Did you know that sugary drinks are dead in the water? Did you know that America is increasingly at war against tasty but unhealthy snacks? Of course you did. The news has been wrought with headlines that the primary drivers behind the PepsiCo (ticker: PEP) name — sodas and carb-heavy chips — are under attack.
Of course, no one bothered to tell any of this to Pepsi. PEP stock’s 96 percent total returns over the past five years have outrun the Standard & Poor’s 500 index by about 8 percentage points, and shares now sit within arm’s reach of all-time highs set in the second half of last year.
The question is: Will fourth-quarter earnings, scheduled for Wednesday morning, be the catalyst that Pepsi stock needs to get over the top?
The headline numbers that Pepsi will have to beat this quarter are $1.16 in earnings on $19.53 billion in revenues. That would represent 9 percent growth on the bottom line, and 5.1 percent growth on the top line.
One of the more important hints about Pepsi’s fate may have come last week, courtesy of rival Coca-Cola Co. ( KO). Coca-Cola disappointed Wall Street with a lackluster fourth-quarter earnings report in which results were weighed down by “persistent macroeconomic pressures in our emerging and developing markets.” That included net operating revenues that declined 4 percent for the quarter, spurring a 9 percent decline in operating profits.
What Pepsi shareholders get to mull until Wednesday is whether that’s a sign that Pepsi is making inroads in the same markets, or that PEP too is about to report weakness in developing markets. As you might remember, Pepsi boasted strength in emerging markets during its Street-beating third quarter.
[See: 10 Great Ways to Buy Emerging Markets.]
Said Citi analysts last quarter: “With regard to the macro outlook, management commented on the call that while the environment remains both volatile and overall difficult, we heard that many emerging markets, particularly Russia, China and India are showing signs of improvement.”
For the record, unit case volume for KO in its Asia Pacific region was flat for the fourth quarter.
Investors really shouldn’t be too worried about Pepsi’s ability to beat the analyst mark, though, as the company has topped estimates in all but one quarter over the past four years — the lone outlier was a fourth-quarter match last year.
What investors should be more focused on is Pepsi’s steps to combat the erosion of sugary soda sales. In March of last year, Fortune reported that sales in 2015 declined for the 11th consecutive year. The 1.2 percent dip in 2015 brought volumes to 30-year lows. Pepsi-Cola was off 3.2 percent, Diet Pepsi declined 5.8 percent and Mountain Dew dropped 2.8 percent.
PepsiCo has been growing its stable of non-soda brands, which includes Gatorade, Pure Leaf teas, Aquafina water, Naked fruit smoothies and distribution of Starbucks Corp. ( SBUX) coffee drinks. Pepsi just allocated its Super Bowl ad spend to LIFEWTR, its premium bottle water brand that launched this month.
And water is where Pepsi wants to be. While soda sales continued their fall from grace in 2015, bottled water was surging, with consumption up 7.9 percent from the previous year, according to a report from the International Bottled Water Association in conjunction with the Beverage Marketing Corp. Beverage Industry reported that “BMC now indicates that bottled water is poised to overtake carbonated soft drinks as America’s largest beverage category by volume by 2017, if not by the end of 2016.”
If nothing else, though, Pepsi — with its more diverse offering of beverages and snacks — finds itself in much better straits than rival Coca-Cola, with annual revenues expected to grow 2.5 percent over the coming year versus a 5 percent clawback for KO, and more than double Coke’s earnings growth estimates at 7.5 percent.
If PEP stock does pull back on Wednesday, consider it an opportunity to buy on the dip.
More earnings in focus
Cisco Systems (CSCO), Wednesday. The same evening, Cisco will try to convince Wall Street to bid shares up to 10-year highs. CSCO has run up nearly 40 percent in the past year’s worth of trading, and now sits about 5 percent shy of the stock’s 2007 peak. With growth absent from fiscal second-quarter forecasts — the Street sees revenues shrinking 3.2 percent to $11.55 billion and earnings slinking back a penny per share to 56 cents — the focus is on how much Cisco will sweeten its dividend. IHS Markit analysts expect a new dividend of 28 cents per share (up 8 percent), while Sure Dividend posited the case for a 10 percent hike, to just below 29 cents. Either would take the yield from 3.3 percent currently to around 3.6 percent.
[Read: 7 Best Tech Stocks to Buy for 2017.]
Groupon (GRPN), Wednesday. Anaylsts expect Groupon to report a lackluster fourth quarter that should see revenues decline fractionally to $914.19 million, and earnings dip to 3 cents per share from 4 cents in the year-ago period. GRPN shares remain a shell of their initial public offering price, sitting at sub-$4 levels after pricing at $20. Groupon was knocked around by more than 20 percent in late October after third-quarter earnings, which included the announcement that it would acquire fading LivingSocial for a price literally deemed “not material.” Still, the deal is expected to add $15 million in quarterly revenues to growth-starved Groupon, so it’s possible investors warm back up to GRPN following Wednesday’s report.
This week’s earnings calendar
Monday. HCP ( HCP), Teva Pharmaceutical Industries ( TEVA), Rent-A-Center ( RCII).
Tuesday. Dr Pepper Snapple Group ( DPS), Molson Coors Brewing Co. ( TAP), T-Mobile US ( TMUS), Caesars Entertainment Corp. ( CZR), Devon Energy Corp. ( DVN), Express Scripts Holdings Co. ( ESRX), Fossil Group ( FOSL), Lending Club Corp. ( LC), Potbelly Corp. ( PBPB).
Wednesday. Angie’s List ( ANGI), Hilton Worldwide Holdings ( HLT), SodaStream International ( SODA), Wyndham Worldwide Corp. ( WYN), Barrick Gold Corp. ( ABX), CBS Corp. ( CBS), Denny’s Corp. ( DENN), GoldCorp ( GG), GrubHub ( GRUB), Kraft Heinz Co. ( KHC), TripAdvisor ( TRIP).
Thursday. Duke Energy Corp. ( DUK), GNC Holdings ( GNC), MGM Resorts International ( MGM), Time ( TIME), Waste Management ( WM), Wendy’s Co. ( WEN), Consolidated Edison ( ED), DaVita ( DVA).
[See: 7 Stocks That Could Save Your Portfolio.]
Friday. Campbell Soup Co. ( CPB), Deere & Co. ( DE), J M Smucker Co. ( SJM), VF Corp. ( VFC).
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Can PepsiCo, Inc. (PEP) Pop Back Up to All-Time Highs? originally appeared on usnews.com
