PepsiCo (NASDAQ:PEP) reports first quarter earnings Thursday. After a rough 2013, the first quarter report and conference call will set the tone for 2014. A better-than-expected report could revitalize interest in the company's stock, but poor results could indicate that sluggish growth will persist for some time. Moreover, a poor showing relative to Coca-Cola (NYSE:KO) would indicate that PepsiCo's beverage problems run deeper than the industry's struggles. Read on to find out what you should look for in Thursday's results.

Source: PepsiCo

Earnings expectations
In the short run, PepsiCo's stock price depends on whether or not the company meets analysts' expectations. Consensus estimates peg $0.75 earnings per share for the first quarter, down from $0.77 earnings per share in the same period last year. The expectation of lower earnings is due to the poor performance of the U.S. beverage business, which is under pressure from declining carbonated soft drink consumption. As a result, matching 2013's first quarter performance would be great news for the stock.

Foolish investors, however, are more concerned about the long run. The market's short-sighted reaction to an earnings miss could present a buying opportunity for long-term investors. However, even long-term investors should not completely ignore a bad quarter. If PepsiCo's quarterly results indicate a worsening trend, investors should not brush it aside. Find out which trends to watch in the next section.

Volume vs revenue
As PepsiCo's snack business hums along and its beverage business struggles, investors should pay close attention to the interaction between volume and revenue. In the beverage business, investors should rather see volume fall faster than revenue, which suggests that PepsiCo is not trying to boost revenue through discounting. Discounting may help in the short run, but PepsiCo's beverage business will become a lot less valuable if it can no longer charge a premium for its brands.

Concerns about PepsiCo's ability to maintain a healthy premium over smaller brands is especially valid in its U.S. soft drink offering. Carbonated soft drinks account for about 25% PepsiCo's U.S. revenue ("About 60% of Coke's revenue in the U.S. is derived from carbonated soft drinks, compared with about a quarter at PepsiCo."), or roughly 14% of total revenue. As the category continues its descent in the U.S., and as PepsiCo fends off calls to spin off its beverage unit, the company may be tempted to sacrifice long-term brand equity for the sake of appeasing Wall Street.

So far, however, the indications are that the company is maintaining a fair degree of price discipline. In 2013, organic volume for snacks increased 3% and for beverages increased 1%. Organic revenue across both units increased 4%.

However, PepsiCo Americas Beverages, or PAB, which includes U.S., Canadian, and Latin American beverage operations, volume declined 3% while revenue declined just 2%. If revenue were to decline faster than volume in the first quarter, investors should question whether management is acting in shareholders' long-term interest.

Predicting volume and revenue
Although the exact beverage volume is difficult to to estimate, investors can be sure that volume will decline in the first quarter. Nothing but bad news has come out for the beverage industry in the first few months of the year. One major reason to be concerned about volume is the extremely negative diet soda sales; Nielsen estimates that PepsiCo's diet soda dollar volume declined 9.6% in the four-week period ending March 15, while regular soda sales were up only 1.7%. The Nielsen estimate, combined with Coca-Cola's (NYSE:KO)results (released Tuesday morning), should provide a good range of PepsiCo's likely volume decline for the first quarter.

Another important, but less emphasized, factor is the snacks business. Led by Frito-Lay, the snacks business has been a reliable unit over the last several years. Its steady single-digit volume growth is almost taken for granted, as its 40% worldwide salty snacks market share gives it a huge advantage in the marketplace. Although there is no reason to believe the snacks unit will disappoint, investors should check to make sure it delivers mid-single-digit organic revenue growth.

Bottom line
U.S. soft drink consumption is being dragged down by plummeting diet soda sales. Once the pressure from diet soda alleviates, PepsiCo's beverage unit may resume higher volume growth. However, Nielsen data indicate that the turnaround is unlikely to happen this quarter. As a result, investors should be content with a low-single-digit PAB volume decline while keeping an eye on snack performance and hints that the company may expand its entry into the at-home channel.