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Pepsi Earnings Preview: Analysts Favor A Refreshing Quarter

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Pepsi Earnings Preview: Analysts Favor A Refreshing Quarter

PepsiCo (NYSE: PEP) will report its first quarter results early Thursday morning before market open. Analysts are expecting the beverage and snack maker to earn $0.75 per share on $12.43 billion of revenue.

Pepsi last reported its quarterly results on February 13 when it earned $1.05 per share, beating the consensus estimate by four cents. Revenue of $20.12 billion fell short of the consensus estimate by $40 million. Pepsi notched a solid double-digit sales growth in Latin America and Asia, hiked its dividend to $2.62 per share from $2.27 per share and raised its buyback share authorization to $5 billion.

Shares of Pepsi remain under close watch as activist investor and large Pepsi shareholder Nelson Peltz continues his push to get Pepsi to spin off its beverage business from its snacks division.

Peltz, through his Trian Fund Management firm, owns around $1.2 billion worth of Pepsi stock and has seen his calls rejected by Pepsi's management on many occasions. Investors will play close attention to management's comments regarding the activist battle.

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BTIG: Long-term positive, but work needs to be done

Theo Brito at BTIG initiated coverage of Pepsi with a $108 price target and Buy rating on April 8. Coca-Cola was also initiated with a Buy rating and $48 price target.

On Wednesday, Brito updated clients with an earnings preview and sees shares trading attractively, with a positive risk-to-reward profile given low expectations and continued activist pressure.

In terms of activist pressure, Brito sees Pepsi's cost-cutting measures being not large enough, which could pave the way for structural changes to protect profits.

Brito sees Pepsi's Frito-Lay division growing at a rate below the three percent mark given high-pricing and tough volume comps ahead. However, there remains a big opportunity for Pepsi to grow its snack division more aggressively in Eastern Europe.

Russia, as is the case for most consumer good companies, remains an area of concern in the near-term given Pepsi's exposure to the Russian market.

Brito is projecting Pepsi to earn $0.76 per share on revenue of $12.445 billion.

Shares are Buy rated with a $108 price target.

Deutsche Bank: Has poor weather been a factor?

Bill Schmitz, research analyst at Deutsche Bank believes that weak consumption trends and currency headwinds will translate to “another lousy sales quarter” for the industry as a whole, and Pepsi is no exception.

“Recent US scanner data has been a mixed bag, with total Pepsi sales in multi-outlet channels up 1.1 percent of the 12 weeks ending 3/15/14 as CSDs continue to decline (down 0.8 percent) while salty snacks continue to rebound nicely (plus three percent)," Schmitz wrote in an industry wide update on April 11. “US c-store data from Nielsen has been modestly better, with Pepsi scanned c-store CSD sales up 0.9 percent and salty snacks up a healthy 6.7 percent during the same 12 week period.”

Schmitz believes that Pepsi is a tale of two companies, as the beverage business remains “strategically dubious” and its “category killer” snacks business that accounts for over 60 percent of enterprise value.

Schmitz explained that there still remains many EPS growth initiatives and "modest" multiple expansions driving shares higher.

Schmitz is projecting Pepsi to earn $0.75 per share on revenue of $12.467 billion.

Shares are Buy rated with a $90 price target.

Bank of America: Above consensus

Bryan Spillane, research analyst at Bank of America sees Pepsi's net sales to fall modestly, driven by a nine percent decline in Latin American food and an 8.3 percent overall decline in Asia/Middle East/Africa.

Despite the drop in net sales, Spillane is projecting Pepsi's operating profits to rise 0.6 percent from a year ago.

Spillane will focus on several topics of concern for management to provide further clarity. Specifically, Mexico's proposed calorie (or junk food) tax, continued weakness in the U.S. beverage market, recent bottling franchise markets, exposure from foreign exchanges and share repurchase updates.

Spillane is estimating that Pepsi will repurchase $1.25 billion worth of shares in the quarter and will make full use of its $5 billion authorization throughout the full fiscal year.

Spillane is projecting Pepsi will earn $0.78 per share on revenue of $12.373 billion.

Latest Ratings for PEP

DateFirmActionFromTo
Apr 2019ReiteratesOverweightOverweight
Apr 2019MaintainsOutperformOutperform
Apr 2019UpgradesSellNeutral

View More Analyst Ratings for PEP
View the Latest Analyst Ratings

Posted-In: Bank of America Bill Schmitz Bryan SpillaneAnalyst Color Earnings News Price Target Analyst Ratings Best of Benzinga

 

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