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PepsiCo (PEP - Analyst Report) is set to report first-quarter 2014 results on Apr 17, before the market opens. Last quarter, it delivered a positive earnings surprise of 3.96%. 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) volumes are suffering due to challenges faced by the category. The CSD category declined for the ninth straight year in 2013 due to growing health consciousness since consumers have become particularly vigilant about the use of artificial sweeteners, high sugar content and related obesity concerns. Among the CSDs, the cola segment has particularly come under fire as consumers are opting for alternative beverage offerings. Also, possible new taxes on sugar-sweetened beverages and growing regulatory pressures are affecting the CSD sales. These challenges have also been felt by major soft drink makers — The Coca-Cola Company (KO - Analyst Report) and Dr Pepper Snapple Group — leading to lower volumes and weak sales.

We do not expect beverage volumes to improve in the first quarter as well. However, snacks, especially the American snacks businesses, should continue to do well. Currency is expected to hurt first-quarter earnings and revenues by 6% and 4%, respectively. Further, structural changes (the Vietnam re-franchising) are expected to hurt revenues by 0.5%.

We also expect margins to grow in the quarter as pricing and productivity gains should offset headwinds from soft volumes and cost increases.

Earnings Whisper?

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 Earnings ESPand 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 0.00%.

Zacks Rank.Pepsi carries a Zacks Rank #4 (Sell). 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

Other stocks in the retail sector that have both a positive Earnings ESP and a favorable Zacks Rank are:

Big Lots, Inc. (BIG - Analyst Report), withEarnings ESP of +2.27% and a Zacks Rank #3 (Hold).

The Cheesecake Factory Incorporated. (CAKE - Analyst Report), with Earnings ESP of +4.08% and a Zacks Rank #3.

Read the Full Research Report on CAKE
Read the Full Research Report on KO
Read the Full Research Report on PEP
Read the Full Research Report on BIG


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