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PepsiCo's Coffee-Cola Blend to Strengthen Beverage Portfolio

Zacks Equity Research

PepsiCo, Inc. PEP comes up again with a coffee-cola concoction, Pepsi Cafe, scheduled to be launched in the United States next April. Pepsi Cafe blends deep flavor of coffee with the refreshing savor of cola. The drink will be available in two flavors — Pepsi Cafe Original and Pepsi Cafe Vanilla — with the taste of Arabica coffee to bring a pleasant blend to the coffee and cola enthusiasts.

Pepsi Cafe will be available in 12oz slim cans, nearly doubling the amount of caffeine than a regular Pepsi cola. This easy, on-the-go beverage for drink enthusiasts looking for blended cola and coffee flavors with extra caffeine, resonates well with the customer changing beverage preferences. Notably, PepsiCo had entered the cola and coffee space with the launch of Pepsi Kona in 1996. Pepsi Cafe is the latest offering from the same space with a new twist.

We note that PepsiCo holds a dominant position in the global soft drinks market. Earlier, PepsiCo bought SodaStream, which has been fortifying the former’s beverage and fast-growing water portfolio, including Aquafina, Lifewtr and more. SodaStream complements PepsiCo’s business, expediting its highly-nutritious and great-tasting beverage offerings. Also, the beverage giant’s hydration brands, namely, Gatorade and Propel remain impressive.

Apart from robust beverage portfolio, PepsiCo’s snacking category remains sturdy. Notably, the company holds the number one position in the global snacks market with popular brands like Doritos, Cheetos and Lay’s. Just over half of PepsiCo's sales come from snacks, while the remainder is contributed by beverages. PepsiCo’s snacking segment is likely to consistently deliver strong sales and profits, thanks to the increasing demand for savory snacks.

In order to expand its market share and boost overall growth, PepsiCo continues to make investments in innovation, marketing, consumer insights and manufacturing capabilities. We believe that the latest cola-coffee concoction will boost PepsiCo’s beverage unit.



Price Performance & Zacks Rank

Year to date, shares of this food and beverage bellwether have surged 27.8% compared with the industry’s 16.8% rally. PepsiCo currently carries a Zacks Rank #3 (Hold).

Key Beverage Stocks to Watch

The Boston Beer Company, Inc. SAM has an expected long-term earnings growth rate of 10%. Currently, the stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Barfresh Food Group, Inc. BRFH delivered a positive earnings surprise of 100% in the last reported quarter and a Zacks Rank #2 (Buy).

Luckin Coffee Inc. LK, also a Zacks Rank #2 stock, delivered a positive earnings surprise of 13.5% in the last reported quarter.

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