The dollar turns from earnings headwind to tailwind in the fourth quarter
The weak dollar will finally start showing up as a plus in company earnings in the fourth quarter.
It’s been one of the puzzles of recent quarters how a falling dollar could hurt earnings at U.S. companies with big overseas sales such as McDonald’s (MCD), PepsiCo (PEP), and Proctor & Gamble (PG). In the third quarter each of these companies has noted that “currency effects” had resulted in hits to reported revenue of five, six, seven, or more cents per share.
So what’s going on? A weaker U.S. dollar is supposed to help the reported revenue and earnings for companies like these. When sales in Euros or baht or yen are translated back into dollars, a weak dollar turns them into more dollars. Read more
Update PepsiCo (PEP)
Before the stock market opened on October 8, PepsiCo (PEP) reported third quarter earnings of $1.08 a share (5 cents above Wall Street projections) and revenue of $11.08 billion.
The earnings number was 5 cents a share above Wall Street earnings estimates, but the revenue number was $170 million light. Revenue indeed declined by 1.5% from the third quarter of 2008. Earnings were up just slightly from the $1.06 reported in the third quarter of 2008.
Two factors held down results. Read more
Update PepsiCo (PEP)
Is the stock market entering a more defensive phase with “safe” sectors such as consumer goods set to outperform for a while? Looks like it to me on the recent data on which sectors have turned hot and which are cooling off.
(See my October 1 post http://jubakpicks.com/2009/10/01/in-the-very-very-very-short-term-the-stock-market-has-gone-defensive/ for some of that data.)
And I got more confirmation from the big pop shares of “safe” PepsiCo (PEP) got this morning after an upgrade from Deutsche Bank. The upgrade wasn’t huge–the bank raised its 12-month target price to $70 from $66–but the stock is up $2.47 a share or 4.2% as of 12:40 p.m. (ET) on what isn’t particularly striking news. To me that shows that there are a lot of investors out there who, right now, want to lower their risk but stay in stocks.
I’m going to raise my target price on this evidence that safe consumer stocks are back in favor. Read more
Update Pepsico (PEP)
The deal is done.
On August 4, PepsiCo (PEP) announced that it had completed deals to buy all the remaining shares of it5s tow biggest bottlers, Pepsi Bottling (PBG) and Pepsi Americas (PAS). The price is about $1 billion more than PepsiCo originally offered. (The total comes to $7.8 billion.) But that’s less than I was afraid PepsiCo would have to offer to get control of these bottlers, especially after they both announced better than expected earnings for the second quarter.
On the news, I’m going to raise my target price for PepsiCo in my Jubak’s Picks portfolio. Read more
Update PepsiCo PEP
It’s still the same old story, a song of… Wait. That’s a different story. This one is about the way that a strong dollar has cut revenue and earnings in the second quarter now being reported for the big international consumer companies such as McDonald’s (MCD), Coca Cola (KO),and now PepsiCo (PEP).
Before the open on July 22, the company reported second quarter earnings of $1.06 a share, 6 cents a share above Wall Street estimates, but flat with the second quarter of 2008. Revenue fell $400 million short of Wall Street’s $10.99 billion in projected revenue, dropping about 3% from the second quarter of 2008.
Take out the effect of a stronger dollar, which makes overseas revenues denominated in baht, won, euros or whatever worth fewer dollars when they’fre translated for a U.S. company’s financials, and the story is very different. In constant currencies earnings per share climbed 8% and revenue was up 5.5%. Read more
