Cramer Highlights Growing Divide Between PepsiCo and Coca-Cola
During the October 2 episode of Mad Money, Jim Cramer highlighted the growing divide between PepsiCo (NASDAQ:PEP) and The Coca-Cola Company (NYSE:KO) ahead of PepsiCo's earnings report. He noted that while PepsiCo once outperformed Coca-Cola due to its strong snack business, the dynamic has shifted. This year, Coca-Cola's stock has surged 22.5%, leading the packaged food industry, while PepsiCo's stock has declined 12%. Cramer attributed this disparity to changing consumer habits, particularly the decline in junk food consumption.
The latest financial results underscore the divergence. Coca-Cola's second-quarter organic revenue grew 6%, with global unit case volume rising 5%. Comparable earnings per share increased 11% to $0.97. Management raised its full-year outlook to approximately 5% organic revenue growth and between 9% and 10% comparable EPS growth. In contrast, PepsiCo reported second-quarter revenue of $24.18 billion, up 6.4%, but with a more modest 2.4% organic growth. Core earnings per share increased 4%, supported by international operations and expansions in smaller portions, functional products, and zero-sugar beverages.
Cramer linked PepsiCo's struggles to shifting consumption patterns and competition for investor income. He pointed out that PepsiCo's 4.7% yield, while attractive, pales in comparison to the 5.28% yield on the 10-year Treasury. PepsiCo is trading at approximately 14.7x forward earnings, while Coca-Cola trades at 26x. Despite offering a higher dividend yield (4.71% for PepsiCo versus 2.45% for Coca-Cola), PepsiCo's weaker growth comes at a lower price. Cramer remained cautious about recommending PepsiCo, citing the lack of compelling risk-reward dynamics.
Insider Monkey's data revealed that hedge fund ownership shifted between the two companies. PepsiCo saw a decline in hedge fund holders, dropping from 72 in Q1 to 68 in Q2. Meanwhile, Coca-Cola attracted more interest, with 90 holders compared to 76 in the previous quarter. Short interest was higher for PepsiCo at 2.11%, compared to 0.95% for Coca-Cola. The choice between the two companies now involves a clear price difference, with Coca-Cola delivering stronger operating momentum and PepsiCo offering higher income at a lower multiple.