Q1 Preview: Ho-Hum Quarter Expected from Pepsi (PEP); Margins in Focus Amid Increasing Global Competition

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Shares of Pepsi (NYSE: PEP) underperformed the stock market on Wednesday ahead of the company's first-quarter earnings report, due out on Thursday before the market opens. The stock closed up 0.26 percent to $66.68, rather sharply below the 1.4 percent gain in the S&P 500 and 0.7 percent gain in the Dow.

Analysts are looking for Pepsi to report a decline of about 6 percent in quarterly earnings to 67 cents per share on revenue of $12.36 billion. Pepsi posted sales of $11.94 billion in the same quarter last year.

Data from StreetInsider.com's Earnings History page shows Pepsi has beaten Wall Street's quarterly estimates by about 1 percent over the last four quarters.

Bloomberg data shows 12 analysts with a Buy rating on Pepsi shares ahead of the results, eight with a Hold rating, and one recommending investors sell the stock. Analyst's average price target currently sits at about $68.50.

Analyst Commentary:

• JPMorgan - Sees EPS of 64 cents. Called the first quarter "the toughest quarter of the year from a gross margin standpoint," down about 140 basis points from the same quarter last year. JPMorgan sees sales driven largely by double-digit international growth.
  
  Maintains an Overweight rating into the print.
  
  
• Wells Fargo - Sees EPS of 65 cents. Warned not to expect upside in the quarter. Goldman said, "This is PEP's first print following the official 'Reset' meeting, so managing investor expectations is key. We think a meaningful beat is unlikely and expect a cautiously optimistic tone."
  
  Maintains Market Perform rating.
  
  
• Deutsche Bank - Modeling for EPS of 67 cents. Sees 1.2 points of core volume growth, and gross margin down 2.7 points "as input costs are only partially offset by pricing, while operating margin should be down 1.3 points on lower SG&A ratio despite stepped up brand reinvestment."
  
  On the broader Beverage sector, the firm voiced concerned about a US macro recovery, saying "we certainly aren't seeing it in our consumer staples coverage universe and there are signs of further slowdown in Europe, with competition intensifying in developing markets."
  
  Maintains a Buy.

Stay tuned to our Earnings category to get the Pepsi results within seconds of the release. The company generally reports right at 7am ET.

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