Shares of PepsiCo, Inc. (PEP) reached a 52-week high of $97.83 on Nov 5. The food and beverage giant’s share price has been rising ever since it reported strong third-quarter results and increased the earnings outlook. Shares of the company have gained more than 3% since Oct 9 when the third-quarter results were reported.
Despite a difficult operating environment in the developed countries and nagging volatility in the emerging ones, the company has had a solid run so far this year delivering positive earnings and revenue surprises in the first three quarters of 2014.
Pepsi also raised the earnings guidance twice this year to reflect strong year-to-date performance and an optimistic outlook for the rest of the year. Shares of Pepsi have surged more than 20% year-to-date.
Third Quarter Results
Third-quarter core earnings per share of $1.36 increased 10% year over year driven by strong organic revenue gains and solid margins.
Organic revenues increased 3.1% as increased product pricing, strong global snacks performance and substantial sales gain in developing/emerging markets offset softer beverage volumes in the Americas and Europe.
Core operating margins grew 47 basis points (bps) as strong pricing, cost reductions and productivity gains offset higher operating costs.
Positive Outlook
Management increased its previously provided earnings outlook for 2014 but maintained the sales growth projection.
Pepsi expects core constant currency earnings per share to increase 9% year over year, up from 8% expected earlier. The target is in line with management’s long-term goal of high single-digit core constant currency earnings growth.
Organic revenues are expected to grow in the mid single-digit range, also in line with the long-term targets.
We believe that Pepsi would continue the strong momentum in the fourth quarter as well as the next year backed by the strong snacks business, robust international growth and aggressive cost savings.
Other Stocks to Consider
Pepsi carries a Zacks Rank #3 (Hold). Some better-ranked beverage companies include Monster Beverage Corp. (MNST), True Drinks Holdings, Inc. (TRUU) and Dr Pepper Snapple Group, Inc. (DPS). All these companies carry a Zacks Rank #2 (Buy).
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