PepsiCo, Inc. (PEP) shares rose nearly 5% after the company reported favorable second quarter financial results. Revenue rose 2.4% to $16.09 billion – beating consensus estimates by $50 million – while net income of $1.61 per share beat consensus estimates by nine cents per share. The company also reaffirmed its guidance for the full year, with in-line organic revenue growth and about $6 billion in free cash flow.
The company's core earnings were boosted by Frito-Lay North America's operating profit growth of 5%, which helped offset North America Beverage profits, which fell 16%. Analysts will likely weigh in on the stock later today or during tomorrow's session, but the highlights are that marketing spending is planned to boost soda sales despite cost inflation pressuring the company's operating margins. (See also: Frito-Lay Unit Sales Power PepsiCo's Profit, Revenue Beat.)
From a technical standpoint, the stock broke out from trendline support and the 200-day moving average at around $108.85 to R1 resistance and upper trendline resistance at around $113.00. The relative strength index (RSI) moved into overbought territory with a reading of 72.14, but the moving average convergence divergence (MACD) could be on the verge of a bearish crossover that could signal more downside ahead.
Traders should watch for a breakout from upper trendline resistance at around $113.00 toward R2 resistance at $115.98 on the upside or a breakdown from these levels to test trendline support at around $110.00. If the stock breaks down from these levels, traders could see a move down to the pivot point at $106.04 or S1 and 50-day moving average support at around $102.29, although that scenario seems less likely to occur. (For more, see: Goldman Sachs: Drink in These Beverage Stocks.)
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.