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Pepsi (PEP) vs. Coke (KO): Which Ruled 3Q?

NEW YORK (TheStreet) -- PepsiCo (PEP) reported third-quarter earnings before the bell on Wednesday, while Coca-Cola (KO) reported a day earlier -- how do the soda giants compare?

PepsiCo reported third-quarter net income of $1.91 billion, or $1.23 a share, compared to $1.9 billion, or $1.21 a share, in the year-ago quarter. Revenue came in at $16.91 billion, missing expectations by $120 million. The company noted a 1.5% revenue decline at its Americas Beverages unit, a result of a 4% drop in volume, though revenue increased 7% in its Americas Foods arm.

Despite sluggish growth in its beverages division, CEO Indra Nooyi remains confident in the company's full-year prospects.

"Our year-to-date results give us confidence in achieving our 2013 financial goals and we continue to believe that we have the right strategies in place to create long-term value for our shareholders," she said in a statement.

Coca-Cola, meanwhile, reported a 6% increase in net income to $2.45 billion, or 54 cents a share, compared to $2.31 billion, or 50 cents a share, a year earlier. Revenue came in at $12.03 billion, a 3% year-on-year decrease. Coca-Cola saw 2% growth in global volume in the third quarter and by region, 4% growth in Eurasia and Africa, 2% in North America and 5% in the Pacific.

CEO Muhtar Kent said the company delivered a record number of servings during the quarter for the Coca-Cola brand and across the entire portfolio.

"In all, we delivered 181 billion servings thanks to global volume growth of 2% driven by 2% global growth in brand Coca-Cola," he said in a conference call.

Both companies, however, expect to see continued sluggish growth in soda consumption. According to a Credit Suisse Research Institute report, as public awareness of its dangers increase, companies shilling high-sugar content products will suffer in the same way tobacco companies did.

"For companies with brands as strong as Coca-Cola or Pepsi, the biggest risk to sales growth and profitability is a negative public image," the report says.

Both Coca-Cola and Pepsi have introduced low-calorie and sugar-free options to diversify their beverage portfolio to hedge against the shift in consumer behavior.

During Coca-Cola's third-quarter conference call, for instance, Coca-Cola Americas President Steve Cahillane noted Coke Zero volume grew 5% in the quarter, while Diet Coke kept its spot as the second best-selling sparkling beverage in the U.S.

Nooyi said Pepsi is also focusing on the development and production of healthier beverage options.

"The diet slowdown has been a little more rapid than we expected," she said during a conference call. Due to PepsiCo's diverse brand portfolio, which includes snack companies Frito-Lay and Tropicana, Nooyi believes the company is well-insulated against any fundamental shifts in consumer behavior.

PepsiCo shares gained 2.1% to $82.27 and Coca-Cola was up 0.9% to $38 by market close. In the year to date, PepsiCo shares are up 20.2%, in line with the S&P 500's 20.7% gain, while Coca-Cola has climbed only 4.8%.

TheStreet Ratings team rates PepsiCo Inc as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate PepsiCo Inc (PEP) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in stock price during the past year, reasonable valuation levels, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

TheStreet Ratings team rates Coca-Cola Co as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate Coca-Cola Co (KO) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Written by Keris Alison Lahiff.

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