Pepsi Bottling Group (NYSE: PBG), a competitive colleague of Coca-Cola Enterprises (NYSE: CCE), reported earnings for the third quarter earlier in the week. I didn't find the release too exciting, to be honest. Revenues went up 2% to $3.8 billion. Earnings came in at $1.06 per share. In last year's quarter, Pepsi Bottling Group booked a bottom line equal to 98 cents per share, after adjustments. In terms of expectations, the company beat the analysts on Wall Street by two pennies better.
While an earnings beat is certainly a nice thing, let's take a look at what is perhaps one of the more important metrics when it comes to beverage manufacturers: case volume. I'm afraid there's nothing to write home about as far as this statistic is concerned. Case volume took a dive around the globe by a disappointing 6%. Management cited hard economic times as a contributing factor. Imagine that. You'd think that products found in the portfolios of Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP) would be pretty defensive in a tough economic period. Apparently, Pepsi Bottling Group found it difficult to distribute more of its drinks this past quarter.
Long term, I think Pepsi Bottling Group will be okay. But I think both PepsiCo and Coke need to find better ways of convincing people to continue to drink their flagship carbonated beverages. They've been on the decline over the past several years. As a stock, Pepsi Bottling Group isn't on my watch list. I already own shares of Coke, but even with that bias, I can honestly say that I wouldn't want to enter the bottler at this time. I'm not impressed with either the growth or the year-to-date stock performance.
Disclosure: I own Coke; positions can change at any time.
Even if the national headlines weren't already providing enough focus on the economy, plenty of economic data is due out as the month and the quarter wind down. U.S. economic data scheduled to be released this week include:
Banc of America upgraded shares of Pepsi Bottling (NYSE: PBG) to Buy from Neutral on valuation as they expect better leverage in FY09 and believe an overly bearish outlook is priced in. The company's target was raised to $37 from $35.
Goldman upgraded Washington Mutual (NYSE: WM) to Neutral from Sell and said Q3 results were worse than expected but not as bad as the decline in shares suggests. The analyst said WaMu's capital and reserves appear stable and that the company might be able to avoid another capital raise. WaMu's target was raised to $4 from $5.
Greenhill & Co (NYSE: GHL) was raised to Outperform from Market Perform at Wachovia.
F5 Networks (NASDAQ: FFIV) was upgraded at JP Morgan to Overweight from Underweight.
Jefferies downgraded PharmaNet Development (NASDAQ: PDGI) to Underperform from Buy following the lowered guidance as they believe the company's execution and cost control problems have not been solved. The company's target was lowered to $15 from $27.
JP Morgan downgraded shares of Ericsson (NASDAQ: ERIC) to Underweight from Neutral to reflect their weak outlook for the company's Sony Ericsson (NYSE: SNE) handset unit.
Deutsche Bank downgraded shares of Danaher (NYSE: DHR) to Hold from Buy on valuation and concerns about the company's FX exposure.
Best Buy (NYSE: BBY) was cut to Neutral from Buy at UBS.
Portugal Telecom (NYSE: PT) was lowered to sell from Neutral at UBS and to Underweight from Neutral at JP Morgan.
Jefferies initiated Massey Energy (NYSE: MEE) with a Buy rating and $80 target. The firm expects substantial margin improvement, free cash flow, and earnings growth with eastern utility coal inventory levels under pressure and a robust export and met coal market.
William Blair started BioMarin Pharmaceutical (NASDAQ: BMRN) with an Outperform rating. The firm expects strong EPS growth during 2008-2010, thinks the company's pipeline is underappreciated by the Street, and feels expectations have been reset to a reasonable level.
Friedman Billings initiated the Lodging sector with a Market Weight rating, starting InterContinental Hotels (NYSE: IHG) and Marriott (NYSE: MAR) with outperform ratings and targets of $16 and $34, respectively, and Starwood Hotels (NYSE: HOT) with a Market Perform rating.
Citigroup initiated Diamond Offshore (NYSE: DO) with a Buy rating and $126 target.
Flow International Corp. (NASDAQ: FLOW), which makes industrial waterjet equipment, swung to a better-than-expected fiscal fourth-quarter profit of $13.3 million, or 35 cents per share, helped by a boost in sales due to strong demand and an income tax benefit. Revenue rose 21% to $63.3 million. Shares are creeping up from a 52-week low of $6.81 a week ago.
Motor sports company International Speedway Corp.'s (NASDAQ: ISCA) second-quarter profit rose 41% to $26 million, or 52 cents per share. However, revenue slipped 3% to $174.9 million as admission and food and merchandise sales declined. Results fell short of Wall Street expectations, and shares fell to a 52-week low of $36.36.
Apparel and footwear company Wolverine World Wide Inc. (NYSE: WWW), second-quarter profit of $16.8 million, or 33 cents per share, topped Wall Street expectations, as strong international results linked to the weaker dollar largely offset increased product and freight costs. Revenue climbed 7% to $267.4 million. But shares fell $3.11 to $23.46 in morning trading.
Pepsi Bottling Group (NYSE: PBG) issued its Q2 earnings numbers today, and the market apparently wasn't impressed. As of 2:45, the shares are off well over 4%.
The numbers weren't bad in some respects, but a couple areas weren't encouraging. Sales increased about 5%, and earnings per diluted share expanded by 12% to $0.78. That was more than enough to beat the analysts, who were looking for about $0.75 per share, according to Briefing.com. However, worldwide case volume declined 3%. Case volume is one of the most important metrics for a beverage company, so this is very disheartening. Also, cash from operations dropped to $89 million for the six-month period from a year-ago level of $158 million. There was no free cash flow, but management does expect positive free cash flow for the fiscal year.
Considering the bottler's forward guidance and dividend yield, the shares are somewhat cheap. But they are basically at a 52-week low in a bad market, so I wouldn't bother with them. When it comes to investing in the beverage sector, I prefer owning a PepsiCo (NYSE: PEP) or a Coca-Cola (NYSE: KO). In fact, I own the latter. Avoiding bottlers like Pepsi Bottling Group and Coca-Cola Enterprises (NYSE: CCE) makes sense for the long-term since the bottlers will always have greater exposure to capital-expenditure requirements.
Disclosure: I own Coke; positions can change at any time.
U.S. stock futures were lower early Tuesday morning, the day when one of the worst earnings season in decades is about to kick off. Financials, credit market and economy jitters only compound the bearish sentiment out there.
On Monday, U.S. stocks ended lower despite starting the day with nice, solid gains as the price of oil dropped some $5 a barrel. But economic worries following a speech from a Federal Reserve official seeing more troubles to come, as well as worries about financial stocks and the credit market as capital concerns at Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) grew, brought in the bears. The Dow industrials ended dropping 56 points, or 0.5%, the Nasdaq Composite lost 2 points, or 0.09%, and the S&P 500 fell 10 points, or 0.84%. The S&P 500 is still slightly above bear market territory.
Today, much will depend on two speeches from Federal Reserve officials. First, at 8:30 a.m., Fed Chairman Ben Bernanke is scheduled to speak at a mortgage lending forum hosted by the Federal Deposit Insurance Corp.. Treasury Secretary Hank Paulson is also slated to appear at the forum. Also, Richmond Fed President Jeffrey Lacker is scheduled to speak about the U.S. economic outlook in Washington.
The speeches could sway market in different directions, but also some economic data released today could have an impact, especially May pending home sales and wholesale inventories scheduled for release at 10:00 a.m. EDT.
I don't think I'll ever own a bottling group over a Coca-Cola (NYSE: KO) or a PepsiCo (NYSE: PEP). The cash-flow and margin scenarios with the sellers of concentrate is a much better long-term story. With that bias stated, let me check out Pepsi Bottling Group's (NYSE: PBG) first-quarter results, which were reported on Wednesday.
Net sales expanded by 7% to $2.7 billion. On a reported basis, earnings per share didn't budge whatsoever -- it was 12 cents this year, and it was 12 cents last year. On an adjusted basis, earnings were 13 cents -- hey, a penny is a penny, I guess. In fact, I see that Briefing.com is reporting that Pepsi Bottling Group beat the Street's outlook by a penny. Talk about symmetry. Operational cash flow was flat, coming in at $20 million, which was a million bucks less than the operational cash flow seen in the previous year's comparable quarter (by the way, I know that the pun "flat" has been used way too many times when talking about a beverage concern). As can be seen, the bottler lost the growth game this time around. It's only the first quarter, though, so we'll have to wait and see how the rest of the year shapes up. Right now, the company expects earnings of $2.30 to $2.38 on an adjusted basis.
Now, I don't hate Pepsi Bottling Group or anything like that (well, except for the fact that it distributes products that compete with my beloved Coca-Cola company, shares of which I own); it's a respectable company linked to a powerful beverage brand, and it has been pretty good on the dividend-increasing front (it recently upped its quarterly payout by over 20%). But I've always been prone to PepsiCo and Coke since they don't have to deal with the capital requirements for distribution; instead, they are the big marketers supporting the bottlers. If you want exposure to sugar water, I figure you may want to check out those two businesses first.
Disclosure: I own shares of Coca-Cola; positions can change at any time.
General Electric Co. (NYSE: GE) was raised to Buy from Neutral' at Merrill Lynch, due to its defensive positioning in the current economic climate. GE shares are up 1.7% in premarket trading following the upgrade.
Visa Inc. (NYSE: V) shares soared over 28% in their stock market debut Wednesday. Already priced above expectations at $44 per share in the biggest IPO in U.S. history that raised nearly $18 billion, Visa shares closed at $56.50. Many assume that given the successful MasterCard (NYSE: MA) IPO and given Visa's leading position, the shares are worth a shot, especially in today's market conditions.
As Apple (NASDAQ: AAPL) enhances the the security of the iPhone and adds more enterprise-friendly version of firmware by June 2008, IT advisory and consulting firm Gartner Inc, originally concerned about about some security issues, may then raise its recommendation to "appliance-level" support status for the device, permitting it to be used for PIM, e-mail, telephony and browsing applications and more.
Pepsico, Inc. (NYSE: PEP) shares are rising today after the soft-drink company announced it, along with the Pepsi Bottling Group (NYSE: PBG), has acquired Russian beverage company Sobol-Aqua JSC through a joint venture. Financial terms of the deal were not disclosed. Sobol co-packs Pepsi products in Russia and markets its own brands. Pepsi is also seen as a defensively-postured stock, and could be one that sees very little pain in the event of further turbulence in the markets. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on PEP.
After hitting a one-year low of $62.57 last, the stock hit March a one-year high of $79.79 in January. PEP opened this morning at $68.00. So far today the stock has hit a low of $67.95 and a high of $70.05. As of 2:05, PEP is trading at $69.68, up $1.23 (1.8%). The chart for PEP looks bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $65 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in just one month as long as PEP is above $65 at April expiration. Pepsi would have to fall by more than 6% before we would start to lose money. Learn more about this type of trade here.
PEP hasn't been below $65 last summer and has shown support around $67 recently. This trade could be risky if the economic conditions continue to worsen, but even if that happens, this position could be protected by the support the stock might find around $65, where it has had a floor for much of the past year.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in PEP.
"Pepsi Bottling Group (NYSE: PBG), is the world's largest manufacturer, seller and distributor of Pepsi-Cola beverages, with annual sales of nearly $13 billion," says David Fried, a long-standing specialist in companies engaged in corporate repurchases.
The editor of The Buyback Letter, "Pepsi Bottling has gobbled up its own shares, reducing shares outstanding by 5.2% in the past 12 months." Here is his review.
"What is a Pepsi Bottling Group beverage, besides Pepsi? A better question might be what isn't, since Mountain Dew, Sierra Mist, Aquafina, Tropicana, Mug Root Beer, Lipton, SoBe, Starbucks Frappuccino, Dole, 7UP, KAS, Aqua Minerale, Mirinda, Manzanita Sol, Dr Pepper, Squirt, Electropura, e-pura, and Garci Crespo, among others, are all part of the PBG drink portfolio.
Even if the national headlines weren't already providing enough focus on the economy, plenty of economic data is due out as the month and the quarter wind down. U.S. economic data scheduled to be released this week include:.gif){kind=logo}
U.S. stock futures were lower early Tuesday morning, the day when one of the worst earnings season in decades is about to kick off. Financials, credit market and economy jitters only compound the bearish sentiment out there.
Here are some highlights from this past week's 
Best & Worst in Money 2008: Most shocking financial collapse
Closing Bell: Stocks slump as AMD, AT&T, GM and Merck decline
Global Q&A: A rocky road, but profits ahead
