PepsiCo (PEP) reported the firm's forth quarter results on Friday morning. The shares were behaving well early, but not on overtly positive numbers. Let's dig in and see what we can see, shall we? First off, earnings per share met expectations at $1.49. That was on gross margin that expanded to 54.4% and operating margin that grew to 14.4%. Mind you, this was the last quarter where the numbers express a favorable tax comparison. Though there was organic revenue growth of 4.6%, the firm does expect to see an increase in the core effective tax rate for the full year ahead. Headline revenue for the fourth quarter hit the tape at $19.52 billion, also in line with expectations, and very close to flat from Q4 2017. In fact, if you want to check, PepsiCo has printed fourth quarter revenue very close to $19.52 billion for three years in a row now. That's a long time to go with no significant revenue growth in an economy that did better over that time frame.
There were bright spots. Frito-Lay North America saw revenue increase 4%, and North American Beverages grew 2%. Like rival Coca-Cola (KO) , the numbers suffer from a negative foreign exchange impact of 4%.
For the coming year, the pace of organic growth is expected to cool to an even 4%. Expenses associated with marketing the products are expected to increase. Effective tax rates are expected to rise from 2018's 18.8% to 21%. After all of that, the firm guides full year 2019 EPS to a rough $5.50 versus the $5.86 that analysts had been looking for. Need a positive after all of that? PepsiCo increased the already handsome annual dividend from $3.71 to $3.82 starting in June. There is honestly nothing in the fundamental data that would provoke me as a trader to take on an entry position at this time. Let's take a look at the chart.
Here we see the stock recover from a volatile year that saw highly respected CEO Indra Nooyi move on from the CEO position as well as the impact of trade tensions that hit the industry. Our favorite twelfth century Italian mathematician would say that this stock hit resistance on Friday morning.
What we see upon taking a couple of steps backwards is that this name, despite some trade, currency, and leadership volatility has simply returned to trend. I would have no problem adding the stock to a dividend based revenue portfolio as this stock is not a dividend payer that does poorly in a risk on environment. I would just pick the shares up on a down day, not on a day like today.
The stock has found support at the $105 level twice since last October. An interested investor could sell a June 2019 PEP $105 put for about a buck and half this morning. Why not get paid to wait?