Market Overview

Will FX Ruin Pepsi Earnings?

Share:
Related PEP
Benzinga's Option Alert Recap From January 23
Netflix, PepsiCo, Qualcomm, Wal-Mart: Fast Money Picks For January 18
Dividends Forever! Why I Am Buying Pepsi (Seeking Alpha)

Want an edge on trading Pepsi? Try this.

Learn more about investing in this volatile sector with real-time trading picks from experts like Dr. Stoxx.

PepsiCo, Inc. (NYSE: PEP) is set to report fourth-quarter and full-year 2014 results on Feb 11, before the market opens. Last quarter, it delivered a positive earnings surprise of 5.43 percent.

In fact, the food and beverage company has delivered positive earnings surprise in the trailing four quarters. Let's see how things are shaping up for this announcement.

Factors at Play

Pepsi thrived well in 2014 with its massive snack foods business making up for the softer beverage performance.

Despite a difficult operating environment in the developed countries and nagging volatility in the emerging ones, the company had a solid 2014 delivering positive earnings and revenue surprises in all the three quarters reported so far. Strong global snacks performance, solid emerging market performance and impressive margin improvement boosted results in the reported quarters.

Pepsi also raised the earnings guidance twice for 2014 to reflect year-to-date strong performance and an optimistic outlook.

Though these factors should boost results in the fourth quarter, we are concerned about the adverse impact of currency. The recent weakening of many emerging market currencies against the U.S. dollar can pull down profits in the to-be-reported quarter as Pepsi commands a significant presence in the emerging markets.

Nevertheless, with a strong snacks business, robust international growth and aggressive cost savings, the company looks well placed to deliver strong results in 2015.

Earnings Whispers

Our proven model does not conclusively show that Pepsi 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, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP is -0.93% as the Most Accurate estimate stands at $1.07, while the Zacks Consensus Estimate is pegged higher at $1.08.

Zacks Rank: Pepsi has a Zacks Rank #4 (Sell). We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Some stocks in the broader food and beverage sector that have both a positive Earnings ESP and a favorable Zacks Rank are:

SUPERVALU, Inc. (NYSE: SVU), with an Earnings ESP of +4.76% and a Zacks Rank #2 (Buy).

Monster Beverage Corporation (NASDAQ: MNST), with an Earnings ESP of +5.09% and a Zacks Rank #3 (Hold).

Dr Pepper Snapple Group, Inc. (NYSE: DPS), with an Earnings ESP of +2.30% and a Zacks Rank #2.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
SUPERVALU INC (NYSE: SVU): Free Stock Analysis Report
 
DR PEPPER SNAPL (NYSE: DPS): Free Stock Analysis Report
 
PEPSICO INC (NYSE: PEP): Free Stock Analysis Report
 
MONSTER BEVERAG (NASDAQ: MNST): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Previews Trading Ideas

 

Related Articles (PEP)

View Comments and Join the Discussion!