Neutral on PepsiCo - Analyst Blog

We currently reiterate our Neutral recommendation on PepsiCo. (PEP).

New York-based PepsiCo's core earnings advanced to $1.22 per share in the quarter from $1.09 registered in the year-ago period, in-line with the Zacks Consensus Estimate. The year-over-year growth reflects the acquisition of its two anchor bottlers, broad-based gains across its snack and beverage portfolio in key international markets, disciplined investments and prudent cost controls.The quarterly total sales jumped 40% to $15.5 billion in the quarter from $11.1 billion in prior-year quarter, demonstrating strong growth across its business.

A strong new product pipeline, robust international sales, on-going manufacturing productivity initiatives, and an active stock program are all positives for PepsiCo. Domestically, management is implementing multiple initiatives to counter the weak retail environment for carbonated soft drinks (CSDs). In addition to a strong new product effort in diet carbonated beverages, non-carbonated beverages, and healthier snacks, the company utilizes new packaging to shift consumers to more profitable purchases.

PepsiCo International is reporting growing revenues and profits across many regions, especially developing markets. Asia Pacific markets, such as China and India, are leading the way with double-digit volume increases in snacks and beverages. The Middle East and Africa region is also seeing excellent results from countries such as Turkey and Egypt.The company has beeninvesting significantlyincountries likeChina, Mexico and Russia over the past few years.

However, asluggish domestic carbonated beverage market and rising costs remain concerns for PepsiCo's North American beverage business.Further, intense competition from other established playersand higher raw material pricesundermine the company's future growth prospects and profitability.In addition, PepsiCo has significant international operations and can be severely impacted by negative currency translations.

The company primarily competes with Coca Cola Company (KO) and currently has a Zacks #3 Rank which translates into short term Hold rating.
 

 
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