What to Watch for When Pepsi Reports Second Quarter Earnings Tomorrow

Food and beverage giant PepsiCo (NYSE: PEP  )  has slated its second-quarter financial report for Wednesday, July 23 at 7:00 AM EST. At 8:30 AM, the company is scheduled to begin its conference call.

Image Source: PepsiCo

With anticipation mounting, here are some key things to watch for.

What Wall Street will be watching
For the quarter, the 18 analysts who follow the company expect Pepsi to earn $1.23 per share and generate $16.79 billion in revenue. Here are some quick facts on what Wall Street is expecting and how these expectations compare with last year's second-quarter performance.

Pepsi's Q2 Quick Facts

Analyst EPS Estimate

$1.23

Year-Ago EPS

$1.31

Projected EPS Growth

-6.11%

Earnings Beats in Past 4 Quarters

4

Analyst Revenue Estimate

$16.79 B

Year-Ago Revenue

$16.81 B

Projected Revenue Growth

-0.10%

Data Source: Yahoo! Finance

Over the past 11 straight quarters Pepsi has beat the average analyst EPS estimate by an average of 5%. There is no clear-cut reason as to why analysts have consistently low-balled Pepsi, but there has been no indication that such a tendency will soon stop. Thus, if Pepsi holds with tradition and beats the estimate by the average of 5%, its EPS will come in at $1.29, only two cents below last year's figure.

While such a beat is likely, don't expect Pepsi's stock to soar on the news. Back in April, when Pepsi beat the average EPS estimate by more than 10%, its shares rose less than 1% in response.

What this Fool will be watching
Beyond these headline numbers an investor can get much more valuable information out of an earnings report, much of which can serve as tremendous indicators as to how the overall business is faring. Here are three key things I will be watching.

1. US Carbonated Soft Drink Sales: It's not exactly a secret that the US soda industry is declining. 2013 marked the ninth straight year in which US soda consumption fell. Still, Pepsi has been able to weather the effects of this decline by maintaining the market share of its core Pepsi brand and continually innovating with its Mountain Dew brand. In the first quarter, North American carbonated soft drink volume only declined 1% for the company. It will be interesting to see to what extent the volume numbers continue to worsen.

2. Latin America Foods and Asia, Middle East & Africa Segments: Pepsi's core growth segments, Latin America Foods and Asia, Middle East & Africa, have long been jockeying for the position of the company's fastest-growing segment. In the first quarter, LAF organically (adjusts for the impact of acquisitions and foreign exchange translation) grew revenue an astounding 9%, while AMEA achieved 6% growth. It will be key for these two segments to continue to grow at an accelerated pace.

3. Russian Operations: Believe it or not, Russia is one of Pepsi's fastest growing countries, with 10% revenue growth achieved in the first quarter. The developing situation around Malaysia Airlines Flight 17 is obviously not going to stop Russians from drinking and consuming Pepsi products, but on a currency-exchange basis the situation does pose a threat to one of Pepsi's key growth markets. Management will almost certainly comment on developments in Russia during the conference call.

And so the countdown begins
On Wednesday investors from all over will tune in to see how Pepsi performed in the second quarter. As has regularly happened in the past, Pepsi is likely to mildly beat expectations, yet expect a muted market response. 

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