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How PepsiCo’s Margins Stack Up Against Its Peers’

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Updated

Gross margin comparison

PepsiCo (PEP) delivered higher margins in the first quarter of 2019 despite higher freight costs and commodity inflation. In the first quarter, PepsiCo’s gross margin expanded 87 basis points on a YoY (year-over-year) basis to 55.9%. Excluding one-time items, PepsiCo’s gross margin expanded 67 basis points on an adjusted basis.

In comparison, the Coca-Cola Company’s (KO) first-quarter gross margin was higher than PepsiCo’s, but it contracted YoY. Coca-Cola’s gross margin contracted to 62.7% in the first quarter of 2019 from 64.1% in the first quarter of 2018 due to currency headwinds and structural changes, including acquisitions.

The gross margin of smaller player Monster Beverage (MNST) was flat at 60.6% in the first quarter.

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Significant improvement in the first quarter

PepsiCo’s operating margin expanded by an impressive 120 basis points in the first quarter but still lagged behind the operating margins of Coca-Cola and Monster Beverage. PepsiCo’s operating margin expanded 120 basis points to 15.6% in the first quarter of 2019. Its margin expanded due to higher revenue and productivity savings partially offset by higher commodity costs and increased advertising and marketing costs. PepsiCo’s adjusted operating margin expanded 78 basis points in the first quarter.

Coca-Cola’s operating margin expanded to 29.1% in the first quarter of 2019 from 23.7% in the first quarter of 2018 due to the impact of impairment charges of $390 million related to Coca-Cola Refreshments assets that were recorded in the first quarter of the previous year. Excluding one-time charges, Coca-Cola’s adjusted operating margin contracted 20 basis points to 30.5% in the first quarter. Monster Beverage’s operating margin was unchanged on a YoY basis at 32.9% in the first quarter. Monster Beverage’s energy drinks generally carry higher margins than other beverages.

PepsiCo’s productivity efforts

PepsiCo continues to enhance its margins through its productivity initiatives, including investments in technology and process automation, the re-engineering of its go-to-market systems, and the optimization of its manufacturing footprint. PepsiCo plans to generate $1 billion in annualized productivity savings through 2023.

Despite its productivity efforts, PepsiCo’s margins could be under pressure in 2019 due to commodity inflation and strategic initiative investments.

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