Fizzy or Flat? KO, DPS and PEP Report Earnings

Coca-Cola Sales Falls Flat

Coca-Cola Inc. (KO) started the week on a shaky foot after the soda giant reported mixed operating results for the fourth quarter. On the one hand, the company reported 3% worldwide volume growth compared with Q4 2011, with 4% growth in international markets and 1% growth in North America. So net income advanced 13% to $1.87 billion; adjusted earnings weighed in at $0.45 per share which beat the consensus estimate by 2%.

On the other hand, operating revenues climbed just 4% year-over-year to $11.46 billion. Analysts forecast sales of $11.54 billion so Coca-Cola posted a 1% sales miss. Coca-Cola also missed the consensus sales estimate for 2012: While analysts expected $48.14 billion in revenue, Coca-Cola’s revenue came in at $48.02 billion. Investors weren’t pleased with this news, so KO has dropped off about 5% since the earnings announcement. I have KO down at a cautious buy right now, but if this week’s pullback causes a big enough drop in institutional buying pressure, I could very well downgrade this stock to a hold over the weekend.

Dr Pepper Shoots For a Perfect TEN

Shares of Dr Pepper Snapple Group (DPS) consolidated on Wednesday after the beverage maker issued a conservative guidance for 2013. Management is still optimistic about the company’s TEN platform, a new line of carbonated soft drinks with 10 calories per serving. So this year Dr Pepper plans to invest an additional $30 million into promoting and expanding the TEN platform. However, due to higher package and ingredient costs, the company expects earnings in the range of $3.04 to $3.12 per share. This is lower than the $3.20 Street view. Dr Pepper’s sales guidance (calling for 3% growth) was higher than analyst forecasts of 2.6% growth.

Otherwise, the fourth-quarter earnings announcement was largely positive. Thanks to volume growth in its Snapple and Canada Dry brands, net sales climbed 2% year-over-year to $1.48 billion, just missing the $1.49 billion consensus estimate. Meanwhile, net income also rose 2% to $170 million; adjusted earnings weighed in at $0.82 per share which missed the $0.85 consensus estimate by 4%. Dr Pepper Snapple also boosted its quarterly dividend by 12% to $0.38 per share. Shareholders of record on March 15 will receive the payment on April 5. This increases DPS’s annual yield to 3.5%, making it the highest dividend in the industry by a wide margin. I currently consider DPS a buy.

The Dark Cloud To PepsiCo’s Silver Lining

PepsiCo Inc. (PEP) posted robust earnings growth before today’s open, but several markets seemingly lost their taste for Pepsi. Last quarter, the company saw beverage sales decline 4% year-over-year in the Americas and drop 13% in AMEA (Asia, Middle East and Africa). Meanwhile, beverage sales climbed 1% in Europe. These mixed results caused total net sales to edge down 1% to $19.95 billion. Even so, this modestly topped the $19.7 billion consensus estimate.

Meanwhile, net income advanced 17% to $1.66 billion. Adjusted earnings weighed in at $1.09 per share; because analysts forecast earnings of $1.05 per share, PepsiCo posted a 4% earnings surprise. What really drove PepsiCo’s bottom line in the fourth quarter were more favorable income tax rates. The company saw broad-based sales declines across its Frito-Lay and Quaker segments. So the latest earnings announcement shouldn’t do much to change my current recommendation for PEP: I have it down as a cautious buy due to its mixed fundamentals.

If you have been keeping track of this week’s economic reports and are looking for further analysis of the latest economic trends, be sure to check the blog tomorrow. This week we’ve already received updates on U.S. retail sales, business inventories and jobless claims and I’ll have my full briefing ready tomorrow morning.


Louis Navellier

Louis Navellier

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