Pepsi Releases Solid Quarter Results During Its Biggest Month Of The Year

The beverage and snack giant Pepsi Co Inc PEP topped Wall Street estimates for its fourth-quarter earnings and revenue. The only blurry side of the picture is the 2020 outlook that is below expectations. And this is the reason behind the fact its shares only rose less than 1 percent in premarket trading despite solid results.

But, a lot of heavy advertising that took place during this year's Super Bowl show the company's determination to combat its competitors and the decline in consumption of soft drinks.

Fourth Quarter Results

The latest quarter saw a strong performance of North America's beverage and snack divisions. As for the whole picture, earnings per share amounted to $1.45, adjusted from a revenue of $20.64 billion, Refinitiv's expectations were $1.44 expected and $20.27 billion accordingly. Operating income slightly topped estimates of $2.73 billion with a figure of $2.7 billion.

Net income amounted to $1.77 billion, or $1.26 per share. It is quite a drop from $6.85 billion, or $4.83 per share, a year earlier. Total revenue did rise nearly 6% to $20.64 billion and slightly topped expectations of $20.27 billion. And even organic revenue rose 4.3%. But the best news for its shareholders is surely the announced 7% dividend increase.

Strategy

In an effort to drive its organic sales, the company has been heavily investing in advertising with the aim to amplify the strength of its legacy brands. And just recently, with six ads and a host of events and onsite activations, Pepsi PEP and Frito-Lay have made Super Bowl 2020 their biggest ever as Pepsi alone dropped $40 million. It remains to be seen whether this will be enough to combat The Coca Cola Company's KO strength when it comes to Diet Coke. But considering that Pepsi's management is known for its conservative style, the gigantic costs were surely carefully determined to be worth it.

And after all, considering that snacks and beverages are make such an important part of the Super Bowl, not to go as far as say you cannot even imagine it without them, this is really a massively important time of the year for Pepsi.

Amid decline in consumption of soft drinks, the company is turning towards snacks, hoping Doritos and Lay's will offset this decline. It remains to be seen how will Pepsi along with other consumer-goods companies deal with the effect of the Coronavirus. Its snack rival, Mondelez International MDLZ, the Oreo cookie maker, has already seen it hurting its first quarter.

Outlook

This quarter report clearly reflects that profits were held back by operating cost increases and these could have offset managerial efforts cut costs. Pepsi expects 4% organic revenue growth for 2020 and 7% earnings per share growth after accounting for currency fluctuations.

In fact, it cited foreign currency as an expected headwind for 2020. But the strongest headwind bound to have a surely heavy impact on top and bottom lines is the weak soft drink demand as more and more consumers are becoming health-oriented and consequently, opting for healthier alternatives. Now that truly is a red flag for Pepsi.

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