3 beverage stocks to watch ahead of earnings

Investors need to be aware of the downward trend for sales of carbonated beverages.

By Benzinga Jul 21, 2014 3:00PM

Cans of Pepsi and Coke on display
© Mark Lennihan/APBy Nelson Hem


The earnings crunch is well underway, and leading soft drink producers Coca-Cola (KO), Dr. Pepper Snapple (DPS) and PepsiCo (PEP) will be taking the earnings stage this week.


Investors have to be aware of the downward trend for sales of carbonated soft-drink beverages -- last year soda consumption fell for the ninth consecutive year. 


Both Coke and Pepsi continue to build their portfolios of alternative beverage brands, but Pepsi also has its snack foods business. It has so far resisted the urging of activist investor Nelson Peltz to unlock value by breaking up the company.


Coca-Cola

Analysts on average predict that this Atlanta-based company will report Tuesday before the opening bell that its revenue for the second quarter rose fractionally year-over-year to $12.83 billion. Earnings are expected to be flat as well, coming in at $0.63 per share, the same as in the year-ago period.



Analysts seem pretty sure, as the consensus earnings per share (EPS) estimate has remained unchanged in the past 60 days, and the estimates only range from $0.62 to $0.66. Coca-Cola has not fallen short of analysts' EPS expectations in at least four quarters.


During the three months that ended in June, Coca-Cola appointed a new CFO and launched its "Share a Coke" initiative. It has a market cap of more than $186 billion and a dividend yield near 2.9 percent. The price-to-earnings (P/E) ratio is less than the industry average and the return on equity is about 26 percent.


The share price is up about four percent in the past 90 days, as well as year to date. Shares, however, are trading near the 52-week high. The stock has underperformed competitors Dr. Pepper Snapple and PepsiCo over the past six months, but it has narrowly outperformed the S&P 500.


Dr. Pepper Snapple

Per-share earnings from this producer of 7-Up, Hawaiian Punch, Crush and other brands are expected to have grown more than six percent year-over-year to $0.90. Second-quarter revenue will total $1.6 billion, if analysts are correct. That would be only a fractional gain from a year ago.


However, analysts underestimated EPS in the past three quarters. The beat in the first quarter was by $0.15 per share, or more than 25 percent. Yet their consensus EPS estimate has not changed in the past two months. Revenue is also projected to be largely flat in the current quarter and for the full year.


During its second quarter, Dr. Pepper Snapple declared a dividend and appointed a new investor relations chief. The company has a market cap of less than $12 billion and a dividend yield near 2.7 percent. The P/E ratio is less than the industry average, and the return on equity is more than 29 percent.


The share price is up about 13 percent in the past 90 days, after reaching a new multiyear high in June and pulling back since. Over the past six months, the stock has outperformed not only the broader markets but the other stocks featured here as well.


PepsiCo

Per-share earnings of $1.23 and revenue of $16.79 billion are anticipated from this beverage and snack food giant when it shares its second-quarter results before the markets open Thursday. That would be down from $1.31 per share and $16.81 billion in sales in the same period of last year.


Here too, the consensus EPS is the same as it was 60 days ago, and individual estimates range from $1.20 to $1.26. In two of the past four quarters, EPS topped analysts' expectations by more than 10 percent. They have not fallen short in at least four quarters.


During the three months that ended in June, PepsiCo increased its annual dividend by 15 percent. It has a market cap of more than $136 billion and a dividend yield near 2.9 percent. Its operating margin is greater than the industry average, and the return on 

equity is around 30 percent.


The share price is more than five percent higher than three months ago, even after retreating marginally from a multiyear high early last week. The stock has outperformed the broader markets over the past six months, but it has underperformed Dr Pepper Snapple.


At the time of this writing, the author had no position in the mentioned equities.


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