PepsiCo Sees Strong Earnings Growth in 2010

The global economic recovery will gain steam in 2010, if PepsiCo's Q4 earnings report and 2010 outlook are any indicators. PepsiCo (PEP) earned 90 cents per share in Q4, and also said it expects 2010 earning per share to increase 11% to 13%.The Thomson/Reuters First Call Q4 EPS estimate was 91 cents. PepsiCo earned 46 cents per share a year ago, in Q4 2008.

PepsiCo also said it expects to resume repurchasing its shares after the close of its bottling transactions, and said its share repurchases would total about $5 billion in 2010, including a voluntary $600 million pension plan contribution.

PepsiCo said it's on-track to acquire its two anchor bottlers, Pepsi Bottling Group (PBG) and PepsiAmericas, Inc. (PAS), subject to regulatory and stockholder approval. PBG and PAS shareholders will vote on February 17, 2010 on whether to approve the acquisitions, and the company hopes the transactions will close by the end of February 2010. Pepsi sees about $400 million in synergies and expense reductions stemming from the bottler acquisitions, with one-time costs of about the same amount.

PepsiCo said Q4 revenue rose 4.5% to $13.3 billion, compared to the Thomson Reuters/First Call consensus estimate of $13.3 billion. Pepsi's 2009 EPS and revenue totaled $3.77 and $43.2 billion, compared to the Thomson Reuters/First Call consensus estimates of $3.71 and $43.3 billion, respectively.

PepsiCo also said it expects earnings per share to increase 11% to 13% from 2009's $3.77 earnings total. The company earned $3.21 per share in 2008.

In 2009, PepsiCo said its Latin American Foods unit posted a 10% increase in revenue and a 13% increase in earnings, despite what the company termed "very challenging" macroeconomic conditions in Mexico. Full-year Europe revenue and earnings increased 2% and 8%, respectively, after subtracting revenue/earnings from acquisitions.

Also for the year, PepsiCo said its Frito-Lay North America unit revenue increased 6%, and its PepsiCo International unit posted double-digit increases in revenue and earnings.

Meanwhile, Quaker Foods unit revenue was flat for the year, but earnings increased 3%.

Technically, PepsiCo's stock, which has retreated roughly in-sync with the Dow's late January/early February pull-back, shows signs of holding support at $60. If it does, that would represent a roughly 10% pull-back, or a constructive correction after the stock's impressive advance to about $64 from $45 in 2009.

Earnings Analysis

It was a decent Q4 and a good 2009 earnings report from PepsiCo, with the key takeaways being the solid full-year performance, despite the recession, and PepsiCo's bullish 11% to 13% earnings growth guidance for 2010. Further, the latter suggests PepsiCo believes the global economic recovery will accelerate in 2010 -- an encouraging sign for investors.
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