Everything PepsiCo Is Doing Right

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PepsiCo  (PEP) - Get Report shares rose after beat earnings estimates for the first quarter and delivering a clear message for the future: the negative impact of coronavirus won’t be so bad. 

The stock rose 1% to $135.90 a share Tuesday. 

Pepsi posted revenue of $13.8 billion, 7% higher than last year’s first quarter result and better than analysts' expected $13.2 billion. Earnings per share came in at $1.07 on an adjusted basis, beating estimates of $1.03. 

The company said a pop in demand for essential food items drove the revenue results, an outcome consumer staples retailers and product makers are seeing for the first quarter, even though the quarter also encapsulates normal life in January and February. 

Most companies are issuing no guidance and no commentary on what the parameters are for earnings results for the rest of 2020. That uncertainty caused a broad market selloff in March. But investors are now optimistic that lockdowns will ease as the spread of Coronavirus decelerates, allowing the market to forgive companies’ lack of visibility and look past the recession. 

While Pepsi didn’t issue full year guidance, it explicitly said the second quarter will see a low single digit percentage sales decline, which will hurt the operating margin, as immediate consumption, which includes many physical retail locations, all decline year-over-year as lockdowns are still prevalent. 

That’s a minimal decline, although the stock wasn’t pricing in an ugly 2020, only down 1% for the year into earnings. 

Also, Pepsi is focusing on packaging products and working with sellers in ways that are conducive to online selling, which Coca-Cola is also doing. That move will at least have a positive impact on revenue for the year. 

Pepsi also said it is maintaining its full $7.5 billion shareholder cash distribution program, which includes $2 billion of dividends. The company has a strong balance sheet with minimal debt and is indicating to investors it can easily weather the storm posed by the pandemic. 

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