Balanced View on Pepsi - Analyst Blog

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On May 20, 2014, we issued an updated research report on PepsiCo, Inc. ( PEP ).

Pepsi began 2014 on a solid note with first-quarter earnings and revenues (announced on Apr 17) beating the Zacks Consensus Estimate. Moreover, earnings increased 7% year over year driven by strong organic revenue gains and solid margins. Organic revenues increased 4.0% as better volumes, strong snacks performance, improvement in Europe and sales gain in developing/emerging market offset a softer beverage performance.

Overall, we are encouraged by the company's strong brand portfolio, product and geographic diversity, improved productivity, increased brand building investments and market execution, efforts to innovate and solid cash flow generation. Also, the company's plans to substantially increase shareholders returns in 2014 and extend productivity initiatives are encouraging.


However, a challenging consumer spending environment, volatility in emerging markets and continued sluggish volumes in the North American beverage business keep us on the sidelines.

Pepsi's carbonated soft drinks (CSD) volumes are suffering due to challenges faced by the category. The CSD category declined for the ninth straight year in 2013 due to growing health consciousness among consumers who have become particularly vigilant about artificial sweeteners, high sugar content and related obesity concerns. Among  CSDs, the cola segment, in particularly, has come under fire as consumers are opting for alternative beverages. Also, possible new taxes on sugar-sweetened beverages and growing regulatory pressures are affecting CSD sales. These challenges have been felt by major soft drink makers - Pepsi, The Coca-Cola Company ( KO ) and Dr Pepper Snapple Group, Inc. ( DPS ) - leading to lower volumes and weak sales.

PepsiCo has increased marketing investments and is driving package and product innovation to boost the American beverage business. Though the business showed sequential improvement in the first quarter, we prefer to wait until we see a substantial turnaround.

Other Stocks to Consider

Pepsi carries a Zacks Rank #3 (Hold). A better-ranked beverage stock is Coca-Cola Enterprises, Inc . ( CCE ) with a Zacks Rank #2 (Buy).


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COCA-COLA ENTRP (CCE): Free Stock Analysis Report

DR PEPPER SNAPL (DPS): Free Stock Analysis Report

COCA COLA CO (KO): Free Stock Analysis Report

PEPSICO INC (PEP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CSD , CCE , DPS , KO , PEP

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