Yahoo Finance How Can PepsiCo, Inc. (PEP) Keep the Fizz in Its Stock?
Soda giant PepsiCo, Inc. (Nasdaq: PEP) is expected to report its fourth-quarter earnings on Feb. 13. Pepsi and Coca-Cola Co. ( KO) both had a rough go of it in 2017 in a difficult and highly competitive U.S. beverage market, a trend which is unlikely to change in 2018.
Wall Street analysts expect Pepsi to report third-quarter earnings per share of $1.30, an 8.3 percent increase from a year ago. Analysts are also calling for revenue of $19.39 billion, down 0.6 percent from a year ago.
While Pepsi bulls would appreciate a fifth consecutive quarter of positive overall revenue growth, bears will focus on the company's struggling core beverage business.
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Pepsi and Coca-Cola have been relying on higher prices and higher-margin products in their largest global markets to offset softening core beverage sales. In the most recent quarter, Pepsi reported that North American sales volume was down 6 percent from a year ago, but a 1 percent increase in net pricing helped drive a 5-cent-per-share earnings beat. Pepsi's North American Frito-Lay revenue was also up 1 percent in the third quarter.
Pepsi recently announced it would be launching Bubly, an new sparkling water brand, later this month. Management clearly seems to be targeting a younger demographic of customers in the booming sparking water category by including bright packaging and contemporary messages on cans.
Pepsi has also reportedly been researching how to design and package snacks to cater specifically to female customers.
"We are looking at it and we are getting ready to launch a bunch of them soon," CEO Indra Nooyi said on a recent episode of the "Freakonomics Radio" podcast.
Deutsche Bank analyst Steve Powers says products like Bubly and other aggressive investments are the right strategy for Pepsi.
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"The domestic Frito business remains dominant and is showing signs of renewed acceleration," Powers said in December, according to CNBC. "While PepsiCo's North America beverage business is currently ceding share in the midst of Coca-Cola's refranchising, management seems to understand past shortfalls and has committed to increased investments."
Powers also said any 2018 earning upside for Pepsi will likely involve international FritoLay growth as well.
Deutsche Bank has a "buy" rating and $132 price target for PEP stock.
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