PepsiCo Inc. (NYSE:PEP) is set to report FQ1 2014 earnings before the market opens on Thursday, April 17th. PepsiCo is an American multinational beverage company best known for its flagship Pepsi brand. Revenue estimates for PepsiCo are lower this quarter than FQ1 last year as Beverage Digest claims that overall soda consumption fell 3% last year. Despite the broad weakness in soda sales in the U.S. and Europe, Coca Cola's (NYSE:KO) earnings report from earlier this week suggests China may be an area of growth. Declining soda sales in Europe and flat sales in the States were offset for Coke by burgeoning consumption in the world's most populated country which pushed sales above Wall Street's expectations. Look for growth in China and Asia and expect sales in the U.S. and Europe to remain mundane. Here's what investors expect from PepsiCo on Thursday.
The current Wall Street consensus expectation is for Pepsi to report 75c EPS and $12.467B revenue, while the current Estimize.com consensus from 18 Buy Side and Independent contributing analysts is 78c EPS and $12.642B in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Pepsi to beat the Wall Street consensus on both the top and bottom line by a moderate margin.
Over the past 6 quarters the consensus from Estimize.com has been more accurate than Wall Street in forecasting Pepsi's EPS every time and has been more accurate in forecasting revenue twice. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.
The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a moderate difference between the two groups expectations.(click to enlarge)
The distribution of estimates published by analysts on the Estimize.com platform range from 74c to 90c EPS and from $12.441B to $14.000B in revenues. This quarter we're seeing a moderate distribution of EPS estimates and a wide range of revenue estimates on PepsiCo.
The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signaling less agreement in the market, which could mean more volatility post earnings. (click to enlarge)
Over the past 4 months the Wall Street EPS consensus fell from 79c to 75c, while the Estimize consensus pulled back from 82c to 78c. Meanwhile, the Wall Street revenue consensus dropped from a high of $12.841B to $12.467B while the Estimize forecast plummeted from $13.067B to $12.642B. Timeliness is correlated with accuracy and downward analyst revisions at the end of the quarter are often a bearish indicator.(click to enlarge)
The analyst with the highest estimate confidence rating this quarter is turbinecity, who projects 76c EPS and $12.630B in revenue. turbinecity was our Winter 2014 season winner and is ranked 6th overall among over 4,000 contributing analysts. Over the past 2 years, turbinecity has been more accurate than Wall Street in forecasting EPS and revenue 59% and 55% of the time respectively 1643 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, turbinecity is expecting Pepsi to beat Wall Street's expectations but fail to live up to the Estimize community's EPS consensus.
Coca Cola's recent earnings report from Tuesday should give us an idea of what to expect out of PepsiCo. Coca Cola reported flat soda sales in the U.S. and a decline in Europe alongside encouraging demand growth in China. Wall Street expects PepsiCo's sales to drop compared to last year but the Estimize community's consensus is moderately higher than the Street's. This quarter contributing analysts on the Estimize.com platform are expecting PepsiCo to beat Wall Street's forecast by 3c per share EPS and $175 million in revenue.