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Show U : The leading producers of soft drinks have reported very satisfactory earnings gains so far this yeaT, with prospects of a continuation of the improvement for the period ahead. THIS SIZABLE industry is currently estimated to bring in some $12 billion yearly, and for many years it has been registering impressive advances in revenues, profits, and physical volume of sales. This year's gross sales for the industry should come close to $11.7 billion, representing a 12 year-to-year climb. IT IS surprising that with the stellar financial picture the common stocks of the publicly owned companies have performed so poorly in recent quarters when compared com-pared with comprehensive stock market averages. Despite this condition in 1979, however, the rosy financial finan-cial picture should soon begin to lend strength to their com--mon stock prices. SO, SHAREHOLDERS in this equity sector are advised to hold their issues for longer-term appreciation. One of the best-known and most controversial soft drink topics in recent times has involved in-volved the types of containers used and the question of litter. lit-ter. THE PROBLEM has been highlighted by environmental groups advocating allowance of only certain types of containers con-tainers or mandated deposit systems to encourage return of empties. Industry interests, on the other hand, have banded together and attempted at-tempted to forestall restrictive restric-tive packaging ordinances through well-financed and concerted efforts. But the manufacturers appear ap-pear to be losing ground as more localities adopt container con-tainer ordinances. Even though such restrictive regulations will likely spread, it is not the death knell for the soft drink industry's growth. IT WILL, in fact, turn out to be only a temporary hindrance until the necessary adjustments in production and distribution of containers can be accomplished. Admittedly, the increasing governmental restrictions have been an obstacle to profits expansion. AT THE END of the 1960s, the sudden government ban on cyclamate in soft drinks and mixes caused a temporary tem-porary upheaval in operations. opera-tions. At the time, most firms reformulated their low-calorie low-calorie drinks using saccharin as a substitute. Now, at" the tail end of the 1970s, the use of saccharin has been questioned. RECENT government ac-' ac-' tions have postponed a final determination of this issue while there is further testing. Should a saccharin ban be eventually implemented, perhaps a more orderly phase-out will be permitted, given the experience of the cyclamate fiasco. HERE AGAIN, the loss of saccharin could hurt profits for a time, but fortunately diet drinks account for but a moc'est part of total sales. The Research Department of Babson's Reports has recently concluded an evaluation of prospects for the soft drink industry. The results show quite clearly that, although there are some unfavorable features in the outlook, the pluses predominate. IN THE COURSE of the past decade, dramatic gains have been seen in consumption consump-tion rates per capita on an annual basis, while the demographic profile has become steadily more heartening hear-tening for the future of sales. Producers have reinforced their position with the use of innovative packaging and merchandising, and there will be no let-up in this. THE COST OF ingredients, particularly sugars, is in a favorable range. The majors will benefit from an increased . penetration of foreign markets. Widening leisure time as well as mounting personal income in-come will help turnover of soft drinks. The companies also have the benefit of several years of healthy profits. HENCE, BABSON'S. Reports recommends that investors maintain some equity representation in the soft drink field to take advantage ad-vantage of expected capital appreciation stemming from a bright industry performance. |
