Sunday, February 6, 2011

Pepsico Inc. (NYSE: PEP): Q4 Earnings Preview 2010

Pepsico Inc. (NYSE: PEP) is scheduled to release its fourth-quarter earnings before the market open on Thursday, February 10, 2011. Analysts, on average, expect the company to report earnings of $1.04 a share on revenue of $17.64 billion. In the year ago period, the company posted earnings of 90 per share on revenue of $13.30 billion.

PepsiCo, Inc. manufactures, markets, and sells various snacks, carbonated and non-carbonated beverages, and foods worldwide. The Company’s portfolio includes oat, rice and grain-based snacks, as well as carbonated and non-carbonated beverages, in over 200 countries.

In the preceding third quarter, Purchase, New York-based company's net income was $1.92 billion, or $1.19 a share, compared to $1.72 billion, or $1.09 a share, in the year-ago quarter. On an adjusted basis, the company earned $1.22 in the latest quarter. Revenue jumped 40% to $15.51 billion from $11.08 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of $1.22 per share on revenue of $15.36 billion.

At its last earnings call in October, the company said that for fiscal 2010 it is targeting an 11 to 12 percent growth rate for core constant currency EPS from its fiscal 2009 core EPS of $3.71, which is within the previous guidance range of 11 to 13 percent. Based on current spot rates, foreign exchange translation would represent a one percentage point unfavorable impact on the company's full-year, core EPS. As a result, growth in core EPS for the year is expected to be in the 10 to 11 percent range.

Industrywide sales of carbonated soft drinks had been falling in the United States even before the recession slammed the brakes on consumer spending. Some consumers, taking heed of growing awareness of nutritional health, opted for drinks such as bottled water, juice and tea. 

On the bright side, a strong new product pipeline, robust international sales, on-going manufacturing productivity initiatives, and an active stock program are all positives for PepsiCo. PepsiCo International too 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 been investing significantlyincountries likeChina, Mexico and Russia over the past few years.

PepsiCo’s heightened emphasis on nutritious convenience foods puts the company in position to grab market share at a time when consumers are becoming increasingly health-conscious. The market share gains from increased focus on nutritious food offerings could increase profitability for PepsiCo’s Quaker Foods, Tropicana, and Gatorade product lines. New distribution of healthy food products in China and a low-calorie fruit puree set to test U.S. markets could spark market share gains for the company. A new Gatorade product line expected for Spring 2011 could also advance the company’s market penetration.

Pepsi has started to introduce a new line of healthy food options in China, where reports of chronic illnesses have been increasing. As consumers become more health-conscious, Pepsi and some of its competitors in the global packaged food market are introducing foods that include traditional Chinese folk medicine ingredients like wolfberry plants, chrysanthemum teas and tremella. Between 2005 and 2009 the wellness foods and beverages market in China increased by 28%, reaching $1.5 billion in 2009. Pepsi now plans to continue its expansion into China with a $2.5 billion investment over the next 3 years. In October last year, it launched Quaker Herbal Oatmealin flavors such as wolfberry and tremella, a fungus considered in China to have therapeutic properties. 

As a part of its strategy to penetrate the market for nutritious convenience foods, Pepsi will soon begin distributing an 80-calorie fruit puree called Tropolis (marketed as a snack rather than a beverage) in test markets through its Tropicana division. The new product could piggyback success of PepsiCo’s Naked Juice smoothie line (for which a bottle typically contains 200 to 400 calories). Pepsi will market the product in apple, grape and cherry flavors (at $2.49 to $3.49 for a 4-pack) to mothers and children. The company reportedly worked closely with its target audience to develop the product, and has high hopes for its success.

Recently, PepsiCo Inc. said that it completed its $3.8 billion acquisition of a majority stake in Wimm-Bill-Dann Foods, a Russian company that produces dairy products, juices, mineral water and baby food. The company said the acquisition of about 66 percent of outstanding shares increases its stake in Wimm-Bill-Dann to about 77 percent. It expects to make an offer on or before March 11 for all remaining shares. PepsiCo said the deal makes it the largest food-and-beverage business in Russia and strengthens its position in the fast-growing Eastern European and Central Asian markets.

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