PepsiCo, Inc. (Nasdaq: PEP) has been pulling out all the stops to navigate a difficult environment in recent years, and analysts are expecting another difficult quarter when the company reports earnings on July 9. However, expectations may be appropriately low at this point, and Pepsi could get its business headed back in the right direction in the second half of 2018.
Consensus Wall Street forecasts are calling for Pepsi to report second-quarter earnings per share of $1.52. Analysts are also expecting revenue of $16.08 billion, up 2.3 percent from a year ago.
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Bank of America analyst Bryan Spillane is expecting a mostly in-line quarter from Pepsi but says business may start picking up starting in the third quarter.
“Management set expectations for a soft 2Q given the timing of investments,” Spillane says. “Sequential improvement in North America Beverages heading into summer is a key catalyst for the stock.”
Last quarter, Pepsi reported a North America volume sales decline of 3 percent and organic revenue decline of 2 percent. Pepsi has been raising prices and relying on its Frito-Lay snack business to offset weakness, but the market hasn’t been impressed. PEP stock is down 4.8 percent in the past year.
Gross margin also declined 1.1 percent in the first quarter to 54.9 percent. Pepsi said rising commodity prices were to blame for the drop, a trend which likely continued in the second quarter.
Spillane is calling for full-year 2018 EPS of $5.60 from Pepsi, just shy of the company’s $5.70 guidance. After a recent meeting with management, Spillane says product and marketing initiatives for Mountain Dew and Gatorade are already showing signs of improving North American sales.
CFRA analyst Joseph Agnese says Pepsi’s North American business could turn the corner in the second quarter.
“While North American Beverage volumes declined 2 percent in 2017 and 3 percent in the first quarter of 2018, we expect volume trends to improve in the remainder of 2018 on planned increases in advertising and marketing,” Agnese says.
However, he says Frito-Lay will likely continue to be the primary North American cash cow for Pepsi.
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“Longer term, we see exposure to stronger international markets as the primary driver of growth,” Agnese says.
Bank of America has a “buy” rating and $125 price target for Pepsi. CFRA has a “strong buy” rating and $120 target for PEP stock.
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PepsiCo, Inc. Earnings: What To Expect From PEP Stock originally appeared on usnews.com
