IN FORMER CEO INDRA Nooyi’s final quarter with the company, PepsiCo, Inc. (Nasdaq: PEP) exceeded earnings expectations and reported a return to organic revenue growth in its North American beverage business. However, PEP stock dropped following the report on concerns over the company’s shrinking margins, and analysts are concerned that new CEO Ramon Laguarta could see 2019 as a reset year for PepsiCo.
On Tuesday, PepsiCo reported third-quarter adjusted earnings per share of $1.59 on revenue of $16.49 billion. Both numbers topped consensus analyst estimates of $1.57 and $16.36 billion, respectively.
North American beverage organic revenue, which has been a weakness for PepsiCo in recent quarters, was up 2.5 percent, the company’s first positive number in the past four quarters.
While the top- and bottom-line numbers were solid, gross margins once again contracted by 0.3 percent. Core gross margin contracted by 0.1 percent, operating margin contracted by 0.75 percent and core operating margin contracted by 0.25 percent.
Macquarie Research analyst Caroline Levy says PepsiCo’s organic revenue growth was a positive in the second quarter, but that revenue growth continues to come at the expense of margins. In addition, she says PepsiCo investors will likely be in the dark about Laguarta’s strategy until the Consumer Analyst Group of New York Conference in February.
In the meantime, Levy says PepsiCo is still dealing with a difficult global beverage market and intense competition from the Coca-Cola Co. (KO). In addition, Laguarta faces tough questions such as whether or not PepsiCo should restructure parts of its business or continue to own its North American bottling operations.
“Uncertainty around the outlook may keep the stock range-bound,” Levy says.
Bank of America analyst Bryan Spillane isn’t concerned about margins or the leadership change at PepsiCo.
“The key debate on the stock from here will likely be whether the new CEO will re-base in FY19 or change growth targets,” Spillane says. “Our view is that current valuation is not pricing in a turnaround and that PEP will respond positively to a concerted effort to re-accelerate growth in the core business.”
Macquarie has…
Click here to continue reading
Want to learn more about how to profit off the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!
