NEW YORK (TheStreet) -- Have you ever tried to put down a bowl of cola-flavored liquid -- carbonated or non-carbonated -- in front of your dog or cat? Chances are they'll take one sniff and turn up their noses.More and more homo sapiens are having the same reaction, and that has companies Coca-Cola ( KO) and Pepsico ( PEP) sweating big, anxious drops. In an article last weekend in The Wall Street Journal titled "Is This the End of the Soft Drink Era?", author Mike Esterl made a timely observation:
As U.S. consumption
of soda beverages slipped over the past eight years, the beverage giants typically were able to raise prices enough to keep soda revenue growing.
But soda sales at U.S. stores declined in the send half of last year -- including the holidays, when partygoers normally pay up to gulp more.The baby-boom generation, still over 73 million in number, is becoming more concerned about the ramifications of ingesting too much sugar or artificial sweeteners. "The question from here is if that is the new norm," Steve Powers, a beverage analyst at Sanford C. Bernstein, told the Journal after reviewing the latest store sales numbers. Last year the sale of carbonated, flavored sugary beverages (a.k.a. "soda") declined by 0.6% to $28.70 billion at American stores. In terms of volume the sales actually dropped by almost 2%. The article quoted statistics by SymphonyIRI Group, a consulting company that claims to be "...a global leader in innovative solutions and services for the CPG, retail and health-care industries." Its clients are most of the members of the Fortune 100 CPG and retail companies. In a news story on Tuesday, SymphonyIRI said its fourth-quarter 2012 MarketPulse survey "found that shopper sentiment dropped to its lowest point since Q3 2011. While consumers across all age groups feel the strain of ongoing economic strife, those aged 35-54 convey particularly gloomy attitudes, with 43% stating that their financial situation deteriorated in 2012." This doesn't help the angst that management is feeling at both KO and PEP. The chart below clearly illustrates what's been unfolding when it comes to KO's share price and the trailing-twelve-month revenue-per-share direction. KO data by YCharts
There are two conclusions I draw from this chart. First, there appears to be good support at around the $36-a-share level. The second is that revenue per share, which had moved up buoyantly for most of 2012, apparently didn't fare as well in the fourth quarter, which KO reports on Feb. 12.
Even though PEP's revenue per share plunged through the end of October 2012, the share price movement suggests that when it reports fourth-quarter revenus and EPS on Feb. 14, analysts and shareholders will like what they hear. The analyst consensus estimate for PEP's sales revenue for $19.65 billion, less than 1% improvement over the same quarter in 2011. EPS average estimate calls for $1.05, which would be an 8.7% decline from the year-ago quarter. If that news is already baked into PEP's share price, there's probably an opportunity here for an upside surprise since expectations are so measly. PEP pays a current annual dividend of $2.15, which represents a payout ratio of 56%. With over $6 billion in levered free cash flow that dividend looks sustainable. At a $71.84 share price this would mean a yield-to-price of a delectable 3%. PEP shares sell at around 16 times forward earnings compared to KO's forward PE of 17. KO's current dividend payout ratio is 52% with $6.4 billion in levered free cash flow. Its current yield-to-price is a slightly less desirable dividend yield of 2.75%.
At the time of publication the author had a position in KO and is waiting for his buy-limit price to buy PEP. Follow @m8a2r1 This article was written by an independent contributor, separate from TheStreet's regular news coverage. Jim Cramer's protege Dave Peltier finds you Stocks Under $10 picks with explosive upside potential. See what he's trading today with a 14-day FREE pass.