that, despite strong industry sales, certain markets may continue to struggle in the coming year.
Some of the key findings in the new report from Wells Fargo include:
- Beverage Sales Remain Strong in U.S. But Many Key International Markets Likely Remain Pressured – “Based on our fourth quarter ‘Beverage Buzz’ survey, we believe U.S. beverage sales were strong led by solid pricing and modest volume gains,” said Bonnie Herzog, managing director, beverage, tobacco & convenience store research, Wells Fargo Securities LLC. Currency and global macro headwinds persist, but should be partially offset by a favorable commodity environment and productivity initiatives. “Overall, we believe Dr Pepper Snapple and Monster Beverage Co. are best positioned ahead of fourth quarter results. Based largely on worsening f/x, we tweak our estimates lower for The Coca-Cola Co. and PepsiCo, and raise estimates for Dr Pepper Snapple based on stronger than expected performance,” Herzog continued.
- The Coca-Cola Company – Organic Improvements Likely Offset by Ongoing Macro Headwinds – “We believe a favorable commodity environment and productivity initiatives helped offset ongoing macro volatility and currency headwinds in fourth quarter,” Herzog said. “We see a neutral risk/reward heading into fourth quarter results, but remain optimistic on The Coca-Cola Company’s longer-term outlook as we forecast a return to high single-digit earnings per share growth.”
- Monster Beverage Co. – Recent Weakness in Stock & Accelerating Growth Offer Opportune Time to Buy Monster Beverage Co. Stock – Favorable Risk/Reward Ahead of Results – “Based on our survey results we believe that Monster Beverage Co.’s distribution issues have largely been resolved in the U.S.,” Herzog said. Monster Beverage Co. has significant opportunities to accelerate growth in both the near- and long-term through accelerated buybacks, improved tax efficiency, major innovation and international growth.
- PepsiCo – S. Macro Environment and Improvements in Snacks Should Offset Global Macro Challenges – Neutral Risk/Reward – “We believe PepsiCo’s U.S. business continues to improve led by strength in Gatorade and improving results in Frito-Lay following PepsiCo’s recent pricing increases. We think some of PepsiCo’s international businesses remain under pressure, which could offset favorable U.S. results, and therefore perceive a neutral risk/reward heading into results,” Herzog said.
- Dr Pepper Snapple Group – “Beverage Buzz” Survey and Scanner Results Both Suggest Strong Fourth Quarter for Dr. Pepper Snapple Group – Favorable Risk/Reward – Wells Fargo’s report suggested that Dr Pepper Snapple Group’s results were solid in fourth quarter driven by the strength of its key core brands and Allied brands. “We expect productivity initiatives to offset increased marketing expenses and view Dr Pepper Snapple Group’s more limited exposure to f/x and volatile emerging markets favorably,” Herzog said.
- Coca-Cola Enterprises– Improving F/X But Macro Headwinds Likely Persist– Neutral Risk/Reward– Coca-Cola Enterprises is expected to be able to partially offset persistent macro headwinds with ongoing cost controls and improved f/x outlook. “However,” Herzog added, “we believe upside is limited in Coca-Cola Enterprises stock ahead of the CCEP deal closing in the second quarter of 2016.”