Soda giant PepsiCo, Inc. (NYSE: PEP) is expected to report its third-quarter earnings on Wednesday morning. PepsiCo and rival Coca-Cola Co. ( KO) have had a rough go of it so far in 2017 amid increasing competition in the U.S. beverage business, a trend which is unlikely to change in the back half of the year.
Wall Street analysts expect PepsiCo to report third-quarter earnings per share of $1.43, a 2.1 percent increase from a year ago. Analysts are also calling for revenue of $16.305 billion, up 1.7 percent from a year ago.
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PepsiCo’s Frito-Lay snack business has been keeping the company’s overall sales afloat with its 3 percent revenue growth and 31 percent margins. In the first two quarters of 2017, Frito-Lay has been responsible for 45 percent of PepsiCo’s overall operating profit, despite only accounting for roughly 25 percent of its total revenue.
While PepsiCo bulls would appreciate a fourth consecutive quarter of positive revenue growth, bears will focus on the company’s struggling core beverage business.
“U.S. beverages are struggling on nearly all fronts. PepsiCo’s U.S. beverage retail sales trends have deteriorated significantly year-to-date, diverging from its primary non-alcoholic competitors,” Credit Suisse analyst Laurent Grandet said earlier this month. “What’s new is that its leading noncarbonated beverage portfolio is now also in decline and no longer compensating for the carbonated soft drink weakness.”
Grandet says only about half of PepsiCo’s lost beverage sales are cyclical in nature.
[See: 9 Food-Focused ETFs to Feed Your Portfolio.]
PepsiCo and Coca-Cola have been doing their best to combat softening beverage sales by increasing prices and targeting higher-margin products in their largest global markets. In the most recent quarter, PepsiCo reported that North American sales volume was flat from a year ago, but a 1 percent increase in net pricing helped drive a 10 cent per-share earnings beat.
Credit Suisse has a “neutral” rating and $124 price target for PepsiCo.
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What to Expect from PepsiCo (PEP) Earnings originally appeared on usnews.com
