Put Pepsi Bottling on Ice

Recent results at Pepsi Bottling (NYSE: PBG) have definitely been easy to swallow, but the industry spoils are likely to continue flowing to a couple of related industry players.

There's no denying that Pepsi Bottling just posted an impressive second quarter, with sales growth of 7% and an earnings improvement of 15% -- both of which handily beat analyst expectations. The results sent the stock to a new 52-week high, and management also upped full-year guidance on strong sales trends in Russia and profitability improvements in the United States and Canada.

However, I can't find many compelling reasons to go with beverage bottlers over industry titans PepsiCo (NYSE: PEP) and Coca-Cola (NYSE: KO). For starters, Pepsi and Coca-Cola have ownership stakes in a number of their bottlers. PepsiCo owns about 38% of Pepsi Bottling, so the latter's strong second quarter also benefits investors in the former.

The arrangement works out even better for PepsiCo and Coca-Cola, as the bottlers are left to focus on the mundane, capital-intensive activities that include the manufacturing, selling, and distributing of carbonated and other beverages. Higher fixed costs also leave less room to buy back stock and pay dividends to shareholders. The chart below highlights how much more profitable Pepsi and Coca-Cola are compared to a number of their key bottlers.

Better yet, looking at price-to-earnings multiples, investors don't have to pay that much more to own PepsiCo or Coca-Cola as compared to the bottlers. Clearly, all parties involved will continue to benefit from the collective dominance of the Pepsi and Coke brands in the beverage industry, but the numbers demonstrate that the bottling-related firms have been saddled with the least appealing activities. This arrangement is actually by design, and it allows Pepsi and Coke to exert control over their bottlers, but not enough to have to consolidate their results in their own financial statements.

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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.