On May 20, 2014, we issued an updated research report on
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
Dr Pepper Snapple Group, Inc.
) - 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
Other Stocks to Consider
Pepsi carries a Zacks Rank #3 (Hold). A better-ranked beverage
Coca-Cola Enterprises, Inc
) with a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
COCA-COLA ENTRP (CCE): Free Stock Analysis
DR PEPPER SNAPL (DPS): Free Stock Analysis
COCA COLA CO (KO): Free Stock Analysis Report
PEPSICO INC (PEP): Free Stock Analysis Report
To read this article on Zacks.com click here.