Earnings Preview: Pepsico (PEP)

Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash.  Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

I have been too busy with earnings reports and life to deliver my usual weekly summary.  It is in that summary that I usually preview stocks with upcoming earnings reports.  Since I didn't do the summary, I wanted to take enough time to preview what's to be expected in Pepsico's earnings release, which will happen on Thursday.  Pepsico is an international company with just under half of their earnings coming from the rest of the world.  As we noted last quarter, foreign exchange clearly is a risk to the company's forward performance as Europe, Russia, and Venezuela all play roles in the numbers that will be produced.  From what I've seen from international companies reporting so far, the foreign exchange impact is going to hit pretty hard on the revenue number at the very least, and also the earnings per share for companies who don't or can't hedge.  I expect Pepsi to be the latter portion of this, meaning we'll see larger than expected impact.  Don't be surprised if the company misses.  The stock took a hit at the end of the last quarter and recovered only just a little.  It's entirely possible we'll see another hit on the stock, taking it to the low 90s in price.  As for analyst expectations, they have a consensus of $0.79 for earnings on $12.21B in earnings.  Other potential areas for positivity would be strength in the US market, Europe improving and surprising meets or beats at this point.  Be prepared going in.  This may be a quarter where the currency conversion rules as I don't think margins have started to improve due to lower commodity prices just yet.  Perhaps we start to see a turn around there in the next quarter.

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