Oh, No, PepsiCo!

10/07/2010 3:42 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

This isn’t the way to start off third-quarter earnings season.

Before the New York Stock Exchange opened Thursday, October 7, PepsiCo (NYSE: PEP) reported third-quarter earnings of $1.22 a share, exactly matching Wall Street analysts’ consensus. Revenue came in at $15.51 billion, slightly above the consensus projection of $15.38 billion.

But the stock was around $66, down about 3% late Thursday. Why? Guidance for the fourth quarter.

PepsiCo cut its guidance for all of 2010 to $4.08-$4.12 a share. Before Thursday’s report, Wall Street was looking for earnings of $4.17 a share this year.

The problems are the same ones that PepsiCo has grappled with all year: Slow sales of beverages in North America as tastes shift away from cola drinks, and volatile currency exchange rates.

So, why the big drop on what is essentially nothing new? After the September rally, investors and traders are looking for reasons to take profits, and PepsiCo’s report gave them one.

Before the report, PepsiCo shares were trading at 17x current earnings. That apparently didn’t strike the market as expensive until the company lowered its full-year growth rate to 11%-12%, from 11%-13%.

That’s all it took.

And it’s not a good sign if the market is unwilling to cut a company like PepsiCo any slack at today’s prices. (For more on my take on earnings season and the potential for an earnings-season dip, see this post.)

Full disclosure: I don’t own shares of any company mentioned in this post in my personal portfolio.

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