The Q1 reporting cycle is gathering steam, with more than 35% S&P 500 members on deck to report results this week. According to the latest Earnings Preview, results of 87 S&P 500 members are already out. As of Apr 20, 2018, total earnings for these S&P 500 members were up 25% year over year on 10.7% higher revenues. Of these, 82.8% surpassed earnings estimates, while 67.8% beat revenue expectations.
Now, soft drinks stocks, which are broadly grouped in the Consumer Staples sector (one of the 16 Zacks sectors), are expected to see modest growth in the quarter. The sector is expected to report 6.2% earnings and 2.8% revenue growth in the first quarter of 2018.
The Beverages-Soft Drinks industry within the consumer staples sector has been coming up with sluggish results due to carbonated soft drinks or CSD category headwinds. Cross-category competition and growing health and wellness consciousness are hurting demand for CSDs. Among CSDs, the cola segment particularly has come under fire as consumers are opting for alternative beverage offerings.
Nonetheless, the companies remained focused on reviving their tepid sales growth. They are pursuing investments in product innovations as well as newer revenue platforms while taking care of health benefits (like reduced calorie beverages, non-carbonated beverages and healthier snacks) to boost long-term sales and profits.
One of the key players in the beverage industry, Coca-Cola Company (KO - Free Report) , has already released its first-quarter numbers. Coca-Cola kicked off 2018 on a strong note, beating the Zacks Consensus Estimate on both counts. Apart from a significant rise in soda volumes, the cola giant gained from its growing beverage portfolio and restructuring efforts. Cost-cutting initiatives led by refranchising of its low-margin bottling operations, helped it to come up with better numbers.
Let’s take a look at what’s in store for the following soft drink stocks within the consumer staples sector, which are scheduled to release first-quarter 2018 results around Apr 26.
PepsiCo (PEP - Free Report) is scheduled to report first-quarter 2018 numbers before the opening bell. Last quarter, the company delivered a positive earnings surprise of 0.77%. The company also surpassed expectations in each of the trailing four quarters, with the average being 4.05%.
The company’s CSD volumes declined 5% in 2017 in the North America Beverages (NAB) business. Notably, results of the NAB segment — comprising beverage businesses in the United States and Canada — remained soft in the last reported quarter. Results were negatively impacted by higher input costs, operating cost inflation and restructuring charges that substantially offset productivity gains. Moreover, the 53rd reporting week in the prior year and hurricane-related costs also added to the woes. Organic sales and beverage volumes were down 3% and 2%, respectively, in the quarter.
That said, the company is speeding up its innovation and investments in e-commerce, R&D and social/digital marketing/design to enhance its top line. PepsiCo has delivered organic revenue growth in the past four quarters, banking on significant innovation and revenue management strategies, along with better market execution. The company’s total organic revenue growth was modest at 2.3% last quarter, driven by 2% pricing on 2% volume growth in food/snacks, offset by a 2% volume decline in beverages. However, its total revenues remained unchanged from the year-ago level.
Apart from revenues, commodity inflation is expected to create pressure on PepsiCo’s gross margin in the to-be-reported quarter. That said, its productivity programs will likely support its core operating margin expansion to some extent.
Overall, the Zacks Consensus Estimate for first-quarter earnings of 92 cents implies a year-over-year decline of 2.1%. The same for revenues is pegged at $12.41 billion, 3% higher than the prior-year quarter figure.
Meanwhile, our proven model does not hint at an earnings beat for the company this quarter, as PepsiCo has an Earnings ESP of 0.00% and Zacks Rank #3 (Hold). However, we need to have a positive ESP to be confident of a positive earnings surprise.
You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
(Read More: Will Cost-Saving Plans Boost PepsiCo's Q1 Earnings?)
Coca-Cola European Partners plc (CCE - Free Report) , also known as CCEP, is a consumer packaged goods company, engaged in producing, distributing and marketing nonalcoholic ready-to-drink beverages. It is slated to report quarterly numbers before the opening bell.
Last quarter, the company’s earnings surpassed the consensus mark. It beat earnings estimates in three of the past four quarters, with an average positive surprise of 6.88%.
In 2017, CCEP has modestly exceeded its initial guidance for revenues, operating profit, earnings per share and most notably free cash flow. The company’s continued focus on brand and packaging innovation, solid revenue per unit case growth (up 200% year over year) in the sugar-free portfolio, strengthening execution and customer service, and further improving operating effectiveness will help in driving growth. We expect the growth momentum to continue in the to-be-reported quarter as well.
Meanwhile, for CCEP, our proven model does not have the right combination of the two key ingredients, which increases the odds of an earnings beat. Currently, the company has a Zacks Rank #3 and an Earnings ESP of 0.00%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Overall, for the first quarter, the Zacks Consensus Estimate for earnings is pegged at 39 cents, reflecting an 18.2% year-over-year increase. The consensus estimate for revenues is $3 billion, implying a 19.1% increase.(Read More: A Preview of Coca-Cola European Partners' Q1 Earnings)
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