PepsiCo Inc. (NYSE: PEP) investors got the earnings beat they were hoping for on Wednesday, but the stock is trading down after quarterly revenue fell short of analyst expectations. North American beverage sales continued to weaken, and its snack business was unable to pick up the slack.
PEP reported third-quarter earnings per share, excluding items, of $1.48, topping Wall Street forecasts of $1.43. However, Q3 revenue of $16.24 billion missed analyst expectations of $16.31 billion.
In addition, PepsiCo guided for full-year core EPS of $5.23, but CEO Indra Nooyi said organic revenue growth remains challenging.
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“Despite the challenges in our [North American beverage] business, the PepsiCo portfolio overall generated revenue, operating profit and earnings per share growth,” Nooyi said. “Although we have moderated our full-year organic revenue growth outlook, we are now on track to exceed the full-year earnings per share target we set at the beginning of the year.”
PepsiCo and rival Coca-Cola Co. ( KO) have been raising beverage prices and focusing more on higher-margin products to combat softening soda demand in their largest global markets. PepsiCo reported North American beverage sales volume was down 6 percent on the quarter, but net pricing was up 1 percent.
Throughout the year, PepsiCo has been relying on its snack business to make up for declining beverage sales. North American Frito-Lay revenue was up 3 percent in the most recent quarter.
Wells Fargo analyst Bonnie Herzog says there is little for investors to love about PepsiCo’s report.
“Despite the beat & EPS raise, we see little reason to get excited about PEP’s Q3 results given increasing cost headwinds, and NAB results that were much worse than we expected,” Herzog says. “We believe PEP will likely deliver its revised FY17 EPS guidance based on productivity savings/cost-cutting, but see few positive catalysts that could drive the stock meaningfully higher in the near term.”
[See: 9 Food-Focused ETFs to Feed Your Portfolio.]
Wells Fargo maintains a “market perform” rating on PepsiCo stock.
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PepsiCo’s (PEP) Beverage Business Fizzles originally appeared on usnews.com
