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PepsiCo earnings: Can Pepsi keep raising prices to offset weak demand? | MarketWatch

The big question for PepsiCo Inc. investors will be how long, and by how much, the beverage and snack giant can boost revenue by raising prices to offset declining volume.

Pepsi PEP, +0.70% is scheduled to report second-quarter results before the market opens on Tuesday. Investors can assume the company will beat profit-per-share expectations, as it has for at least the past 20 quarters, according to available data from FactSet.

Whether it can continue to beat revenue expectations, in a way that pleases investors, will be the key. And if volume continues to decline, how long will investors pin their hopes on a potential buyout?

After Pepsi reported a first-quarter profit and sales that beat expectations, the stock still fell 0.7% on the day. The company said in its quarterly filing that its Frito-Lay and beverages businesses in North America managed to boost revenue year over year despite declines in volume because of “effective net pricing.”

The Quaker Foods business was a different story, as revenue declined 3% while volume declined just 1%, because “unfavorable net pricing.” Basically, it couldn’t lean on its pricing power in that segment, amid demand weakness in oatmeal and in its Roni brand products, such as Rice-A-Roni.

Analyst Pablo Zuanic at Susquehanna Financial recommended taking “more of a defensive stance” leading up to the results, because while the company has called for improving sales trends, “scanner data actually points to about half a point of deterioration” and margin trends aren’t expected to improve.

Wells Fargo analyst Bonnie Herzog said that while Pepsi has done “a good job of pulling its pricing lever to offset volume softness,” the upside to the stock is limited given current fundamental trends and the fact that hopes for a potential buyout has already added to a premium to the company’s valuation.

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PepsiCo earnings: Can Pepsi keep raising prices to offset weak demand? – MarketWatch.