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PepsiCo, Inc. (NYSE:PEP) : Second Quarter 2010 Earnings Preview

 July 15, 2010 10:39 AM

PepsiCo Inc (NYSE:PEP), the largest food and beverage business in North America and the second-largest in the world, is scheduled to report their second quarter 2010 results on Tuesday, July 20. In the last four quarters ending March 2010 with the exception of December 2009 quarter, the company's actual earnings exceeded the market's consensus by margins in the range of 0.8% and 5.37%.

PepsiCo, Inc. is a global food, snack and beverage company. The Company's portfolio includes oat, rice and grain-based snacks, as well as carbonated and non-carbonated beverages, in over 200 countries. Its operations are in North America (United States and Canada), Mexico and the United Kingdom. It is organized into three business units: PepsiCo Americas Foods (PAF), which includes Frito-Lay North America (FLNA), Quaker Foods North America (QFNA) and all of its Latin American food and snack businesses (LAF), including its Sabritas and Gamesa businesses in Mexico; PepsiCo Americas Beverages (PAB), which includes PepsiCo Beverages North America and all of its Latin American beverage businesses, and PepsiCo International (PI), which includes all PepsiCo businesses in Europe and all PepsiCo businesses in Asia, Middle East and Africa (AMEA). PepsiCo's three business units are comprised of six reportable segments: FLNA, QFNA, LAF, PAB, Europe, and AMEA.

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The company announced revenue for the first quarter of 2010 of $9.37 billion, net income of $1,434 million, or $0.89 per share, and operating income of $840 million. Adjusted Q1 EPS of $0.76 vs. $0.71 misses my estimate by $0.03 on lower revenue than my view. Volumes in Americas beverages and in Frito Lay North America continue to be lackluster, falling 4% vs. Q4's 5% drop although snacks turned around from flat to post a 1% gain. Margins were boosted by productivity and lower commodity costs. Higher margin convenience channel appears to be improving but now currency is likely to be headwind.

[Related -Pepsico, Inc. (PEP) Dividend Stock Analysis]

For the 2nd qtr 2010, analysts' estimates range from $1.07 to $1.1, with a consensus estimate of $1.08. The consensus EPS forecast has decreased over the past week from $1.081 to $1.080 (-0.09%) and decreased over the past month from $1.084 to $1.080 (-0.37%). Of the 9 analysts making quarterly forecasts, none raised and 3 lowered their forecast.

In May 2010, the company announced that it plans to invest an additional $2.5 billion in China over the next three years.  The newly announced investment is in addition to the $1 billion investment the company announced in 2008, which will be completed this year.

On Tuesday, the stock closed trading at $63.43 compared to the 52 week range of $55.36 and $67.61. YTD the stock is up by $2.12 or 3.46%. Currently, the stock is trading at a P/E of 16.87 but that could contract to 15 by end 2010. Yet the company's earnings expansion could support a stock price in excess of $68 by end 2010.



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