Frito-Lay Weakness Remains A Concern For PepsiCo

Analysts at Wells Fargo chimed in on PepsiCo, Inc.'s PEP fourth quarter earnings beat. Shares were down slightly following the beat.

“Operating income of $2.6Bn was slightly above our estimate based on strong operating leverage in its 3 N. America segments due to the ongoing benefit of lower commodity costs and productivity gains,” said Wells Fargo Senior Analyst Bonnie Herzog.

Pepsico sees FY 2017 EPS of $5.09 versus consensus estimates of $5.16. The company also raised its annual dividend from $3.01 to $3.22 per share starting in June.

What Wells Fargo Liked in Q4

Core operating margin expansion of 90 bps
Overall strong results from all North American units

Wells Fargo Concerns

• Frito-Lay North America volumes remain under pressure
• Latin America segment underperforming
• Currency headwinds remain very strong

“We believe that current valuation fully reflects strong snacks and improved expectations for PEP's beverage business," Herzog said. "We advise investors to wait for more favorable entry points to commit capital to PEP shares.”