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Better Buy: Procter & Gamble vs. Coca-Cola

By Demitri Kalogeropoulos - Jul 13, 2019 at 12:09PM

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Which of the two consumer staples giants is the better bet for investors today?

Investors recently celebrated the stock market entering its longest unbroken expansionary period to date -- almost a full decade. That head-turning growth cycle has contributed to meager returns for consumer staple stocks, which tend to perform best during downturns. But since no one can predict when the next recession will occur, it makes sense to continue hunting for deals among these steady businesses.

With that in mind, let's take a closer look at Procter & Gamble ( PG 0.59% ) and Coca-Cola ( KO 1.47% ), two of the leading stocks in the consumer staple sector, to see which one might make the better buy today.

Procter & Gamble vs. Coca-Cola stocks

Metric

Procter & Gamble

Coca-Cola

Market cap

$285 billion

$140 billion

Sales growth

1%

2%

Operating profit margin

21%

31%

Dividend yield

2.6%

3.1%

P/E

27

33

Sales growth is for the most recent complete fiscal year and strips out currency exchange rate shifts and brand sales. Data sources: Company financial filings and S&P Global Market Intelligence.

P&G has better market share momentum

Both companies are dominant in their industries, but Procter & Gamble has the more attractive growth outlook. Sure, its organic sales plugged along at just 1% in fiscal 2018. But the new fiscal year has been a much different story. In late April, P&G raised its sales forecast for the second straight quarter and now sees revenue rising by about 4% for the fiscal year that ends in August.

That would easily mark the consumer staples titan's best expansion rate since it started its portfolio-reboot strategy more than 5 years ago. Rival Kimberly Clark ( KMB 0.78% ), by comparison, is predicting growth of about 2% this year.

Two women enjoying sodas.

Image source: Getty Images.

Coca-Cola's growth rate is solid but heading in the other direction. Not only is its expansion pace set to edge down to 4% compared to last year's 5% increase, but Coke's growth also stacks up unfavorably to PepsiCo's ( PEP 0.29% ) expected steady result.

Coca-Cola is more profitable

Coca-Cola takes the profitability part of this battle, hands down. The sparkling beverage giant has always been an industry leader here thanks to its massive sales base, stellar brands, and unchallengeable supply and distribution networks. Its recent cost-cutting programs and bottler refranchising initiatives have really amplified those financial wins.

Operating margin jumped to 31% of sales last year from 27% in 2017 and 24% in 2016. Procter & Gamble's comparable figure, although ranking near the top of its industry at 21%, is both far behind Coke's and holding steady due to rising manufacturing costs.

Cash returns and bottom line

With 120 years of consecutive annual dividend payout hikes between them, investors should have no question about either company's desire -- or ability -- to return cash to shareholders. P&G has sent more than $135 billion to its investors over the past decade, in fact. Coke's slimmer operating structure is in part aimed at delivering more cash to shareholders, too, with management promising to pay out 75% of annual earnings to investors over the long term.

Each investment carries a yield of about 3% today, and both dividends are growing in the low-single-digit range these days, making them roughly even in this regard.

Ultimately, there's no clear standout in the broader matchup. Investors who prize market share growth should take a closer look at P&G, which appears to be on the cusp of solid sales rebound. Cash flow and profitability fans will be more attracted to Coca-Cola and its market-leading efficiency.

The good news is that both stocks have essentially missed the last decade's rally, having roughly doubled while the S&P 500 has more than tripled. That gap suggests investors have a good chance at getting a deal whether they buy P&G, Coca-Cola, or both stocks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

The Coca-Cola Company Stock Quote
The Coca-Cola Company
KO
$53.07 (1.47%) $0.77
The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
PG
$147.26 (0.59%) $0.86
Pepsico, Inc. Stock Quote
Pepsico, Inc.
PEP
$160.62 (0.29%) $0.46
Kimberly-Clark Corporation Stock Quote
Kimberly-Clark Corporation
KMB
$132.79 (0.78%) $1.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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