PepsiCo (PEP) reported its earnings earlier today. I tuned into the conference call earlier this morning. The company reported EPS of $1.31 versus consensus estimates of $1.30. Revenues of $17.58 billion exceeded expectations of $17.19 billion. Strong results in Latin America, Europe and Asia helped to spur 7% year-over-year division operational growth. PepsiCo America Beverages continues to struggle with operating profit declining 2.5% for that segment. Interestingly enough, Operating profit at Frito Lay North America (FLNA) of $918 million is catching up to PepsiCo America Beverages (PAB) operating profit of $992. It is only a matter of time until FLNA overtakes PAB. I would note that volumes for PAB came in flat during the quarter but are showing some improvement.
The company maintained its full year guidance but refrained from providing 2012 guidance due to the uncertainty in the commodity markets. As a side note, the company still expects to pass on higher prices to customers in the next year, despite recent declines in commodity costs.
PepsiCo when last reporting quarterly results hit the market with a confusing accounting change. The accounting change was just putting the company on an apples-to-apples comparative basis with Coca Cola (KO). However, it was interpreted as a negative bombshell. The stock was up close to 2% after the conference call and held those gains in early trading today.
Coca Cola has outperformed PepsiCo but I would not chase Coke on that basis. PepsiCo sells at about 13 times 2012 forward earnings estimates. Coca Cola on the other hand is a bit richer at 16 times forward earnings estimates. The dividend still favors PepsiCo by about 50 bps in yield per year. I am inclined to hold PepsiCo here, but would scale out of the stock, as a source of cash when the stock gets back to about $66.
PepsiCo is a long term holding and pick in the Lake View Restaurant & Food Chain Report newsletter
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC was long PEP stock — although positions can change at any time.
Scott Rothbort is also the publisher of the LakeView Restaurant & Food Chain Report, a newsletter focusing in on food, restaurant and agricultural stocks. You can subscribe at www.restaurantstox.com
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Posted By Scott Rothbort at October 12, 2011