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PepsiCo stock fizzles
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February 3, 1998: 1:25 p.m. ET
Despite strong 4Q earnings, beverage maker's shares dip 3.25 % at midday
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NEW YORK (CNNfn) - Despite a rosy fourth-quarter earnings report marking a more than twofold increase in profit from a year ago, shares of PepsiCo had dipped more than 3 percent by midday Tuesday amid concerns that the earnings lacked some of the key growth underpinnings that Wall Street craves.
PepsiCo stock slumped 1-3/16, or 3.25 percent, to 35-5/16, as traders balked at earnings figures showing a 125 percent jump from the company's continuing operations in the period ended Dec. 27.
Fourth-quarter earnings rose to $446 million, or 29 cents a diluted share, matching Wall Street's consensus estimate. That was up from $198 million, or 13 cents a diluted share, in the year-ago period.
Net income over the same period increased to $401 million, or 25 cents a share diluted, from $28 million, or 3 cents a share diluted, a year earlier.
Analysts remained circumspect, however, saying much of the growth stemmed from financial rejiggerings such as debt payments, share buybacks and cuts in interest expenses.
"There is concern over the quality of the earnings, over how they got there," said Bill Pecoriello, a beverage analyst with Sanford Bernstein.
Pecoriello and others noted that PepsiCo (PEP), which spun off its restaurant operations in 1997, repurchased $2.5 billion in stock last year and plans an additional $3 billion share buyback in 1998. At the same time, the company paid down about $3 billion in accumulated debt.
Roger Enrico, PepsiCo's chairman and chief executive officer, said the company's $6 billion spin-off of its restaurant operation would provide the financial impetus to focus on packaged goods products "that are our strength and heritage."
Enrico said PepsiCo has committed more than $1 billion to packaged goods capital products, including the pending launch of "Pepsi Globe" -- a new packaging design in blue -- and a new line of fat-free snacks.
"As we look forward to 1998, we're very excited about our first full year as a pure packaged goods company," Enrico said.
PepsiCo's 1997 net income surged to $2.14 billion, or $1.36 a diluted share, from $1.15 billion, or 72 cents a diluted share in 1996, an 86 percent rise. The company attributed much of the boost to a sharp turnaround in its international beverage division and to robust North American snack-product sales.
PepsiCo's international snack business, fueled by the popular Frito-Lay brand, rose 7 percent in the fourth quarter. Growth in several emerging markets, including Mexico, China and India, boosted sales 4 percent in the second half of 1997.
Before shedding its restaurant businesses, PepsiCo, the world's second-largest soft drink company, after Coca-Cola, operated and franchised the Kentucky Fried Chicken, Pizza Hut and Taco Bell fast-food chains.
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PepsiCo
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