admin July 10, 2018

Pepsi kicked off second quarter earnings season in refreshing style.

The soda and snacks giant reported profits that topped Wall Street’s forecasts because of solid sales from its Frito-Lay unit and healthy demand from China and other overseas markets.

Shares of Pepsi (PEP) popped more than 3% on the news Tuesday. Rival Coca-Cola (KO), which will report quarterly results on July 25, was up 1%.

The better-than-expected results helped push the broader market higher Tuesday. And it set a positive tone as investors prepare for a deluge of earnings reports in the coming days and weeks.

Delta Air Lines (DAL) will report its results Thursday morning while big banks JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C) release earnings Friday.

Investors are eager to hear about what impact, if any, a new round of global tariffs could have on sales and profits.

But Pepsi Chief Financial Officer Hugh Johnston said in an interview with CNNMoney that worries about a global trade war have not hurt sales in international markets so far.

“We haven’t seen any material or notable impact from all the dialogue about trade and tariffs that is happening,” he said, before adding that it’s tough to predict what might come next.

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Still, Pepsi is benefiting from strong sales in most emerging markets including China, Latin America and Eastern Europe.

Bonnie Herzog, an analyst with Wells Fargo, noted in a report Tuesday morning that the “solid results in emerging markets” is the biggest plus for Pepsi right now.

But the biggest challenge for Pepsi remains its domestic beverage unit. Sales were down slightly from a year ago.

Johnston said there was improvement in sales at the company’s Gatorade and Mountain Dew businesses — because of new product launches like the zero-sugar Gatorade, the lemon-lime Ice flavor of Mountain Dew and the limited edition Mountain Dew Baja Blast.

But getting the core Pepsi product back on track is still a work in progress. The turnaround is at the early stages, and includes a new ad campaign geared toward younger consumers, featuring New York Yankees superstar Aaron Judge.

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Pepsi’s beverage business isn’t just facing a demand issue in the US, though. Operating profits took a sizable hit, falling 16%, because of an increase in commodity prices squeezing margins and increased transportation costs.

A shortage of qualified truckers in the US has been an issue for many food and beverage companies.

Johnston said the problem will continue for Pepsi for the next few quarters and that ultimately, the company will probably need to raise wages further to induce people to take trucking jobs.

Wall Street didn’t seem too worried. The continued strength in the Frito-Lay division, which includes the popular Doritos and Cheetos brands, is helping to offset the slumps in soft drinks and at the Quaker Foods unit, which also posted a drop in sales.

Pablo Zuanic of Susquehanna Financial Group said in a report after the earnings were released Tuesday that the accelerated growth at Frito-Lay is the main reason he continues to like Pepsi stock.

Still, shares of Pepsi — as well as Coke and many other supermarket staples — are in the red for 2018 as investors worry about how Amazon (AMZN), Walmart (WMT)and Kroger (KR) are squeezing prices.

CNNMoney (New York) First published July 10, 2018: 12:38 PM ET

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