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Is PepsiCo (PEP) Likely to Deliver an Earnings Beat in Q4?

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Zacks Equity Research
·4 min read
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PepsiCo, Inc. PEP is expected to register top-line growth when it reports fourth-quarter 2020 numbers on Feb 11, before the opening bell. The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $21.99 billion, implying 6.6% growth from the year-ago quarter's reported figure.

For quarterly earnings, the Zacks Consensus Estimate is pegged at $1.45, same as the prior-year quarter’s reported figure. Notably, the consensus mark has been unchanged in the past 30 days.

In the last reported quarter, the company’s bottom line beat the Zacks Consensus Estimate by 12.2%. Moreover, it delivered an earnings surprise of 6%, on average, in the trailing four quarters.

PepsiCo, Inc. Price and EPS Surprise

PepsiCo, Inc. Price and EPS Surprise
PepsiCo, Inc. Price and EPS Surprise

PepsiCo, Inc. price-eps-surprise | PepsiCo, Inc. Quote

Key Factors to Note

PepsiCo has been displaying strength amid the coronavirus pandemic, backed by resilience and strength in the global snacks and foods business along with gains in the beverage category. It has been benefiting from its strong portfolio of brands, a responsive supply chain and flexible go-to-market systems, which have helped maintain continued supplies. Further, robust pricing and volume gains have been aiding its performance.

The resilience in the snacks/food business has worked well for the company amid the coronavirus pandemic. The stay-at-home trend resulted in evolved consumer eating habits, giving rise to at-home breakfast, snacking and dinner occasions. This has been aiding the company’s Frito-Lay and Quaker food businesses as it has capitalized and improved household penetration. The impacts of the continuation of the trend are likely to get reflected in the robust sales of the company’s QFNA and FLNA segments.

The coronavirus pandemic has also led to an increase in at-home consumption of beverages, which has led to a splurge in the at-home channel sales. Higher at-home beverage and coffee demand is likely to have compensated for the sluggishness in the away-from-home channel due to the pandemic. Notably, PepsiCo has been witnessing strong growth in energy drinks and ready-to-drink coffee products. Further, the company has been benefiting from consumers’ shift to making online purchases amid the pandemic through strength in the online channel.

However, PepsiCo’s beverage business has been hurt by a decline in the convenience and gas, and away-from-home channels. The soft trends in the away-from-home channels are likely to have continued in the fourth quarter. Moreover, the company has been witnessing soft margins due to incremental COVID-related costs, which are expected to have persisted in the fourth quarter.

Zacks Model

Our proven model conclusively predicts an earnings beat for PepsiCo this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

PepsiCo has a Zacks Rank #3 and an Earnings ESP of +0.59%.

Other Stocks to Consider

Here are some other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat:

Monster Beverage Corporation MNST presently has an Earnings ESP of +21.81% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Molson Coors Beverage Company TAP currently has an Earnings ESP of +3.28% and a Zacks Rank #3.

Tyson Foods, Inc. TSN has an Earnings ESP of +0.16% and a Zacks Rank #3 at present.

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