The Coca-Cola Company (KO), PepsiCo, Inc. (PEP), Dr Pepper Snapple Group Inc. (DPS): How to Weatherproof These Soda Stocks

Smaller soda companies hit as well

In some instances like this, you might think that it pays off to be a smaller company with less of a global brand than PepsiCo, Inc. (NYSE:PEP) and The Coca-Cola Company (NYSE:KO), but when dealing with conditions like weather, it hurts across the board. This turned out to be true for Dr Pepper Snapple Group Inc. (NYSE:DPS).

Although small by globalized industry standards (owing to little presence outside of North America), Dr Pepper Snapple Group Inc. (NYSE:DPS) felt the effects of a cold America as well, and without the safety cushion of a growing Southeast Asian thrist for soda, losses couldn’t be hidden. Net sales decreased 1% year-over-year last quarter, with a 3% earnings-per-share drop year-to-date from $1.31 per share to $1.27 per share, and a $23 million drop in net income as well. The main reason for this drop was a 4% sales decrease in the US and Canada, offset somewhat by a strong Latin American performance with drinks like Squirt and Aguafiel.

A strictly regional company may insulate Dr Pepper Snapple Group Inc. (NYSE:DPS) from the ravages of Europe, where the economic climate remains poor for numerous international companies, but it also leaves the company with a lack of diversity in terms of a customer base, which stunts sales growth and influence in new markets, and in the case of weather, left little cover from a true winter of discontent.

Heat waves help sell sodas

From an investment standpoint though, if one looks to get into the soda business, knowing how to weatherproof your investment can pay off big time. PepsiCo, Inc. (NYSE:PEP) managed to beat second quarter estimates thanks to its Frito Lay division, but it still lagged in soda sales, the same as The Coca-Cola Company (NYSE:KO).

Fortunately for both companies, the summer so far has been a scorcher, at least for North America. The Northeastern US has had two heat waves in July, defined as at least three straight days of 90 degree temperatures, and this may continue into August. These companies perform their best in hot conditions, so buying right after earnings would be a good investment. Even better, as long as a similar winter doesn’t happen, the gains from a strong third quarter would be pretty much locked in for the future.

So rather than bundling up in your existing investments, shed some layers and get into these soda stocks, which unlike most of us, don’t have lazy summer days.

John McKenna has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo. John is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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