Pepsi & Dr. Pepper Spill Messy Results
First quarter results for PepsiCo (NYSE PEP) and Dr. Pepper Snapple Group (NYSE: DPS) didn't exactly quench analyst thirst for increased earnings and positive guidance. Both companies failed to impress this time around, with PEP reporting soft volume and DPS missing EPS estimates.
One piece of expected information, Pepsi's EPS beat, was not enough to take away the sting from the rest of the 1Q12 results. Goldman Sachs said acquisitions and spending noise have made for a sloppy quarter, and guidance shows few signs for potential turnaround.
While top-line growth was slightly positive for the carbonated conundrum, North American soft drink volumes were weaker than expected as a whole. However, PEP did manage to beat Coca-Cola (NYSE: KO) two months in a row, with sales up 8% vs. KO's 3.4% as of last week.
Stirring the mixture of good and bad news is the conservative, unsure guidance set forth by PEP's management.
"While FY12 earnings rebasement is likely conservative, it provides important flexibility to spend behind struggling US DSD business," Deutsche Bank commented in a research report this morning. However, J.P. Morgan says that expectations for the company are currently low, and sentiment revolving around the brand is mostly negative.
Less-than-positive things are being said about PEP's competition DPS as well. The soda pop doctor missed EPS due to cost inflation, which in turn encouraged research firms to revise estimates - regardless of favorable future projections.
Goldman Sachs believes there is a commodity relief story in-tact for Dr. Pepper, but not all analysts agree. J.P. Morgan said that due to weak top line, a lack of exposure outside of the U.S. and the need to acquire non-carb exposure, the research firm would need to see a lower multiple for DPS before it begins to build excitement regarding the shares.
The world's largest beverage companies are having trouble faring against an assortment of issues. Soft volumes, lower-than-expected earnings and cost inflation are just a few of the issues that are plaguing the industry today. With the help of picnic-weather and advertising campaigns, it is possible that soda companies will see a better 2nd quarter.
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