) released results this morning. The company reported 5% increase
in net revenues year over year and reiterated its earnings growth
target to 7%-8% for 2011 owing to rising commodity costs and
slower-than-expected economic recovery. However the company
signaled that inflation pressures persist and that it will look to
some price increases to offset this.
Both PepsiCo and rival
) are focusing efforts in developing nations like India and China
where volume growth has been much higher than developed markets
like the U.S. We expect PepsiCo's carbonated soft drink (
) market share in the U.S. will decline slightly to 9.5% by the end
our forecast period. Trefis members however predict the share will
rise in the coming years and then decline gradually reaching 10.4%.
The member estimates imply no material impact on PepsiCo's stock,
since the Pepsi brand accounts for only 7% of the stock price by
We currently have a
Trefis price estimate of $68.53 for PepsiCo's
, about 2% above the current market price of $67.11.
Rising Commodity Costs Could Impact Outlook
PepsiCo had earlier forecast $1.4-$1.6 billion (8%-9.5%) in
commodity inflation costs for 2011. The company's ability to pass
on the costs to end consumers could be limited since the
unemployment level is still lingering close to double digit levels
and consumer spending hasn't fully reached pre-recession
PepsiCo's acquisition of bottlers last year is also not helping
the cause. According to Moringstar, Pepsi has become more exposed
to commodity costs after the acquisition of low margin bottlers.
However, a recent Fitch report argues that commodity cost headwinds
will hot have a significant impact on the margins of PepsiCo and
Coca-Cola. The credit rating company expects $450 million in
commodity costs increases for the North American bottling
operations of both beverage companies, and an operating margin
impact of less than 110 and 90 basis points for Coca-Cola and
PepsiCo, respectively. But overall rising commodity costs will
definitely be the biggest concern for the company.
Focus on Emerging Markets to Continue
PepsiCo's sales in North American market has been weak compared
to growing sales in emerging markets like Russia, India and China,
prompting the firm to make investments in these countries. In May
2010, PepsiCo announced plans to invest $2.5 billion in China over
the next years mainly to compete against rival Coca-Cola.
complete analysis for PepsiCo's stock is here