PepsiCo, Inc. (PEP - Analyst Report) is set to report its second-quarter 2013 results on Jul 24, before the market opens. In the last quarter, it posted a 8.45% positive surprise. Let’s see how things are shaping up for this announcement.
Factors to Consider this Quarter
Management expects currency headwinds to hurt both second-quarter revenues as well as earnings by 2%. Further, structural changes are expected to hurt revenues by 1%. However, this food and beverage giant is boosting its existing brands and categories with stepped-up marketing and innovations which are expected to once again to drive organic revenue growth. While snacks are expected to be strong, soft drinks will continue to lag due to a shift in consumer preferences toward healthier products. Poor weather conditions in North America and Europe may further affect the beverage sales. We believe, the developing and emerging markets will again show strong growth, though China could lag.
However, we expect margins to be somewhat sluggish this quarter due to higher input costs and increased advertising and marketing expenses. Commodity inflation is expected to be higher than the first quarter.
Our proven model does not conclusively show that PepsiCo is likely to beat earnings this quarter. That is because a stock needs to have both a positive earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank of #1, #2 or #3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP is 0.0%.
Zacks #3 Rank (Hold).PepsiCo’s Zacks #3 Rank (Hold) lowers the predictive power of ESP because the Zacks #3 Rank when combined with a 0.0% ESP makes surprise prediction difficult. We caution against stocks with Zacks #4 and #5 Ranks (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies in the consumer staples sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Kraft Foods Group, Inc. (KRFT - Analyst Report), Earnings ESP of +5.97% and Zacks Rank #2 (Buy).
The J.M. Smucker Co. (SJM - Analyst Report), Earnings ESP of +4.20% and Zacks Rank #2 (Buy).
Tyson Foods Inc. (TSN - Analyst Report), Earnings ESP of +8.62% and Zacks Rank #2 (Buy).