Consumer ETFs Get A Boost On Strong Beverage Stock Earnings [PepsiCo, Inc., The Coca-Cola Company]

retail-shoppingSluggish trend of carbonated beverages in the wake of rising health consciousness has been a dampener for cola giants in recent times. Still, two cola as well as food bellwethers – Coca Cola Co. (NYSE:KO) and PepsiCo (NYSE:PEP) –drew investors’ attention through their better-than-expected earnings.

Q1 KO Earnings in Focus

The company’s adjusted earnings of $0.44 per share met the Zacks Consensus Estimate. A stronger dollar reduced earnings growth by 4%. On a constant currency basis, earnings grew 5% mainly aided by cost containment efforts and stronger volume gains in developing markets.

Net revenue slipped 4% year over year to $10.58 billion due to headwinds from currency and structural changes. However, the main cause of cheer was that revenues came ahead of the Zacks Consensus Estimate of $10.56 billion on better pricing and volume growth. However, constant currency revenues grew 2% in the quarter.

As far as guidance is concerned, the company refrained from forecasting specific revenue or earnings figures. The structural changes (bottler merger in Brazil and the sale of a 51% stake in the Philippines bottler) accomplished in 2013 will likely mar 2014 net sales and operating income by 1%.

Q1 PEP Earnings in Focus

PepsiCo has also refreshed investors’ mood by delivering continued positive earnings surprises for four quarters in a row. This food and beverage behemoth beat the Zacks Consensus Estimate on both earnings and revenues. Its Q1 earnings of $0.81 beat the Zacks Consensus Estimate by about 8% thanks to solid margins.

Total sales of $12.62 billion, though flat year over year, beat the Zacks Consensus Estimate of $12.47 billion by 1.2%. Stronger snacks performance and improvement in Europe were the reasons behind PepsiCo’s strength. However, there was no glint in the guidance as management reiterated its previously provided outlook.

Market Impact

Quite expectedly, following this optimistic start to the year, both Coca Cola and PepsiCo traded in the green following the release of earnings. While KO added about 5% (as of April 17, 2014) since reporting earnings, PepsiCo gained less than 1% in its key trading session. The buoyancy was also felt in the ETF space, with consumer staples ETFs having notable exposure to Coca Cola and PepsiCo being favored.

Funds like Consumer Staples Select Sector SPDR (NYSEARCA:XLP), Consumer Staples ETF (NYSEARCA:VDC) and iShares Dow Jones US Consumer Goods Sector ETF (NYSEARCA:IYK) have the biggest allocation in Coca Cola. The trio saw respectable trading in the recent past. XLP added 0.26% at the close while VDC gained 0.31% and IYK was up 0.80%. Below, we have highlighted the funds in detail (read: A Comprehensive Guide to Consumer Staples ETF).

XLP in Focus

The most popular consumer ETF on the market, XLP follows the S&P Consumer Staples Select Sector Index. The fund invests about $5.88 billion of assets in 43 holdings.

Of these firms, the in-focus Coca-Cola takes the second spot, making up roughly 9.29% of the assets while PepsiCo accounts for about 4.47% of XLP taking up the sixth position. In terms of sector exposure, the fund is skewed towards food & staples retailing which makes up for one-fourth share, closely followed by household products (20.64%) and beverages (19.55%).

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