No Coke... Pepsi! Goldman Sachs Agrees With The Greeks

The Q2 performances by soda names are likely to be mixed, against the backdrop of choppy U.S. take-home trends and weaker macro environment in key overseas markets, Goldman Sachs’ Judy E. Hong said in a report. The analyst lowered the price targets for four soda names.

The non-alcoholic ready-to-drink players are likely to witness softer U.S. trends in Q2 due to the Easter shift and unfavorable weather conditions. Hong added that EU trends would likely be muted in 2Q due to weather woes and continued macro challenges.

Pepsi

PepsiCo, Inc. PEP is scheduled to report results on July 7. Hong believes the company could deliver a modest beat, with EPS at $1.31, which is 2c above consensus. Organic sales growth is estimated at 3.5 percent.

“We have a positive bias into earnings as PEP should provide investors with ballast in the current choppy environment,” the analyst wrote, mentioning the reasons as:

1. More than 50 percent of sales are from the US
2. Frito-Lay NA trends have been stable
3. Margin cushion from benign commodity and productivity savings
4. FY guidance appears conservative

Hong has a Neutral rating on PepsiCo. The price target has been reduced from $105 to $104.

Related Link: Pepsico Seen As Undervalued By Jefferies

Coca-Cola

The Coca-Cola Co KO is scheduled to report results on July 27. Hong believes the company will deliver sub-par organic sales growth of 3.3 percent and estimated EPS at $0.57. Coca-Cola would likely tweak its FY organic sales guidance of 4-5 percent growth to 4 percent.

“Poor weather in the US and Europe are likely to cause softer volume, while US price/mix could also look more muted as immediate consumption packs have likely seen more pressure due to weather. KO has already guided to a higher structural impact of 5-6% on revenue for 2Q,” the Goldman Sachs report noted.

Hong has a Neutral rating on Coca-Cola. The price target has been reduced from $47 to $45.

Dr Pepper Snapple

Dr Pepper Snapple Group Inc. DPS is scheduled to report results in late July. The analyst mentioned that core trends may still be muted. The EPS estimate is at $1.18, which is 2c below consensus.

While saying that the company has significant US exposure, which is a positive in the current environment, Hong expressed concern regarding:

• Sales growth continuing to be muted for the company’s core CSD brands
• Competitive pressures
• Margin tailwinds could begin abating

Hong has a Sell rating on Dr Pepper Snapple Group. The price target has been reduced from $90 to $89.

Monster Beverage

Monster Beverage Corporation MNST is scheduled to report results in early August. The analyst expects results to be in-line with consensus. “We now forecast 7% US DSD sales growth but 10% reported sales growth, as MNST laps last year’s inventory destocking and benefits from strength in unmeasured channel.”

Hong has a Buy rating on Monster Beverage. The price target has been reduced from $173 to $172.