Pepsico Outperforms After Smart Investment and Marketing

Pepsico (NYSE:PEP) saw some shareholder love on Valentine’s Day following the release of its fourth-quarter and full-year 2012 earnings report. Shares climbed as much as 2 percent in morning trading after the soft-drink company beat expectations and provided solid 2013 guidance.

Fourth-quarter reported earnings grew 19 percent to $1.06 per share, or $1.09 excluding one-time items, above of expectations for $1.05. Organic revenue grew 5 percent, but net revenue for the period fell 1 percent to $19.95 billion, negatively impacted by a strong dollar.

Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Aug. 31, 2012 Dec. 31, 2012
Revenue ($) in millions 20,158 12,428 16,458 16,652 19,954
Diluted EPS ($) 0.89 0.71 0.94 1.21 1.06

Net revenues for the year fell 1.5 percent to $65.49 billion, while diluted earnings per share fell 3 percent to $3.92.

2008 2009 2010 2011 2012
Revenue ($) in millions 43,251 43,232 57,838 66,504 65,492
Diluted EPS ($) 3.21 3.77 3.92 4.03 3.92

PepsiThe results reflected the costs associated with an initiative outlined by CEO Indra Nooyi just over a year ago that was aimed at cutting costs, refining the company’s portfolio of brands, and investing in future growth opportunities. In Pepsi’s 2011 annual report, chairman and CEO Indra Nooyi pointed out that the global competitive and economic landscape was changing, and that 2012 would be a year of transition.

Overall, investors have been sympathetic to Pepsi’s re-investment initiatives, and largely forgiving of the minor contraction in net revenues. It’s worth reiterating that organic revenues grew 5 percent for the year, a feat that was complimented by several other operating and marketplace highlights.

Frito-Lay North America and Pepsico Americas Beverages both increased their market share in the U.S., quarter over quarter, thanks to “disciplined execution and significant investments in advertising and marketing.” Total advertising and marketing expenses increased by 50 basis points to 5.7 percent of net revenue, inline with the company’s long-term branding initiatives.

Meanwhile, Coca-Cola (NYSE:KO) fell pretty flat after its earnings report, which indicated that sales volume declined. While both companies have dropped lower on the stock chart over the past six-month period, Pepsi’s losses have been more modest because Coca-Cola is slightly more sensitive to the general decline in soft-drink sales than Pepsi is.

Also on the radar is a little company called SodaStream (NASDAQ:SODA), which has made waves because of how aggressively it is challenging Pepsi and Coca-Cola. The company makes at-home beverage carbonation systems, which many expect will negatively impact traditional soda sales. SodaStream will report earnings on February 20, and expectations are high.

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