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PepsiCo (PEP) Q2 Earnings: Is Disappointment in the Cards?
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Food/beverage giant PepsiCo, Inc. (PEP - Free Report) is set to report second-quarter 2017 (ending Jun 17) results on Jul 11, before the market opens.
Last quarter, this global food and beverage major delivered a positive earnings surprise of 3.3%. Moreover, the company surpassed estimates in each of the trailing four quarters, with an average positive earnings surprise of 4.57%.
Let’s see how things are shaping up for this announcement.
Factors at Play
Currency headwinds and persistent sluggish carbonated soft drinks (CSD) volumes are pressing concerns for this beverage giant as well as for other nonalcoholic beverage companies like The Coca-Cola Company (KO - Free Report) and Dr Pepper Snapple Group, Inc. . Additionally, health-conscious consumers are shifting from soda beverages to still or noncarbonated beverages.
This is evident from the 4% decline in volume of carbonated beverage of the company’s North America Beverages segment in the last reported quarter. On the contrary, PepsiCo’s noncarbonated beverage volumes rose 4% year over year in the quarter. The rise was attributed to the double-digit growth in the segment’s water portfolio and a mid-single-digit rise in Gatorade sports drinks volumes.
In order to counter the slowing CSD trend, PepsiCo is banking on innovations focusing on healthier snack food options and seeking growth in the still or noncarbonated beverages category. For that, PepsiCo introduced its J7 apple juice in Russia earlier this year.
PepsiCo had earlier stated that the company expects sequential improvement with regard to its second-quarter organic revenue growth.
Coming to the company’s margins, PepsiCo had indicated that as the commodity inflation is expected to continue in 2017, the company’s gross margin might face some pressure in the to-be-reported quarter. Again, the company expects its consolidated adjusted operating margin to contract in the second quarter. This downside is due to the timing of its business investments in the Latin America and the Asia, Middle East, and North Africa (or AMENA) divisions.
Notwithstanding the above-mentioned concerns, the company beat expectation in the last five quarters. PepsiCo delivered revenue growth in the last two quarters after successive revenue declines in the previous eight quarters. We expect this trend to continue in the to-be-reported quarter as well.
For the second quarter, the Zacks Consensus Estimate for earnings stands at $1.40, reflecting a 3.7% year-over-year increase. Meanwhile, the Zacks Consensus Estimate for revenues is pegged at $15.64 billion, implying a meager 1.6% growth.
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 and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP is -0.71% as the Most Accurate estimate of $1.39 per share is lower than the Zacks Consensus Estimate of $1.40. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: PepsiCo’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident of a positive earnings surprise.
We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.
Here are some consumer staples stocks that you may want to consider, as our model shows they have the right combination of elements to post earnings beats this quarter.
The Clorox Company (CLX - Free Report) has an Earnings ESP of +0.67% and a Zacks Rank #2. The company is scheduled to report its quarterly numbers on Aug 2.
Cott Corporation has an Earnings ESP of +6.25% and a Zacks Rank #3. The company is expected to report earnings results on Aug 3.
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With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
Image: Bigstock
PepsiCo (PEP) Q2 Earnings: Is Disappointment in the Cards?
Food/beverage giant PepsiCo, Inc. (PEP - Free Report) is set to report second-quarter 2017 (ending Jun 17) results on Jul 11, before the market opens.
Last quarter, this global food and beverage major delivered a positive earnings surprise of 3.3%. Moreover, the company surpassed estimates in each of the trailing four quarters, with an average positive earnings surprise of 4.57%.
Let’s see how things are shaping up for this announcement.
Factors at Play
Currency headwinds and persistent sluggish carbonated soft drinks (CSD) volumes are pressing concerns for this beverage giant as well as for other nonalcoholic beverage companies like The Coca-Cola Company (KO - Free Report) and Dr Pepper Snapple Group, Inc. . Additionally, health-conscious consumers are shifting from soda beverages to still or noncarbonated beverages.
This is evident from the 4% decline in volume of carbonated beverage of the company’s North America Beverages segment in the last reported quarter. On the contrary, PepsiCo’s noncarbonated beverage volumes rose 4% year over year in the quarter. The rise was attributed to the double-digit growth in the segment’s water portfolio and a mid-single-digit rise in Gatorade sports drinks volumes.
In order to counter the slowing CSD trend, PepsiCo is banking on innovations focusing on healthier snack food options and seeking growth in the still or noncarbonated beverages category. For that, PepsiCo introduced its J7 apple juice in Russia earlier this year.
PepsiCo had earlier stated that the company expects sequential improvement with regard to its second-quarter organic revenue growth.
Coming to the company’s margins, PepsiCo had indicated that as the commodity inflation is expected to continue in 2017, the company’s gross margin might face some pressure in the to-be-reported quarter. Again, the company expects its consolidated adjusted operating margin to contract in the second quarter. This downside is due to the timing of its business investments in the Latin America and the Asia, Middle East, and North Africa (or AMENA) divisions.
Notwithstanding the above-mentioned concerns, the company beat expectation in the last five quarters. PepsiCo delivered revenue growth in the last two quarters after successive revenue declines in the previous eight quarters. We expect this trend to continue in the to-be-reported quarter as well.
For the second quarter, the Zacks Consensus Estimate for earnings stands at $1.40, reflecting a 3.7% year-over-year increase. Meanwhile, the Zacks Consensus Estimate for revenues is pegged at $15.64 billion, implying a meager 1.6% growth.
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 and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP is -0.71% as the Most Accurate estimate of $1.39 per share is lower than the Zacks Consensus Estimate of $1.40. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: PepsiCo’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident of a positive earnings surprise.
We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.
Pepsico, Inc. Price, Consensus and EPS Surprise
Pepsico, Inc. Price, Consensus and EPS Surprise | Pepsico, Inc. Quote
Stocks to Consider
Here are some consumer staples stocks that you may want to consider, as our model shows they have the right combination of elements to post earnings beats this quarter.
The Clorox Company (CLX - Free Report) has an Earnings ESP of +0.67% and a Zacks Rank #2. The company is scheduled to report its quarterly numbers on Aug 2.
Cott Corporation has an Earnings ESP of +6.25% and a Zacks Rank #3. The company is expected to report earnings results on Aug 3.
Tyson Foods, Inc. (TSN - Free Report) has an Earnings ESP of +1.64% and a Zacks Rank #3. The company is scheduled to report its quarterly numbers on Aug 8. You can see the complete list of today’s Zacks #1 Rank stocks here.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
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