) is set to report second-quarter 2014 results on Jul 23, before
the market opens. Last quarter, it had delivered a positive
earnings surprise of 10.67%.
In fact, the food and beverage company has delivered positive
earnings surprises in the trailing four quarters. Let's see how
things are shaping up for this announcement.
Factors to Consider this Quarter
Strong performance by Pepsi's snacks business is making up for
the relatively weaker sales of its beverages.
Pepsi's carbonated soft drinks (CSD) have been reporting
sluggish volumes for the several quarters due to weak category
headwinds. Growing health and wellness consciousness - consumers
are particularly vigilant about the use of artificial sweeteners,
high sugar content and related obesity concerns - are affecting CSD
sales of Pepsi as well as other soft drink makers like
The Coca-Cola Company
Dr Pepper Snapple Group, Inc.
). We expect the downward trend of sales of CSD to continue in this
quarter as well.
However, a strong snacks performance, improvement in Europe and
sales gain in developing/emerging market should offset a softer
Currency headwinds and structural changes (mainly beverage
re-franchising transaction in Vietnam) are expected to hurt
second-quarter revenues by 4% and 15%, respectively. Currency will
hurt second-quarter earnings by 5%. Moreover, both interest expense
and tax rates are expected to be higher in the second quarter than
the year-ago period - a headwind for earnings.
Our proven model does not conclusively show that Pepsi is likely
to beat earnings this quarter. That is because a stock needs to
have both a positive
and a Zacks Rank #1 (Strong Buy), 2 or 3 for this to happen. That
is not the case here, as you will see below.
The Earnings ESP is 0.00%.
Pepsi's Zacks Rank #2 (Buy) when combined with a 0.00% ESP makes
surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated
stocks) going into the earnings announcement, especially when the
company is seeing negative estimate revisions momentum.
Other Stocks to Consider
A couple of stocks in the consumer staples sector that have both
a positive Earnings ESP and a favorable Zacks Rank are:
Dr Pepper Snapple Group, with an Earnings ESP of +3.30% and a
Zacks Rank #3 (Hold).
The Coca-Cola Company, with an Earnings ESP of +4.76% and a
Zacks Rank #3.
The J.M. Smucker Co.
) with an Earnings ESP of +1.43% and a Zacks Rank #3.
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COCA COLA CO (KO): Free Stock Analysis Report
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