PepsiCo and Coca-Cola Earnings Open a Can of Worms

Both PepsiCo Inc (NYSE:PEP) and Coca-Cola Enterprises beat Wall Street’s earnings estimates in the first quarter as product price increases more than offset rising commodity costs.

Both beverage makers were able to institute higher pricing without any significant consumer backlash, effectively building in higher margins for themselves that could grow still further should commodity costs, which originally necessitated the price hikes, decline.

PepsiCo reported net earnings of $1.13 billion (71 cents a share), compared to $1.14 billion (71 cents a share) in the previous year. Earnings were 69 cents a share, excluding items, better than the 67 cents expected by analysts. Revenues climbed 4 percent to $12.43 billion mostly on account of price growth, while currency variations reduced revenue growth by one percent.

PepsiCo reconfirmed that 2012 earnings could drop 5 percent from the $4.40 a share it earned in 2011, and further, that revenue growth could be expected only in the low single digits for 2012.

The company is in the throes of major restructuring of its operations involving job cuts and a revamp of its marketing and product portfolio, as its brand-leading soda, Pepsi-Cola, dropped to No. 3 in the cola rankings behind Coca-Cola and Diet Coke. “As the year progresses, quarter by quarter, you’ll start seeing the business strengthen,” PepsiCo Chief Executive Indra Nooyi said on a conference call on Thursday.

Coca-Cola Enterprises, Coca-Cola Co.’s (NYSE:KO) European bottling arm, reported earnings per share of 36 cents during its first quarter, beating analysts’ estimates of 33 cents. It reconfirmed its 2012 outlook of growing earnings per share by 10 percent.