Will PepsiCo Beat in 4Q? - Analyst Blog
February 11 2013 - 4:40AM
Zacks
PepsiCo, Inc. (PEP) is set to report fourth
quarter 2012 results on Feb 14. Last quarter it posted a 3.45%
positive surprise. Let’s see how things are shaping up for this
announcement.
Growth Factors this Past Quarter
Though earnings beat the Zacks Consensus Estimates, they
declined year over year due to a sluggish top line. Revenues
declined in the quarter due to currency headwinds and
re-franchising of the beverage business in China and Mexico.
Excluding these headwinds, organic revenues grew year over year
primarily on the back of price increases. Both snacks and beverage
volumes improved in the quarter. However, beverage volumes declined
in North America.
The overall carbonated soft drinks’ (CSD) volumes in North
America have been weak since the past few months. Changing consumer
preferences, increasing health consciousness and growing regulatory
pressures are affecting beverage sales. This is hurting CSD volumes
for PepsiCo as well as other beverage companies like The
Coca-Cola Company (KO).
Earnings Whispers?
Our proven model does not conclusively show that PepsiCo is
likely to beat earnings this quarter. That is because a stock needs
to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A
Better Method) and a Zacks Rank of #1, 2 or 3 for this to happen.
That is not the case here as you will see below.
Zacks ESP: The Earnings ESP is 0.0%.
Zacks #3 Rank (Hold).PepsiCo’s Zacks #3 Rank
(Hold) lowers the predictive power of ESP because the Zacks Rank #3
when combined with a 0.0% ESP makes surprise prediction
difficult.
We caution against stocks with Zacks #4 and #5 Ranks (Sell rated
stocks) going into the earnings announcement, especially when the
company is seeing negative estimate revisions momentum.
Management expects pricing gains to moderate in the fourth
quarter than the third quarter. The structural changes are expected
to hurt fourth quarter revenues by 2.5%, lower than the third
quarter. Currency is expected to hurt both revenue and operating
profit by approximately 1% in the fourth quarter, significantly
lesser than the third quarter. The lower headwinds from currency
and structural changes could result in better top-line growth in
the fourth quarter. Commodity inflation is also expected to
moderate in the fourth quarter.
Other Stocks to Consider
Here are some other companies you may want to consider as our
model shows they have the right combination of elements to post an
earnings beat this quarter:
Coca-Cola FEMSA S.A.B de C.V. (KOF), with an
Earnings ESP of +7.87% and a Zacks Rank #2 (Buy)
Kellogg Company (K), with an Earnings ESP of
+0.97% and a Zacks Rank #2 (Buy)
KELLOGG CO (K): Free Stock Analysis Report
COCA COLA CO (KO): Free Stock Analysis Report
COCA-COLA FEMSA (KOF): Free Stock Analysis Report
PEPSICO INC (PEP): Free Stock Analysis Report
To read this article on Zacks.com click here.
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