Cott Corporation (USA) (COT), The Coca-Cola Company (KO), PepsiCo, Inc. (PEP): Don’t Go Bargain-Hunting With This Private-Label Beverages Company

Although Coca-Cola registered modest 1% global volume growth in the second quarter of fiscal 2013 due to weather and other macro factors, I am positive on strong volume gains for its non-CSD businesses. Volumes for Coca-Cola’s ready-to-drink tea and packaged-water categories grew 5% in the quarter; while its juices brands Simply Orange and Minute Maid grew by 4% and 3%, respectively, in terms of volume over the same period. Going forward, I am confident of Coca-Cola’s ability to leverage its brand equity for growth.

PepsiCo, Inc. (NYSE:PEP) is differentiated from Cott and Coca-Cola in that it is a leading packaged-foods manufacturer, with half of its revenue generated from this product segment. Its market leadership in hot cereals (Quaker Oats) and salted snacks (Lays, Doritos) makes it less susceptible to the fall in CSD demand compared with Cott and Coca-Cola. Similar to Coca-Cola, PepsiCo is leveraged to the growth in emerging-market countries, with 35% of its fiscal 2012 revenue derived from these regions.

PepsiCo delivered an excellent set of results for the second quarter of fiscal 2013, with a 4% increase in quarterly organic revenue and a 110-basis-point increase in gross margin. PepsiCo’s balanced food and beverage product portfolio is the key to its superior financial performance vis-a-vis its peers. I believe that it will have no issues meeting its fiscal 2013 guidance of 7% growth in core constant currency earnings per share on the back of strong growth in its packaged-foods segment.

Conclusion

Cott is not a buy in my book despite its cheap valuation. The market seems to share my concerns about Cott’s lower profitability relative to its peers and its high revenue concentration risk, pricing it at a discount to its branded beverage peers.

The article Don’t Go Bargain-Hunting With This Private-Label Beverages Company originally appeared on Fool.com and is written by Mark Lin.

Fool contributor Mark Lin has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo.

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