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Can PepsiCo (PEP) Retain Positive Earnings Trend in Q4?
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PepsiCo, Inc. (PEP - Free Report) is set to report fourth-quarter 2018 results on Feb 15, before the market opens. In the last reported quarter, the company delivered a positive earnings surprise of 1.9%. Additionally, it surpassed estimates consecutively for the last 11 quarters. Thus, it has average positive earnings surprise of 3.4% for the trailing four quarters.
Moreover, the Zacks Consensus Estimate for earnings in fourth-quarter is pegged at $1.49, mirroring 13.7% year-over-year growth. Notably, the consensus estimate has remained unchanged in the past 30 days.
Let’s see how things are shaping prior to the earnings announcement.
Factors at Play
PepsiCo’s robust surprise trend is mainly attributable to strong performances in international divisions, propelled by higher revenue growth in developing and emerging markets. Further, strong net revenues and operating profit growth at Frito-Lay North America, along with sequential revenue gains in the North America Beverages segment, boosted results in the last few quarters. Backed by this, the company reported sales beat in five of the last seven quarters.
Driven by strong year-to-date performance, PepsiCo has raised organic revenue growth guidance for 2018. It now expects full-year organic revenue growth (excluding headwinds from currency and structural changes) of at least 3% compared with the prior guidance of approximately 2.3% growth.
Overall, the Zacks Consensus Estimate for revenues for the fourth quarter is pegged at $19.5 billion, reflecting 0.1% decline from the prior-year quarter.
Moreover, the company’s fundamental strength is evident from its solid brand portfolio, product innovation and strong snacks business. The complementary snacking and beverage portfolios provide competitive advantage due to benefits of cost leverage, capability sharing, cross-category promotions and other commercial benefits. The company’s strong and growing snacks business has largely offset the sluggish beverages business in the past several quarters. The Frito-Lay North American snacks business delivered consistent solid performance over the last four years. The segment is expected to continue delivering strong sales and profits as the demand for savory snacks is rising.
Driven by these positives, the PepsiCo stock has shown resilience lately. The stock has surged 5.3% in the past month, outperforming the industry’s growth of 4.5%. This reflects a positive sentiment on the stock ahead of the earnings release.
However, we cannot ignore the industry-wide sluggishness in the carbonated soft-drinks category (CSD). Consumers’ awareness regarding health and wellness, new taxes on sugar-sweetened beverages, and rising regulatory pressure affecting CSD sales have been major concerns for the industry. Additionally, rising commodity and transportation costs have been hurting the company’s margins.
PepsiCo expects the soft margin trends to continue through the rest of 2018, owing to inflationary input costs and higher investments to drive business growth. Further, it adjusted full-year earnings per share projections to reflect the anticipated unfavorable impact of foreign exchange due to the recent strengthening of the U.S. dollar.
Currency is projected to have negative impact of nearly 1 percentage point on top and bottom lines. Including the negative currency impact, PepsiCo now expects core earnings per share of $5.65, reflecting an 8% increase from earnings of $5.23 in 2017. Earlier, the company anticipated core earnings per share of $5.70, indicating 9% growth.
Earnings Whisper
Here is what our quantitative model predicts:
PepsiCo does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase the odds of an earnings beat.
Earnings ESP: PepsiCo has an Earnings ESP of +0.20%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: PepsiCo currently carries a Zacks Rank #4 (Sell). The combination of a negative Zacks Rank and positive ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Ranks #4 or 5 (Strong Sell) going into an earnings announcement, especially when the company is seeing a negative estimate revision.
Stocks to Consider
Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:
The Coca-Cola Company (KO - Free Report) has an Earnings ESP of +0.88% and a Zacks Rank #3.
Molson Coors Brewing Company (TAP - Free Report) has an Earnings ESP of +2.35% and a Zacks Rank #3.
Is Your Investment Advisor Fumbling Your Financial Future?
See how you can more effectively safeguard your retirement with a new Special Report, “4 Warning Signs Your Investment Advisor Might Be Sabotaging Your Financial Future.”
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Can PepsiCo (PEP) Retain Positive Earnings Trend in Q4?
PepsiCo, Inc. (PEP - Free Report) is set to report fourth-quarter 2018 results on Feb 15, before the market opens. In the last reported quarter, the company delivered a positive earnings surprise of 1.9%. Additionally, it surpassed estimates consecutively for the last 11 quarters. Thus, it has average positive earnings surprise of 3.4% for the trailing four quarters.
Moreover, the Zacks Consensus Estimate for earnings in fourth-quarter is pegged at $1.49, mirroring 13.7% year-over-year growth. Notably, the consensus estimate has remained unchanged in the past 30 days.
Pepsico, Inc. Price and EPS Surprise
Pepsico, Inc. Price and EPS Surprise | Pepsico, Inc. Quote
Let’s see how things are shaping prior to the earnings announcement.
Factors at Play
PepsiCo’s robust surprise trend is mainly attributable to strong performances in international divisions, propelled by higher revenue growth in developing and emerging markets. Further, strong net revenues and operating profit growth at Frito-Lay North America, along with sequential revenue gains in the North America Beverages segment, boosted results in the last few quarters. Backed by this, the company reported sales beat in five of the last seven quarters.
Driven by strong year-to-date performance, PepsiCo has raised organic revenue growth guidance for 2018. It now expects full-year organic revenue growth (excluding headwinds from currency and structural changes) of at least 3% compared with the prior guidance of approximately 2.3% growth.
Overall, the Zacks Consensus Estimate for revenues for the fourth quarter is pegged at $19.5 billion, reflecting 0.1% decline from the prior-year quarter.
Moreover, the company’s fundamental strength is evident from its solid brand portfolio, product innovation and strong snacks business. The complementary snacking and beverage portfolios provide competitive advantage due to benefits of cost leverage, capability sharing, cross-category promotions and other commercial benefits. The company’s strong and growing snacks business has largely offset the sluggish beverages business in the past several quarters. The Frito-Lay North American snacks business delivered consistent solid performance over the last four years. The segment is expected to continue delivering strong sales and profits as the demand for savory snacks is rising.
Driven by these positives, the PepsiCo stock has shown resilience lately. The stock has surged 5.3% in the past month, outperforming the industry’s growth of 4.5%. This reflects a positive sentiment on the stock ahead of the earnings release.
However, we cannot ignore the industry-wide sluggishness in the carbonated soft-drinks category (CSD). Consumers’ awareness regarding health and wellness, new taxes on sugar-sweetened beverages, and rising regulatory pressure affecting CSD sales have been major concerns for the industry. Additionally, rising commodity and transportation costs have been hurting the company’s margins.
PepsiCo expects the soft margin trends to continue through the rest of 2018, owing to inflationary input costs and higher investments to drive business growth. Further, it adjusted full-year earnings per share projections to reflect the anticipated unfavorable impact of foreign exchange due to the recent strengthening of the U.S. dollar.
Currency is projected to have negative impact of nearly 1 percentage point on top and bottom lines. Including the negative currency impact, PepsiCo now expects core earnings per share of $5.65, reflecting an 8% increase from earnings of $5.23 in 2017. Earlier, the company anticipated core earnings per share of $5.70, indicating 9% growth.
Earnings Whisper
Here is what our quantitative model predicts:
PepsiCo does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase the odds of an earnings beat.
Earnings ESP: PepsiCo has an Earnings ESP of +0.20%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: PepsiCo currently carries a Zacks Rank #4 (Sell). The combination of a negative Zacks Rank and positive ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Ranks #4 or 5 (Strong Sell) going into an earnings announcement, especially when the company is seeing a negative estimate revision.
Stocks to Consider
Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:
Turning Point Brands, Inc. (TPB - Free Report) has an Earnings ESP of +11.11% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Coca-Cola Company (KO - Free Report) has an Earnings ESP of +0.88% and a Zacks Rank #3.
Molson Coors Brewing Company (TAP - Free Report) has an Earnings ESP of +2.35% and a Zacks Rank #3.
Is Your Investment Advisor Fumbling Your Financial Future?
See how you can more effectively safeguard your retirement with a new Special Report, “4 Warning Signs Your Investment Advisor Might Be Sabotaging Your Financial Future.”
Click to get it free >>