We began to buy PepsiCo (NYSE: PEP) nearly an entire year ago already. We studied Pepsi for several months last year as it rose from the mid-$30s, and we finally purchased our first shares last July 28 at $45. In the year since, the stock has traded between about $40 and $47, and today it sits at $45 -- just below our average cost per share.
On last July 12 -- which was the day we announced we'd buy it -- Pepsi was at $39.75, so it has gained 13.2% in the last year, not including dividends, while the S&P 500 has lost 20.8% and the Nasdaq... well, that's just too ugly to even quote.
So, Pepsi has rocked.
We've purchased $590 worth of Pepsi so far. As we began to purchase it, we stated -- since the price had recently risen 25% -- that the stock wasn't inexpensive and so we'd take our time buying it and hope for lower prices. The stock hasn't dipped frequently over the last year, though, and meanwhile we've bought a decent but cautious amount.
Aside from achieving earnings growth of about 15%, the largest news the past 12 months has been Pepsi's plan to purchase Quaker Oats (NYSE: OAT), announced in late 2000. With Quaker, Pepsi acquires the leading sports drink, Gatorade. We wrote about the value of Gatorade last year.
The $14 billion purchase of Quaker has been slowed by concerns of the Federal Trade Commission and Pepsi's need to sell its All Sport brand. Pepsi plans to sell All Sport to a small company, Monarch, for an undisclosed sum this summer or fall.
Pepsi will announce quarterly results next Thursday, on July 19. The company is expected to post $0.43 in earnings per share, up 13%. At $45, the stock trades at 27 times this year's earnings estimate of $1.65 per share, but at only 23 times free cash flow estimates.
We sent some money to Pepsi last month, and we will again soon as we steadily build our position. We keep hoping for prices at least in the low-$40s, but we keep getting shares in the mid-$40s. Over the next 15 years, this small price difference will add up to something, but probably not enough to cry over. Sometimes we'll cry for the heck of it, though. Wah.
In a nutshell, Pepsi is so far performing very well in this economy. Pepsi isn't nearly as exposed to international risks (weak foreign currencies) as is Coca-Cola (NYSE: KO), and Pepsi's domestic Frito-Lay division is strong. Even in a slower economy, people buy value bags of chips and Fritos.
The Triple Crown next week
Next Tuesday, July 17, as has happened every quarter, Johnson & Johnson (NYSE: JNJ), Intel (Nasdaq: INTC), and Mellon Financial (NYSE: MEL) all report results. We didn't plan it this way as we built Drip Port, company by company, but there we have it. All three, so far, always announce results the same day.
J&J and Mellon announce in the morning before the market opens, and Intel announces after the market closes. Let's get an overview of what's expected.
J&J
Rock-solid and just below its all-time high at $53, the jolly J&J giant is expected to report earnings per share of $0.53, up 12% from last year, on revenue of $8 billion. Pharmaceuticals, as always, will lead profits higher, but the other divisions -- consumer and professional -- are no slouches. In professional products, the stent business is on a rapid, impressive upswing after a late 1990s fallout.
At $53, J&J trades at 27.6 times this year's earnings estimate of $1.92 per share. Its free-cash-flow multiple is comparable.
Intel
Ah, Intel. It has a volatile, cyclical lifestyle. As the Rule Maker wrote this week, Intel's business had a downswing around 1997, as we began to buy it, and it hit another wall this year. In January, Intel stated business would improve by the second half of 2001. Next Tuesday, management will update its thoughts. Judging from the performance of PC companies, I won't be surprised by a more cautionary tone.
Intel is expected to announce earnings of $0.10 per share on Tuesday afternoon, down 80% from last year, on revenue of $6.3 billion, down from $8.3 billion in the same quarter of 2000. At $28, the stock is at a high forward P/E multiple (about 53) to this full year's earnings guess of $0.53 per share. But a turnaround in the business would contract that multiple swiftly. We're buying more Intel in modest amounts at these prices.
Mellon
Our financial services and money management company has held up well in light of a horrible investing environment, although of late its earnings per share have dipped from the 12% growth range to 10%. On Tuesday, it is expected to announce earnings of $0.55 per share, up 10%. This $43 stock trades at 19 times this year's estimate of $2.24 in earnings and yields 2.2%.
And there you have it. Next week we'll see results from all four of these companies, three of which are old giants with superior track records, and one that soared in the 1990s and is striving to be a consistent grower in a cyclical industry. Good luck to all of them. For the sake of employees, we'd hate to see any more layoffs or bad news. I don't believe we will with three, but the fourth, Intel, is somewhat of a wild card.
See you next week after the results.
The Motley Fool has a full disclosure policy. Jeff Fischer owns the stocks in the Drip Port. Although he enjoys looking at their quarterly reports and gleaning information, he isn't very concerned about them unless something looks really wrong.
