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Coke, PepsiCo Earnings Should Help Staples ETFs

Sanghamitra Saha
·3-min read

Zacks Rank #3 (Hold) soft drink bellwethers Coca-Cola Company KO reported earnings on Jul 21 before market open and PepsiCo Inc. PEP reported results early last week.  While PepsiCo beat overall, Coke came up with mixed results. Let’s delve a little deeper.

Coca-Cola Earnings in Details

The Coca-Cola Company’s second-quarter 2020 earnings beat estimates, while sales lagged. Comparable earnings of 42 cents per share beat the Zacks Consensus Estimate of 40 cents but declined 33% from the year-ago period. Currency translations negatively impacted earnings by 5%. Comparable currency-neutral earnings per share fell 28%.

Revenues of $7,150 million missed the Zacks Consensus Estimate of $7,153.5 million and declined 28% year over year. Organic revenues were down 26% from the prior-year quarter. Global unit case volume shrank by 16. On a positive note, the company sees demand improving as global lockdowns ease. Upbeat expectations led Coke shares to gain about more than 2% post earnings.

PepsiCo Earnings in Detail

PepsiCo reported strong second-quarter 2020 results, wherein earnings and sales surpassed estimates. Despite the challenges presented by the coronavirus outbreak, the company’s better-than-expected performance can be attributed to resilience in the global snacks and foods business.

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PepsiCo’s second-quarter core EPS of $1.32 beat the Zacks Consensus Estimate of $1.25. However, core EPS declined 15% year over year. In constant currency, core earnings were down 11% from the year-ago period. The company’s reported EPS of $1.18 declined 18% year over year.

Net revenues of $15,945 million declined 3.1% year over year but surpassed the Zacks Consensus Estimate of $15,542.5 million. On an organic basis, revenues fell 0.3% year over year. The second-quarter results also benefited to some extent from the gradual lifting of lockdown restrictions. The stock gained about 0.5% in the past week.

Also, some loss of strength in the greenback could act as a positive for such large-cap stocks with widespread international footprint. Invesco DB US Dollar Index Bullish Fund UUP) was down about 2% in the past one month. With the European pandemic stimulus deal done, we are likely to see more strength in the euro ahead and the resultant losses in the U.S. dollar against that currency. This could be favorable for PepsiCo and Coca-Cola.

Against this mixed backdrop, investors may be interested in knowing about the Coke and PepsiCo-heavy ETFs along with their stocks. This is because an ETF approach always minimizes company-specific risks.

ETFs in Focus

Coca-Cola and PepsiCo has a 9% to 10% exposure, respectively, to iShares Evolved U.S. Consumer Staples ETF IECS, Consumer Staples Select Sector SPDR Fund XLP, Fidelity MSCI Consumer Staples Index ETF FSTA and Vanguard Consumer Staples ETF VDC each.

Investors should also note that Consumer Staples ETFs performed pretty well at the start of the coronavirus-led selloffs. In the past three-month period, shares of these two stocks did not gain much. However, with the lockdown scenario easing globally (though not fully), beverage businesses of the duo should pear up ahead.

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CocaCola Company The (KO) : Free Stock Analysis Report
 
PepsiCo, Inc. (PEP) : Free Stock Analysis Report
 
Consumer Staples Select Sector SPDR ETF (XLP): ETF Research Reports
 
Fidelity MSCI Consumer Staples Index ETF (FSTA): ETF Research Reports
 
Vanguard Consumer Staples ETF (VDC): ETF Research Reports
 
iShares Evolved U.S. Consumer Staples ETF (IECS): ETF Research Reports
 
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Zacks Investment Research
 
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