PepsiCo (PEP) stock gained as much as 2.5% in early Thursday trading after reporting fiscal second-quarter earnings per share and revenue that exceeded expectations.
The PEP stock price has been doing pretty well recently. Even though Thursday’s early gains mostly flattened out, shares still are up about 7% in the past year to beat the S&P 500 by more than 2 percentage points.
Once you include PEP stock’s generous dividend (currently at 3%), Pepsi shares have provided a total return of 9% over that time.
Although PepsiCo and its main rival, Coca-Cola (KO), are battling the falling popularity of soda as consumers become more health-conscious, PEP earnings show that its snacks are picking up the slack.
I don’t have any illusions about PEP stock. It’s a sleepy dividend stock that has been increasing its dividend payment annually for more than four decades now. In other words, it’s not going to double anytime soon.
But as a stable blue-chip stock paying a reliable dividend, income investors could do worse than buy PEP stock.
PepsiCo’s Q2 by the Numbers
While soda’s declining popularity is indeed a cause of concern for PEP stock, there’s at least one encouraging trend Pepsi investors can find solace in: Last quarter continued a double-digit streak of consecutive Pepsi earnings beats.
Not too shabby.
In the three months ended June 13, PepsiCo’s earnings came in at an adjusted $1.32 per share, easily topping the $1.24 consensus EPS. And although revenue was down 5.7% to $15.9 billion, that figure still bested Wall Street’s $15.8 billion top-line estimate.
I admit, it doesn’t sound like PEP put together an all-around good quarter due to the falling revenue figures. However, revenue fell entirely because of currency headwinds that came as a result of a surging dollar. Organic revenue grew 5.1% in the period, but all of that and then some was erased by foreign exchange translation, which had a 10-percentage-point drag on net revenue.
It’s hard to blame Pepsi for a strong greenback.
PepsiCo Americas Beverages and Frito-Lay North America — PEP’s two largest divisions by revenue and GAAP operating profit — were able to increase revenues by 1% and 2%, respectively, by raising prices and introducing new products.
If and when the dollar begins to lose some power against overseas currencies, PEP stock should be in for a real treat. But irrespective of how the greenback fares over the next year, investors should also benefit from what management hopes will be $1 billion in productivity savings and $8.5 billion to $9 billion in cash returned to shareholders.
Bottom Line
There’s a reason (actually, there are several) that PEP stock recently earned a spot with nine other elite names in The Ultimate Set-It-and-Forget-It Portfolio.
An exceedingly forward-looking strategy, product diversification and a solid dividend yield all argue for continued faith in PepsiCo.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
