Lift The Glass To Pepsi Bottling

Pepsi Bottling Group Inc. (PBG) reported second quarter earnings today, kicking off a much-anticipated earnings season that will offer more insight into the weary equity market over the next few months. Predictably, PBG’s news was mixed and the stock is off over three percent in this morning’s trading. The company reported a 7.4% increase in second quarter net income as well as respectable revenue gains. However, it guided lower on its sales outlook for the balance of the year and that was enough to punish the stock in this somewhat despondent market environment. Seemingly, it does not take much to spark a 5% selloff these days.

Wall Street’s per share consensus estimates for PBG were earnings of 75 cents on revenue of $3.55 billion. The company earned 78 cents on revenue of $3.52 billion (a 4.8% increase.) The revenue miss along with a decline in gross margin from 45.7% to 45.6% was not well received by traders. Also, the sluggish domestic economy and inflation in everything from high fructose corn syrup to fuel and packaging offset strong revenue growth in overseas markets and caused PBG to lower expectations for the remainder of the year. The company expects revenue growth of five vice six percent going forward but reaffirmed its full year 2008 earnings forecast range of between $2.30 to $2.38 per share. Analysts had been forecasting $2.35 per share on six percent revenue growth, hence the disappointment evident in today’s market action.

Pepsi Bottling stock has been on a downward trajectory all year and is now off almost 40% for 2008. As a result, Ockham Research now has a Strong Buy on the stock. The stock’s historical price-to-cash flow range is 5.46 - 7.78 and it is currently 5.21. Its price-to-sales range is .506 - .72 and it stands at .439. With an above-money-market-rate dividend yield and in a relatively defensive market segment, PBG shares would appear to offer compelling value at these distressed levels and may be worth the attention of patient, value-oriented investors.