Maintaining Status Quo

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Maintaining Status Quo

Pepsi Bottling Group, the largest bottler of Pepsi drinks, and Coca-Cola Enterprises, the world's largest bottler of Coke drinks, both announced that they expect 2006 earnings to be unchanged, or slightly lower in Pepsi's case, the Associated Press reported.

Pepsi Bottling -- which is 43 percent owned by PepsiCo Inc., the world's No. 2 soft-drink company -- forecast earnings per share in 2006 of between $1.76 and $1.84, compared with $1.83 to $1.87 that it expects in 2005. It forecast sales by volume, a key gauge of performance in the beverage sector, rising 3 percent worldwide and 2 percent in the United States in 2005 and 2006, according to the report.

Pepsi Bottling said 2005 sales would get a boost from Lipton Iced Tea and Tropicana fruit drinks, as well as from brand extensions in the bottled water category. In 2006, the company plans to relaunch Diet Mountain Dew and extend its SoBe energy drink line.

Bottlers and soft-drink companies are struggling to woo consumers away from sugary soft drinks to diet versions or healthier low- or no-calorie beverages, such as water and orange juices with reduced sugar, the AP report said.

But while U.S. volume trends are better than expected, they may be offset by higher raw material costs, JP Morgan analyst John Faucher wrote in a research report. Costs for packaging and sweeteners will moderate, but will be still up year-over-year.

Meanwhile, Coca-Cola Enterprises -- which is about 40 percent owned by Coca-Cola Co., the world's biggest soft-drink company – estimate 2005 earnings of $1.27 to $1.30 a share, excluding certain items, and forecast 2006 earnings of $1.27 to $1.32 a share. It expects 2006 sales by volume to rise 1 percent to 2 percent in North America and 2005 volumes are seen rising 1 percent in North America.

Coca-Cola Enterprises said it planned to raise its prices by 2 percent to 3 percent in North America as part of a strategy to focus on a more profitable balance between unit case sales and what it charges for its products. In the past, the bottler sometimes sacrificed price hikes in order to protect its turf against competitors, particularly in the increasingly competitive North American nonalcoholic beverage market, the AP reported.

Still, volume growth will largely depend on the success of Coke's innovation in 2006, Morgan Stanley analyst Bill Pecoriello wrote in a research report.

Coca-Cola's 2006 plans call for the launch of a slew of new carbonated and non-carbonated drinks, including Coke Blak, a coffee-flavored soft drink; Dasani Sensations, a line of flavored sparkling waters; and Vault, a new energy soda.