Stock of the day 07/07/2015 – PepsiCo Inc

It’s been a flat, rather than fizzy, 2015 for PepsiCo; the soft drinks company releases its Q2 2015 earnings release before the bell on Thursday.

2014 was a blockbuster year for PepsiCo; it repeatedly broke its own personal best as the months progressed, and after starting the year at $82.94, and hitting an all-time high of $100.71 at the start of December, the stock entered 2015 at $94.89. Like most stocks, PepsiCo had a brief wobble at the end of the first week of January, and its tumultuousness continued through the first month and a half of the New Year. Things were looking up for the company as February progressed, and a stellar fourth quarter report, with better than expected results in both EPS, at $1.12 against $1.08 forecast, and revenue, at $19.95 billion against $19.78 billion forecast, lifted the stock to a fresh intraday high of $100.75.


(Source: IT-Finance.com 07/07/2015)

This peak then saw a March tumble for PepsiCo, and since then things have been rather limp; the stock has spent the rest of the year ping-ponging between $94 and $96, with only brief forays outside this bracket. Just as it was toying with escaping this bracket at the end of April, the company disappointed with its first quarter 2015 results; despite organic revenue growth of 4.4%, the stronger dollar dragged PepsiCo’s net revenue down by 3% to $12.22 billion, putting a dampener on the report and leading the company back to its $94 baseline. Similar peaks and troughs occurred across May and June, and PepsiCo sits at a current trading price of $94.40 (It-Finance.com, 07/07/2015), well within its 2015 comfort zone.

All-in-all, PepsiCo has performed remarkably well in a challenging sector; Coca-Cola has seen a fairly sustained decline across 2015 compared to its rival’s record-breaking form in February, whilst after a similarly strong 2014 Dr Pepper Snapple Group has incurred a mild slide in the first 6 months of the year. Part of the reason PepsiCo has been able to remain close to its highs is the strength of its snack division; Doritos, Cheetos and Walkers, among others, are as popular as ever, and are (more than) helping to carry the slack of the struggling soda sales.

In order to battle the growing health-awareness in the US, something that is having a big impact on the soft-drink market, the company is launching a selection of original, and craft, flavours under the new ‘Stubborn Soda’ banner. It is an attempt to replicate the success of the craft beer craze, something that has become the dominant trend in the alcohol sector for the past couple of years. The most important part of this product, however, lies not in its crazy flavour combinations, but in the fact that PepsiCo is using cane sugar instead of the much-maligned high fructose corn syrup.

In terms of its second quarter results, analysts are forecasting earnings per share of $1.24 compared to $1.32 at this point last year, alongside $15.8 billion in revenue against $16.89 billion year-on-year. Whilst the current dollar headwinds will have played their part in this decline, the bigger issue remains the changing face of the soda industry, and the sales declines the entire sector has to deal with (in fact, soft-drink consumption per capita is at a near 20 year low). But with its stellar snack table, PepsiCo still has a consensus rating of ‘buy’ with an average target price of $106.60.

Tuesday’s stock news:

It was a disappointing first quarter report for Marks & Spencer; after investors were overjoyed with its marginal grow in its full year results earlier in the year, with the British institution once again relying on its food division for good news. A 0.4% decline in general merchandising may have been better than the 1% slide expected, but still continues the disappointing trend M&S has seen in its clothing sector. Normally the company’s white knight, like-for-like food sales could only grow 0.3%, leaving Marks & Spencer with a limp release and a 1% drop on the markets.