PepsiCo's Earnings: 3 Key Things to Watch

PepsiCo (NYSE: PEP  ) is a global food and beverage manufacturer, most commonly known for its namesake beverage, that competes with Coca-Cola (NYSE: KO  ) and Dr Pepper Snapple Group. The company is hoping that healthier products and its diversified business offerings will help it buck the slump in North American soda sales. 

PepsiCo's first-quarter 2014 earnings are on tap this Thursday. Here are three key things to watch.

Source: PepsiCo.

Plans for real-sugar Pepsi
My favorite part of actually listening in to an earnings call is that you can hear about business strategy beyond bottom-line numbers. PepsiCo recently announced it would be offering Pepsi made with real sugar, instead of high-fructose corn syrup, starting this summer, and I think the move has a chance to be a major win for the company. 

Coca-Cola has a dominant and expanding market share over Pepsi in carbonated beverages, and Dr Pepper Snapple relies on carbonated beverage sales for over 73% of its revenue. Meanwhile, PepsiCo suffered a 2% organic sales decline in its most recent quarter. 

Carbonated beverage sales in North America are in systematic decline, so this isn't a Hail Mary, and PesiCo doesn't need sodas to grow. My hope is that this is not a gimmick, that real sugar will stick, and that this helps soda sales stay flat so PepsiCo's other business units can shine. 

For this quarter, let's look to hear more about this rollout and what management's sales expectations for real-sugar Pepsi are. 

Source: PepsiCo.

Continued growth in food businesses 
Some investors are unaware that PepsiCo doesn't really rely on Pepsi that much these days. The various foods businesses (snacks and Quaker products) account for 61.1% of revenues at PepsiCo. Compare that to Coca-Cola, which has an entire business operation based on beverages (although it does have many healthier beverage offerings than its namesake soda now). 

So with another quarter approaching, it's possibly more important for the foods business to perform well than beverages. Last quarter PepsiCo's Frito-Lay unit showed organic revenue growth of 4%, Latin American Foods grew 13%, but Quaker declined 1.5% on a poor product mix. 

This quarter, we need to see a Quaker turnaround and continued growth for Frito-Lay. Quaker needs to do a better job of marketing its products to consumers, and it needs to manufacture better products that customers actually want. Look for management to advise on plans to energize that brand. 

Should PepsiCo split up?
Recently, investor Nelson Peltz of Trian Fund Management made a push for PepsiCo to spin off its food business from the beverage unit. Some investors feel a separated company would unlock value at both units, and allow Pepsi's beverage unit to operate more nimbly, possibly pulling off strategic partnerships to reinvigorate the brand (a la Coca-Cola and Keurig). 

PepsiCo has pushed back by stating that the soda business is profitable, as is the company overall, and that calls to split the company are overblown. Even Warren Buffett has added his two cents to the matter, saying that such splits are usually focused on short-term goals. 

Still, with health trends flying in opposition of the soda business, the calls for a PepsiCo split have never been louder. I'm looking forward to hearing what management has to say on the matter. 

Foolish conclusion: A call worth listening to
PepsiCo has a unique opportunity, because management has done everything it can to reposition the company toward a more health-conscious consumer. That said, the company's soda business is facing health headwinds regardless.

This quarterly call will be worth listening to, as we'll get to see how that transition is coming. Listen in for these three points; they will be the keys to PepsiCo's success. 

The greatest thing Warren Buffett ever said
Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2915772, ~/Articles/ArticleHandler.aspx, 9/4/2015 7:35:23 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Adem Tahiri

Like what you've read? Subscribe to this feed for even more--free. I'm addicted to learning everything there is to know about retail stocks, consumer and labor trends, and behavioral finance; join me here and on twitter: @adem_tahiri I still believe that great investments are born when a strong business meets a game changing trend. Blog:

Today's Market

updated Moments ago Sponsored by:
DOW 16,102.38 -272.38 -1.66%
S&P 500 1,921.22 -29.91 -1.53%
NASD 4,683.92 -49.58 -1.05%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/4/2015 4:00 PM
PEP $90.92 Down -1.21 -1.31%
PepsiCo CAPS Rating: *****
KO $38.52 Down -0.64 -1.63%
Coca-Cola CAPS Rating: ****