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PepsiCo, Inc. (PEP - Analyst Report) is set to report fourth quarter 2012 results on Feb 14. Last quarter it posted a 3.45% positive surprise. Let’s see how things are shaping up for this announcement.

Growth Factors this Past Quarter

Though earnings beat the Zacks Consensus Estimates, they declined year over year due to a sluggish top line. Revenues declined in the quarter due to currency headwinds and re-franchising of the beverage business in China and Mexico. Excluding these headwinds, organic revenues grew year over year primarily on the back of price increases. Both snacks and beverage volumes improved in the quarter. However, beverage volumes declined in North America.

The overall carbonated soft drinks’ (CSD) volumes in North America have been weak since the past few months. Changing consumer preferences, increasing health consciousness and growing regulatory pressures are affecting beverage sales. This is hurting CSD volumes for PepsiCo as well as other beverage companies like The Coca-Cola Company (KO - Analyst Report).

Earnings Whispers?

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 Rank #3 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.

Management expects pricing gains to moderate in the fourth quarter than the third quarter. The structural changes are expected to hurt fourth quarter revenues by 2.5%, lower than the third quarter. Currency is expected to hurt both revenue and operating profit by approximately 1% in the fourth quarter, significantly lesser than the third quarter. The lower headwinds from currency and structural changes could result in better top-line growth in the fourth quarter. Commodity inflation is also expected to moderate in the fourth quarter.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Coca-Cola FEMSA S.A.B de C.V. (KOF - Snapshot Report), with an Earnings ESP of +7.87% and a Zacks Rank #2 (Buy)

Kellogg Company (K - Analyst Report), with an Earnings ESP of +0.97% and a Zacks Rank #2 (Buy)

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