Pepsi Beats By A Penny, CEO Rebuffs Breakup Talk

12 Oct

Beverage and snacks company PepsiCo reported third-quarter earnings of $1.31 per share Wednesday morning, narrowly topping the consensus analyst estimate of $1.30.

Pepsi recorded revenue of $17.6 billion, up 13% from a year ago (9% excluding the acquisition of Russian dairy and juice company Wimm-Bill-Dann. Worldwide snack volume from the company’s Frito-Lay business, which houses brands like Doritos and Cheetos, was up 8% in the third quarter, while beverage volume was up 4%. Before excluding certain items, like merger and acquisition costs, Pepsi’s earnings came in at $1.25 per share.

Regionally, said its Latin American food volume grew 3.5%, thanks to increases in Mexico and Brazil, while North American Frito-Lay volumes were up just 1%, though revenue and margins were also higher. China, the Middle East and Africa continued to be a growth engine for Pepsi, growing 16% in Q3 with solid double-digit snack volume gains in China, India and Thailand. Beverage volume was up double digits in India and Saudi Arabia.

Europe is a major concern this earnings season, with investors worried that the ongoing debt crisis in the Euro zone may stifle economic growth in the region for some time to come. The Wimm-Bill-Dann acquisition helped drive double-digit volume gains in both snacks and businesses, but snack volume was still up 4% excluding the new addition thanks to strength in Turkey and France. Beverage volume, excluding Wimm-Bill-Dann, was down in the mid-single digits.

Tuesday, Alcoa kicked off earnings season with a disappointing report that also noted weakness in Europe.

On the conference call following Wednesday morning’s report, Pepsi Chief Executive Indra Nooyi reiterated that the company believes its snacks and drinks units will be most successful by remaining integrated. It has been suggested that Pepsi could be the latest company to break up its businesses in the wake of a decision earlier this year by Kraft Foods to divide its grocery and snack businesses.

Nooyi also said that there is still too much uncertainty to offer any firm forecasts for 2012, according to TradeTheNews.com.

Citigroup analyst Wendy Nicholson noted sequential slowing in snacks and beverages in a note Wednesday morning, with developed markets a drag, but said the quarter was mostly in line with estimates and featured “no real bad news.” she expects the stock to tread water though, largely due to concerns about North American market share and the lack of visibility into 2012 earnings, particularly in terms of currency and commodity impact.

Pepsi shares gained 3.2% to $62.87 Wednesday morning, while rival Coca-Cola, due to report earnings Oct. 18, was up 0.4% to $67.06. The major indexes made cautious gains, on hopes that Slovakia’s government will eventually clear an expanded loan facility for debt-choked European countries after rejecting the deal Tuesday.

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