We’re headed towards the latter end of earnings season, and it’s time to take a look at some of the sectors to get a better feel for how results matched expectations.
We’ll start in the soft drink category since, after all, who doesn’t enjoy a cold beverage? These three companies are the stalwarts in the industry so let’s have a quick look:
Coca-Cola Sales Falls Flat
Coca-Cola (NYSE:KO) started the week on a shaky foot after the soda giant reported mixed operating results for the fourth quarter. On the one hand, the company reported 3% worldwide volume growth compared with Q4 2011, with 4% growth in international markets and 1% growth in North America. So net income advanced 13% to $1.87 billion; adjusted earnings weighed in at $0.45 per share which beat the consensus estimate by 2%.
On the other hand, operating revenues climbed just 4% year-over-year to $11.46 billion. Analysts forecast sales of $11.54 billion so Coca-Cola posted a 1% sales miss. Coca-Cola also missed the consensus sales estimate for 2012: While analysts expected $48.14 billion in revenue, Coca-Cola’s revenue came in at $48.02 billion. Investors weren’t pleased with this news, so KO has dropped off about 5% since the earnings announcement. I have KO down at a cautious buy right now, but if this week’s pullback causes a big enough drop in institutional buying pressure, I could very well downgrade this stock to a hold over the weekend.
Dr Pepper Shoots For a Perfect TEN
Shares of Dr Pepper Snapple Group (NYSE:DPS) consolidated on Wednesday after the beverage maker issued a conservative guidance for 2013. Management is still optimistic about the company’s TEN platform, a new line of carbonated soft drinks with 10 calories per serving. So this year Dr Pepper plans to invest an additional $30 million into promoting and expanding the TEN platform. However, due to higher package and ingredient costs, the company expects earnings in the range of $3.04 to $3.12 per share. This is lower than the $3.20 Street view. Dr Pepper’s sales guidance (calling for 3% growth) was higher than analyst forecasts of 2.6% growth.
Otherwise, the fourth-quarter earnings announcement was largely positive. Thanks to volume growth in its Snapple and Canada Dry brands, net sales climbed 2% year-over-year to $1.48 billion, just missing the $1.49 billion consensus estimate. Meanwhile, net income also rose 2% to $170 million; adjusted earnings weighed in at 82 cents per share which missed the 85 cents per share consensus estimate by 4%. Dr Pepper Snapple also boosted its quarterly dividend by 12% to 35 cents per share. Shareholders of record on March 15 will receive the payment on April 5. This increases DPS’s annual yield to 3.5%, making it the highest dividend in the industry by a wide margin. I currently consider DPS a buy.
The Dark Cloud To PepsiCo’s Silver Lining
PepsiCo (NYSE:PEP) posted robust earnings growth before today’s open, but several markets seemingly lost their taste for Pepsi. Last quarter, the company saw beverage sales decline 4% year-over-year in the Americas and drop 13% in AMEA (Asia, Middle East and Africa). Meanwhile, beverage sales climbed 1% in Europe. These mixed results caused total net sales to edge down 1% to $19.95 billion. Even so, this modestly topped the $19.7 billion consensus estimate.
Meanwhile, net income advanced 17% to $1.66 billion. Adjusted earnings weighed in at $1.09 per share; because analysts forecast earnings of $1.05 per share, PepsiCo posted a 4% earnings surprise. What really drove PepsiCo’s bottom line in the fourth quarter were more favorable income tax rates. The company saw broad-based sales declines across its Frito-Lay and Quaker segments. So the latest earnings announcement shouldn’t do much to change my current recommendation for PEP: I have it down as a cautious buy due to its mixed fundamentals.