Neither company crushed Wall Street earnings expectations, but both reported good enough news in a very tough environment.
I own PepsiCo in my long-term 50 Stocks Portfolio, where it was up 220.4% from my initial December 30, 2008 pick as of the close on April 26. I will add the stock to my 12-18 month Jubak Picks Portfolio tomorrow, April 27, with a target price of $190 a share. The stock pays a 2.47% dividend.
I own shares of Coca-Cola in my Jubak Picks Portfolio, where it was up 29.8% from my February 19, 2021 pick, and in my Dividend Portfolio, where it was up 41.75% from my May 1, 2020 pick. (The stock pays a dividend of 2.67%.) Tomorrow, April 27, I will add shares of Coca-Cola to my long-term 50 Stocks Portfolio. In addition I will raise the target price on Coca-Cola in my Jubak Picks Portfolio to $78 from the current $56 a share.
First up PepsiCo earnings. The company posted core earnings of $1.29 a share, beating estimates of $1.23 a share. Revenue rose more than 9% to $16.2 billion, higher than forecasts for $15.5 billion. Organic revenue growth at PepsiCo was 13.7% in the quarter. The company said it expects inflation in the cost of its ingredients to cut that earnings growth in the remainder of 2022. Full-year organic revenue will increase by 8% (versus a previous forecast of 6%), the company projects, and core constant currency earnings per share will grow by 8%.
The company said it expects core earnings in 2022 of $6.63 a share, a 6% increase from last year. It is also planning to return approximately $7.7 billion to shareholders in the form of $6.2 billion in dividends and $1.5 billion in stock buybacks.
Second up Coca-Cola earnings. Coke’s organic revenue, which strips out currency swings as well as acquisitions or divestitures, rose 18% in the quarter as unit case volume rose 8%. The company was able to offset a 17% increase in the cost of goods sold by raising prices and finding savings in marketing and packaging. Coke’s operating income increased 25% to $3.41 billion from a year earlier. For the quarter, Coke posted a profit of $2.78 billion, or 64 cents a share, compared with $2.25 billion a year earlier. Analysts were expecting earnings of 58 cents a share. Sales rose 16% to $10.49 billion. Analysts were looking for $9.83 billion.
The company did not raise its earnings guidance for the year. CEO James Quincey called the 2022 recovery “asynchronous.” The company expects sales at stadiums, movie theaters, and restaurants to rebound as more consumers grow comfortable going out amid waning pandemic restrictions. But operating conditions–namely inflation–will be more challenging than expected.
Increasing my portfolio exposure to these two consumer staples giants is in line with my expectations that the economy will face dual challenges over at least the next 12 months from high inflation and slowing growth as the Federal Reserve raises interest rates to damp inflation. (Along this theme I recently added shares of the Consumer Staples Select Sector SPDR ETF (XLP) to my Perfect Five ETF Portfolio on JubakAM.com.) The shares of big consumer companies with pricing power do better than the market as a whole during that kind of economy. I also like the season effect (post-Pandemic) for these companies as warmer weather increases consumer activity and thirst.
