PepsiCo Third Quarter Earnings Preview

By Investopedia Staff | October 12, 2012 AAA

Analysts are expecting a drop in profit for PepsiCo (NYSE:PEP) when it reports its results for the third quarter on Wednesday, October 17, 2012. The company reported profit of $1.31 a year ago, but the current consensus estimate anticipates earnings per share of $1.16.

In most situations, when earnings do not meet analyst estimates, a business' stock price will tend to drop. On the other hand, when actual earnings beat estimates by a significant amount, the share price will likely surge. SEE: Earnings: Quality Means Everything

What to Expect: PepsiCo is expected to report earnings of $1.16 per share, down 11.5% from a year ago, when the company reported earnings of $1.31 per share.

The consensus estimate hasn't changed in the last month, but it has dropped from $1.20 three months ago. For the fiscal year, analysts are projecting earnings of $4.07 per share.

PepsiCo's expected revenue of $16.92 billion for the quarter is below last year's reported figure of $17.58 billion by 3.8%. The anticipated revenue for the fiscal year is $65.68 billion.

Company Performance: In the second quarter, PepsiCo broke a three-quarter growth streak with a year-over-year decline in revenue. After rising 4.1%in the first quarter, 11% in the fourth quarter of the last fiscal year and 13.3% in the third quarter of the last fiscal year, it fell 2.2% in the most recent quarter.

PEP's P/E ratio of 18.5 is under the industry average of 22.35. A low P/E ratio may indicate that the market expects relatively slower earnings growth. There are generally two price/earnings ratios calculated: the first, called the trailing Price/Earnings ratio, is calculated using the previous years actual earnings; the second, called forward Price/Earnings ratio, is calculated using the next year's estimated earnings. High P/E stocks could be "growth" stocks, while low PE stocks may be "value" stocks. SEE: How To Use The P/E Ratio And PEG To Tell The Future Of A Stock

Over the past quarter, the stock price has fallen slightly to $69.82, from $70.35 on July 16, 2012. PepsiCo's worst recent stretch was when its stock price fell $2 per share between August 16, 2012 and September 11, 2012.

The Competition: PepsiCo is a global company that manufactures a variety of salty, convenient, sweet and grain-based snacks, carbonated and non-carbonated beverages, and foods. The company's closest competitor in the beverages (nonalcoholic) industry, Coca-Cola (KO), will report earnings on October 16, 2012. Analysts are expecting earnings of 50 cents per share for Coca-Cola, down 2% from last year's earnings of 51 cents per share. Analysts are less optimistic about PepsiCo than about Coca-Cola. Twelve out of 16 analysts rate the latter a buy compared to 11 of 15 for the former.

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