Give to Carroll Donate Now »

Gift Planning

Text Resize

Tuesday October 13, 2015



Diet Soda Sales Hamper Pepsi's Earnings

PepsiCo, Inc. (PEP) announced its third quarter results on Tuesday, October 6. Both revenue and income declined during the quarter.

PepsiCo reported revenue of $16.33 billion. This was a 5% decline from the $17.22 billion earned during the same period last year.

"We are pleased with our performance for the third quarter of 2015," said Pepsi Chairman and CEO Indra Nooyi. "Despite ongoing volatility in many of our key international markets, we delivered strong organic revenue growth, gross margin expansion and double-digit core constant currency EPS growth. Based on our year-to-date results and our outlook for the remainder of the year, we are increasing our full-year core constant currency EPS growth target to 9%."

Pepsi's net income fell 73% during the quarter to $533 million or $0.36 per share. Taking out one-time charges, earnings were $1.35 per share, which was better than analyst estimates of $1.44 per share.

Like Coca-Cola, Pepsi has faced challenges with consumers that are trending away from sodas and other carbonated beverages. Of particular concern is the decline in diet soda sales, supposedly due to concern over the common artificial sweetener aspartame. In effort to appeal to health-conscious consumers, Pepsi debuted a new Diet Pepsi without aspartame. The early results were not promising with sales of Diet Pepsi falling 6.5% during the quarter.

PepsiCo, Inc. (PEP) shares ended the week at $99.47, up 4.8% for the week.

Domino's Pizza Reports Earnings

Domino's Pizza, Inc. (DPZ) announced its third quarter results on Thursday, October 8. While the company's bottom line numbers showed improvement compared to last year, they were below analyst estimates.

The company reported that revenue increased 8.5% to $484.7 million. This was slightly below estimates for revenue of $487.1 million.

"We are pleased with the sustained strong sales and continued momentum behind store growth," said Domino's President and CEO J. Patrick Doyle. "The things we are doing are working, and we will continue to aggressively lead the industry."

Domino's reported that net income during the quarter rose 6.2% to $37.8 million or $0.67 per share. Estimates for net income were higher at $0.74 per share.

While Domino's bottom-line numbers fell below Wall Street estimates, the numbers were still relatively strong. As a large multinational company, Domino's has been hurt by the strong U.S. dollar, which reduces the value of international sales. On a positive note, the company reported domestic and international same-store sales growth of 10.5% and 7.7%, respectively.

Domino's Pizza, Inc. (DPZ) shares ended the week at $105.38, down 1.6% for the week.

China Woes Plague Yum! Brands

Yum! Brands, Inc. (YUM) announced its third quarter results on Tuesday, October 6. The operator of KFC, Taco Bell and Pizza Hut reported disappointing earnings that reflected the company's ongoing struggles with its China division.

The company reported that sales increased 2% to $3.43 billion. However, this was lower than estimates calling for sales of $3.68 billion.

"We're pleased same-store sales turned positive and we achieved restaurant margins of nearly 20% in our China business," said Yum! Brands CEO Greg Creed. "However, the pace of recovery in our China Division is below our expectations. Outside of China, our Taco Bell and KFC Divisions continued to sustain their positive sales momentum while Pizza Hut was relatively flat. Given our lower full-year expectations in China, combined with additional foreign exchange impact, we now expect 2015 EPS growth to be well below our target of at least 10%."

Yum! reported net income of $421 million or earnings per share of $0.95. Estimates were for earnings per share of $1.07.

Yum! Brands overall numbers continue to be dragged down by the company's struggles in China. In recent years a number of health-related scandals have hurt the company's reputation in the fast growing Chinese market. The lingering effects of those scandals along with a slowing Chinese economy continue to dog the company. Same-store sales in China increased only 2% whereas expectations were for growth of nearly 10%.

Yum! Brands, Inc. (YUM) shares ended the week at $70.25, down 15% for the week.

The Dow started the week of 10/5 at 16,502 and closed at 17,085 on 10/9. The S&P 500 started the week at 1,954 and closed at 2,015. The NASDAQ started the week at 4,742 and closed at 4,830.

Treasury Yields Reach October Highs

Treasury yields rose on Friday, October 9, driving prices down as investors became more comfortable investing in stocks and other riskier assets on signs of improvement in the global economy. The weekly rise in bond yields is an improvement from last week when the 10-year yield reached a 5-month low.

Factoring into investors' decisions to pull away from government bonds this week was the release of the minutes from the Federal Reserve's latest policy meeting. The minutes showed that many members are reluctant to raise interest rates until there is an uptick in inflation. While this was good news for investors, there were other indications in the Fed's minutes that "most" members believe economic conditions will warrant a rate increase before year end.

"There is still a chance that the Fed will raise rates in 2015," said Sean Simko, Head of Fixed-Income Portfolio Management at SEI Investments. "However, I place a low probability on that. The risk is we see further softening in global economic data, which will drive yields lower, testing the 1.95% level."

During early Friday trading, the benchmark 10-year yield had risen to 2.12% from 2.11% yesterday. That is a significant turnaround from last week's closing yield of 1.99%.

Internationally, investors have found comfort in the fact that the economic situation in China appears to be stabilizing or, at the very least, has not worsened. However, the overall global economy is still weak, which has prompted the European Central Bank and the Bank of Japan to consider further asset-purchase programs to jumpstart growth in their respective economies. That in turn has helped boost yields in the United Kingdom and Germany.

The 10-year Treasury note yield finished the week of 10/5 at 2.10% while the 30-year Treasury note yield finished the week at 2.93%.

Jobs Report Drives Rates Lower

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, October 8. The report showed interest rates falling this week in response to a disappointing September jobs report released last Friday.

The 30-year fixed rate mortgage averaged 3.76% this week. This represents a decrease from last week when it averaged 3.85%. Last year at this time, the 30-year fixed rate mortgage averaged 4.19%.

This week, the 15-year fixed rate mortgage averaged 2.99%. This is down from last week when it averaged 3.07%. The 15-year fixed rate mortgage averaged 3.36% one year ago.

"Calling the September jobs report disappointing is an understatement," said Sean Becketti, Chief Economist at Freddie Mac. "The sputtering U.S. economy added only 142,000 jobs. To make matters worse, there were downward revisions to the prior two months. Hourly wages were flat, and the labor force participation rate fell to 62.4%, the lowest rate since 1977. In response, Treasury yields dipped below 2% triggering a 9 basis point tumble in the 30-year mortgage rate to 3.76%."

The money market fund finished the week of 10/5 at 0.3%. The 1-year CD finished at 0.6%.

Published October 9, 2015

Previous Articles

Costco Reports Higher Net Income

Nike's Earnings Easily Top Estimates

Cracker Barrel Reports Earnings

Barnes & Noble's Earnings Can't Turn the Page

Campbell Soup Earnings Dip