The second-quarter results are in for Coca-Cola (NYSE: KO) and PepsiCo (NASDAQ: PEP) , two of the most important consumer staples makers on the planet. These giant soda companies witnessed similar weakness in one very important market. Here's a look at what happened and why investors need to worry a bit.
PepsiCo took a harder hit than Coca-Cola
Both PepsiCo and Coca-Cola are U.S. companies. PepsiCo generates around 57% of its top line from its home market. Coca-Cola is more globally diversified, with North America accounting for 36.6% of its revenue, but that is roughly twice the size of any other geographic region within the company. Simply put, what happens in the United States matters a great deal to both of these consumer staples giants.
In the second quarter of 2024, both companies experienced weakness in their most important market. Coca-Cola's organic sales rose 10% in North America, which is good, but that was driven by price increases. Volume dropped 1%. To be fair, that's not a shocking development given price increases. However, it hints that customers may not be as willing to pay up for a Coke right now.
PepsiCo's business in North America was much weaker. Volume fell 4% in the second quarter in the company's snack division (Frito-Lay), 17% in its food business (Quaker Foods), and 3% in its beverage operation (Pepsi). Clearly, North American consumers are no longer quite as happy buying the convenient foods and drinks that PepsiCo makes.
This is a problem for both companies given the size of their businesses in North America. But it could end up being bigger than just one quarter. Indeed, if this turns into a trend, these beverage makers could fall into an extended funk. And the problem is most likely not soda, but price, given that Coke and Pepsi are premium products.
Coke and Pepsi are not the only ones facing headwinds
If you are an investor in either of these companies you should probably prepare yourself for a period of weakness ahead (but not necessarily dump the shares). Riding out the low points is a much better idea. Good times followed by bad times is kind of par for the course at any company, making it important to recognize that sales vary over time. The thing is, Coke and Pepsi aren't unique right now among powerhouse consumer brands.
After 13 consecutive quarterly same-store sales increases, McDonald's suffered a same-store sales decline in the second quarter of 2024. The restaurant giant's U.S. business was off by 0.7%. That's notable for two reasons. First, fast-food joints sell a lot of soda. And, second, McDonald's is normally a place where cost-conscious customers eat. This hints at a pullback at the low end of the economic spectrum.
The higher end of the economic strata is faring no better. Coffee giant Starbucks posted a 3% decline in same-store sales. But the story is actually worse because price increases offset a 7% decline in transactions. Or, to put it another way, Starbucks raised prices and its largely higher-end customer base pulled back.
The bad news could be bigger than you think
All in, the situation taking shape at Coca-Cola and PepsiCo does not appear unique. And if that's the case, investors should be prepared to ride out a rough patch not only for these two beverage companies, but, perhaps, the market more broadly.
Wall Street goes through cycles, shifting between bull markets and bear markets. Economic activity goes through cycles, shifting between expansion and contraction. A negative shift could be starting to take shape. If you own Coca-Cola or PepsiCo, you might end up with an opportunity to buy more shares at attractive prices, but only if you don't let the normal cycles of the market scare you out of your position.
Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy .
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