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Price Increases Help Pepsi Pop

Stocks in this article: PEP

While demand in developed markets has waned somewhat, the opposite is true in emerging markets like Brazil, Russia and India, where disposable income among consumers is growing. Pepsi's exclusive contract with Yum! Brands (YUM) to serve Pepsi products in its restaurants also helps, particularly in the fast-growing market of China. Yum, which operates Taco Bell, Pizza Hut and KFC restaurants, last week matched quarterly profit expectations as continued strong performance in China drove year-over-year revenue growth of more than 14%.


As of earlier this year , Pepsi had been able to manage the risk of rising commodity costs better than Coca-Cola (KO). Pepsi had turned to improved operational efficiencies and price increases to help offset those costs, but Chief Financial Officer Hugh Johnston conceded in April that pricing in the first half of the year "has not been what we would have liked or expected."

Costs for plastic bottles and fuel to transport beverages have risen as oil prices heated up this year. Oil prices affect the price of polyethylene terephthalate, or PET, the plastic used by beverage companies to make soda bottles. Coke, Pepsi, Dr Pepper Snapple (DPS) and other beverage makers cannot hedge the prices they pay for PET because the material is not traded like other commodities.


Over the last three months, Coke shares have fallen less than 0.1%, while Pepsi lost around 8.3%. Dr Pepper Snapple's stock is lower by around 4.3% in the same period.

On Wednesday Pepsi shares rose 3.9%, thanks to its earnings beat, to trade around $63.31.


-- Written by Miriam Marcus Reimer in New York.



>To contact the writer of this article, click here: Miriam Reimer.

>To follow the writer on Twitter, go to @miriamsmarket.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
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