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Market Update

Earnings on Tap: PepsiCo

Strong presence in developing markets should continue to offset headwinds arising as a result of weak demand in North America and economic uncertainty in Europe.

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Global food and beverages giant  PepsiCo (PEP) is scheduled to report first-quarter results Thursday morning before the bell. Wall Street analysts are expecting earnings to come in steady at $0.71 per share compared with the year-ago period.

The company's net earnings for the fourth quarter increased 19% boosted by positive organic sales growth in all of its business segments. Organic revenues rose 5% on account of stellar growth in PepsiCo's U.S. foods business, reflecting the impact of structural changes including successful innovations, increased advertising, and marketing spending.

PepsiCo also announced a rise in its quarterly dividend payout that would take effect in June, apart from providing an impressive outlook for 2013. For the year, the company expects a 7% increase in its core per-share earnings.   

Morningstar analyst Thomas Mullarkey expects PepsiCo will earn $4.40 per share in 2013. Pepsi's strong brands, scale, and dominance in the U.S. snack industry all contribute to the firm's robust profitability, writes Mullarkey.

The company might face some headwinds because of economic uncertainty in Europe and weakening soft-drink demand in North America. But its strong presence in emerging and developing markets should continue to help offset these losses.

The stock has gained around 17% on a year-to-date basis and is presently trading above Morningstar's fair value estimate.

Gazala Parveen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.