Here comes earnings.
On the Horn With PepsiCo's Chief financial Officer
A sense of sadness has come over me while analyzing the last two quarters of beverage and snacks giant PepsiCo (PEP) . The Action Alerts Plus holding has been a bedrock of consistency under CEO Indra Nooyi while the packaged goods industry has essentially been disrupted thanks to the price war between Amazon (AMZN) and Walmart (WMT) , and millennials preferring kale drinks as opposed to greasy potato chips or soda for midday pick-me-ups. But it just feels as if even mighty PepsiCo, after a stellar run of performance, is showing that it isn't immune to industry forces ripping through supermarkets that are also impacting the likes of Procter & Gamble (PG) , Kimberly-Clark (KMB) and others. While the company beat on its fourth quarter earnings by a penny, its adjusted earnings outlook of $5.70 a share for 2018 was shy of Wall Street estimates of $5.77. In the core beverage business, volume dropped 2% and operating profit excluding items fell 23%. Both of the division's metrics fell in the third quarter, too (though volumes improved sequentially). Frito-Lay showed it's still a supermarket powerhouse, notching volume and operating profit growth of 3% each. Overall, adjusted operating profits dropped in four out of six business segments. So is this an evolving PepsiCo? I asked PepsiCo's well-regarded Chief Financial Officer Hugh Johnston if the company got swept up into a more challenging industry landscape in late 2017: "I think the market has certainly gotten a bit more competitive for all of consumer products companies and obviously we aren't immune to those challenges whether they are in the retail space or food and beverage slowing down a bit in the second half of last year. That said, our business has broadly continued to execute well. The Frito-Lay business just delivered a terrific quarter. The North American beverage business showed sequential improvement as we expected it would as we shifted some of our resources behind some of the bigger brands like ad spending or shelf space allocation. I think we are controlling what we can control, we are making the right moves and as a result the overall PepsiCo portfolio is working well. We delivered a good quarter."
Hey bears, catch the license plate on that Tesla (TSLA) semi truck that has run you over the past two sessions? Channeling my inner millennial, "LOLz." But seriously for a second, the bulls have entered the week with two powerful arguments: Corporate earnings remain robust and companies are sitting on so much cash they would be crazy not to buy back stock here now that the quarterly blackout period has lifted. Since Trump's tax plan was passed on Dec. 22 and through to Feb. 8, Wall Street has hiked its S&P 500 profit estimates for 2018 by $10.62 to $156.88 a share, pointed out Yardeni Research. Wall Street's consensus estimate for 2019 has risen $11.60 to $172.67 a share over the same period. Even the S&P 500's projected revenue growth for 2018 has accelerated from 5.6% before the tax cut to 6.2% last week. "We believe that the melt-up in earnings estimates should limit the recent meltdown in the S&P 500's forward price-to-earnings, which dropped from a recent high of 18.6 on Jan. 26 to a low of 16.3 on Feb. 8," Yardeni Research said. "Actually, the rapidly rising outlook for earnings should revive valuation multiples, and may have started to do so late last Friday."
Keep an Eye on the Goldman Sachs Tech Conference
TheStreet's senior tech columnist Eric Jhonsa will be on the ground at the Goldman Sachs tech conference the next two days. I highly suggest following Jhonsa on Twitter for what is shaping up to be one heck of a conference. For me, the storylines are easy to spot. Given the stock's weakness of late, Apple (AAPL) Chief Financial Officer Luca Maestri would be wise to signal Apple's cash usage this year beyond building physical structures. As you know, Apple is a holding in Jim Cramer's Action Alerts Plus. Snap Inc. (SNAP) co-founder Evan Spiegel, making a rare appearance at a banking conference, would be wise to explain why his company is truly worth its latest post earnings valuation surge. Twitter (TWTR) founder Jack Dorsey should keep it low-key so as to not dent the uber-bullishness on Wall Street about the stock right now. GoPro (GPRO) founder Nick Woodman needs to more strongly signal his company is up for sale and that there has been interest. The stock has continued to plunge in the wake of weak fourth-quarter earnings (and despite Woodman's comments he is open to a sale). Overall, I'm wondering what big deal will come out of a room full of movers and shakers.
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