On Apr 4, we maintained a Neutral recommendation on
), following solid fourth-quarter results. PepsiCo carries a
Zacks Rank #3 (Hold).
Why the Neutral Recommendation?
PepsiCo reported impressive fourth-quarter results beating the
Zacks Consensus Estimate for both revenues and earnings.
Earnings, however, declined 5% year over year due to 1% shortfall
in revenues. However, organic revenues increased 5% driven by a
balanced growth in volume and price. Impressive performance of
the Americas Foods business, due to successful innovations and
increased advertising and marketing investments boost sales in
Moreover, the company provided an impressive outlook for 2013,
which was in line with long-term targets and also increased its
Overall, we are encouraged by the company's strong brand
portfolio, its product and geographic diversity and solid cash
flow generation. 2012 was a turning point for PepsiCo with
increased investments behind brand building, market execution and
innovation and improved productivity that are expected to set the
foundation for further growth and competitive advantage.
However, we prefer to remain on the sidelines until we see
some meaningful impact of these investments on the operating
Moreover, a challenging consumer spending environment and
continued sluggishness in the North American beverage business
concern us. Changing consumer preferences, increasing health
consciousness, rising obesity concerns, possible new taxes on
sugar-sweetened beverages and growing regulatory pressures are
affecting the company's carbonated beverage sales. Though PepsiCo
has increased marketing investments to boost its American
beverage business, we prefer to wait until we see a substantial
turnaround. Strong competition from
The Coca-Cola Company
) for beverages has also been a persistent overhang.
Other Stocks to Consider
A stock in the beverage industry that is currently performing
Coca-Cola Hellenic Bottling Company S.A.
) - Zacks Rank #2 (Buy). In the broader consumer staples sector,
Flower Foods, Inc.
) is worth mentioning, carrying a Zacks Rank #1 (Strong Buy).
COCA COLA HELNC (CCH): Free Stock Analysis
FLOWERS FOODS (FLO): Free Stock Analysis
COCA COLA CO (KO): Free Stock Analysis Report
PEPSICO INC (PEP): Free Stock Analysis Report
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