Blog > US Stocks and Markets > Earnings season: Johnson & Johnson (JNJ) and PepsiCo (PEP) diverge
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Earnings season: Johnson & Johnson (JNJ) and PepsiCo (PEP) diverge

Today's Financial News - Posted October 14, 2008

Earnings season is in full swing. Companies like Johnson & Johnson (NYSE:JNJ) and PepsiCo (NYSE:PEP) are making some surprises. How will the Street handle the news?

By Andrew Snyder

Baltimore – (TFN): It is shaping up to be another bold day for Wall Street. Thanks to Washington’s announcement of more bailout details, the exuberance we saw yesterday continues today. Let’s hope the positive sentiment continues.

Unfortunately, I do not have my hopes set very high. We will be not see the Dow reach 12,000 or even 11,000 anytime soon. After all, we are in the midst of a rough earnings season and there is a dragon breathing down our necks. His breath reeks of recession.

There were two major earnings announcements waiting for the Street this morning. PepsiCo (NYSE:PEP) and Johnson & Johnson (NYSE:JNJ) released their third-quarter earnings results. Both companies are huge, multi-national conglomerates, yet they paint two very different pictures.

Johnson & Johnson used strong overseas medical device sales to beat analyst forecasts. The company scored $3.31 billion in net Q3 profits, a 30% jump from last year’s figure of $2.55 billion. On a per share basis, the company earned $1.17, surpassing estimates of just $1.11.

While today’s news of better-than-anticipated profits was good, the company’s report was sweetened by executive forecasts of higher annual earnings. The company bumped up full-year expectations by about a nickel to a forecasted earnings range of $4.50 to $4.53 per share.

The report proves that Johnson & Johnson has been able to fend off generic competition as best as possible and has been able to fight off recessionary headwinds.

The other side of the mirror

PepsiCo, on the other hand, missed estimates. Analysts were expecting the company to announce earnings of $1.08. So it is no surprise the Street is disappointed with its actual figure of just 99 cents per share.

The company attributes its weak profits and slumping revenue stream to rising commodities costs and a downturn in domestic sales. After all, profits in the States dropped by about 11%. Internationally, the picture was much more eye-catching. Overseas earnings jumped by 18%.

While Johnson & Johnson was raising its forecast, PepsiCo was busy slashing its outlook. Company officials were originally looking for annual earnings of $3.72 per share. Today, they say to expect just $3.68.

What is most important to note in both of these reports is the impact of international sales. Johnson & Johnson was buoyed by foreign sales. Without a weak dollar and a booming international market, the company would never have been able to beat forecasts.

PepsiCo enjoyed the same success across the pond, but its significant downturn in domestic sales was not enough to keep profits in expected ranges.

An overseas turnaround

There is no doubt international sales across the spectrum will take a beating over the next few quarters. The dollar has strengthened significantly and foreign economies are threatening to slow even faster then ours.

Both companies have a significant amount of revenues at risk overseas. Johnson and Johnson may be celebrating today, but PepsiCo’s report is much more indicative of its future action. A tough road lies ahead.

As for the rest of the markets today, keep an eye on trading volume and watch for the aggressive bulls to run out of energy. If they do, we could give back much of what we made yesterday.


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Posted by Andrew Snyder · Filed Under US Stocks and Markets 

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