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PepsiCo (PEP) Tops on Q2 Earnings & Revenues, Raises View
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PepsiCo, Inc. (PEP - Free Report) has reported second-quarter 2022 results, wherein revenues and earnings surpassed the Zacks Consensus Estimate and improved year over year. The company continued to benefit from investments in brands, go-to-market systems, supply chains, manufacturing capacity and digital capabilities to build competitive advantages. It also gained from the resilience and strength in the global beverage and convenient food businesses.
Shares of the Zacks Rank #4 (Sell) company have risen 11.5% in the past year compared with the industry’s 7.1% rally.
Image Source: Zacks Investment Research
Quarter in Detail
PepsiCo’s second-quarter core EPS of $1.86 beat the Zacks Consensus Estimate of $1.72 and increased 8.1% year over year. In constant currency, core earnings were up 10% from the year-ago period, backed by the mitigation of inflationary pressures through cost-management and revenue-management initiatives. The company’s reported EPS of $1.03 declined 39.4% year over year in the quarter. Adverse currency rates impacted EPS by 2% in the quarter.
Net revenues of $20,225 million improved 5.2% year over year and surpassed the Zacks Consensus Estimate of $19,767 million. Revenues benefited from volume growth and robust price/mix in the reported quarter. Unit volume improved 3% and 6% year over year for the convenient food and beverage businesses, respectively. Foreign currency impacted revenues by 3%.
On an organic basis, revenues grew 13% year over year, driven by broad-based growth across categories and geographies. Consolidated organic volume was up 1% and effective net pricing improved 12% in the second quarter. Pricing gains were driven by strong realized prices across all segments.
Improvements across categories resulted from accelerated growth in the global beverage and convenient food businesses, reflecting strength in its diversified portfolio. On a year-over-year basis, organic revenues grew 8% for the beverage business and 17% for the convenient food business. Region-wise, organic revenues improved 11% for the North America business and 15% for the international business.
On a consolidated basis, the reported gross profit increased 4.6% year over year to $10,810 million. Core gross profit rose 4.3% year over year to $10,789 million. The reported gross margin contracted 35 basis points (bps), while the core gross margin declined 46 bps, driven by the impacts of ongoing inflationary pressures.
The reported operating income of $2,077 million declined 33.6% year over year. Core operating income rose 7.5% year over year to $3,408 million and core constant-currency operating income improved 10%. The reported operating margin declined by a significant 602 bps to 10.3% from 16.2% in the year-ago quarter due to higher SG&A expenses and pre-tax impairment charges related to intangible assets, offset by gains from the Juice transaction.
Meanwhile, the core operating margin expanded 36 bps, driven by gains from the cost management initiatives, offset by inflationary pressures on operating expenses.
Segment Details
On a segmental basis, the company witnessed revenue growth across all segments, except for PBNA and Europe. Organic revenues ascended for all segments.
Revenues, on a reported basis, improved 14% in FLNA, 17% in QFNA, 23% in Latin America, 6% in AMESA and 3% in APAC. Meanwhile, revenues, on a reported basis, declined 1% in PBNA and 8% in Europe. Organic revenues increased 14% for FLNA, 18% for QFNA, 9% for PBNA, 22% for Latin America, 9% for Europe, 23% for AMESA and 13% for APAC.
Operating profit (on a reported basis) increased 5% each for FLNA and QFNA segments, 18% for Latin America, 14% for AMESA and 7% for APAC. Yet, it declined 20% for PBNA and 297% for Europe.
Financials
The company ended second-quarter 2022 with cash and cash equivalents of $5,405 million, long-term debt of $33,247 million, and shareholders’ equity (excluding non-controlling interest) of $18,553 million.
Net cash from operating activities was $1,881 million as of Jun 11, 2022, compared with $2,340 million as of Jun 12, 2021.
Outlook
Given the year-to-date performance, PepsiCo has raised the revenue guidance for 2022. The company expects organic revenue growth of 10% for 2022 compared with 8% growth mentioned earlier. It continues to anticipate core constant-currency earnings per share to increase 8% from a year ago. The company notes that it will have the 53rd week in 2022 for the North America business, which reports on a calendar basis. The company’s organic revenue growth outlook excludes the impact of the extra week.
Based on the above assumption, PepsiCo has reiterated its core earnings per share view of $6.63 for 2022, suggesting a 6% increase from $6.26 reported in 2021. PEP expects currency headwinds to hurt revenues and core earnings per share by 2 percentage points in 2022, based on the current rates. The company continues to expect a core effective tax rate of 20%.
PepsiCo remains committed to rewarding shareholders through dividends and share buybacks. The company anticipates total cash returns to shareholders of $7.7 million, including $6.2 million of cash dividends and $1.5 billion of share repurchases.
Don’t Miss These Better-Ranked Stocks
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Coca-Cola FEMSA (KOF - Free Report) , Fomento Economico Mexican (FMX - Free Report) and The Duckhorn Portfolio (NAPA - Free Report) .
Coca-Cola FEMSA, a franchise bottler that produces, markets, sells and distributes Coca-Cola trademark beverages, presently carries a Zacks Rank #2 (Buy). The KOF stock has gained 4.5% in the past year. It has an expected long-term earnings growth rate of 6.6%.
The Zacks Consensus Estimate for Coca-Cola FEMSA’s sales for the current financial year suggests growth of 5.1% from the year-ago reported levels. The consensus mark for earnings per share suggests a fall of 16% from the year-ago quarter. The consensus estimate for earnings has moved up 0.97% in the past 30 days. KOF has a trailing four-quarter earnings surprise of 15.6%, on average.
Fomento Economico Mexicano, alias FEMSA, has exposure in various industries, including beverage, beer and retail, which gives it an edge over its competitors. It presently has a Zacks Rank of 2. FEMSA has a trailing four-quarter earnings surprise of 3.9%, on average. Shares of FMX have declined 28.2% in the past year.
The Zacks Consensus Estimate for FEMSA’s sales for the current financial year suggests growth of 5.3% from the year-ago period’s reported figure. The consensus mark for earnings per share suggests a fall of 7.1%. The current financial year’s earnings per share have moved down 1.6% in the past 30 days. FMX has an expected EPS growth rate of 8.8% for three to five years.
Duckhorn currently has a Zacks Rank #2 and an expected long-term earnings growth rate of 12.2%. NAPA has a trailing four-quarter earnings surprise of 94.4%, on average. The company has declined 8% in the past year.
The Zacks Consensus Estimate for Duckhorn’s current financial-year sales and earnings per share suggests growth of 10.8% and 6.9%, respectively, from the year-ago reported numbers. The consensus mark for NAPA’s earnings per share has been unchanged in the past 30 days.
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PepsiCo (PEP) Tops on Q2 Earnings & Revenues, Raises View
PepsiCo, Inc. (PEP - Free Report) has reported second-quarter 2022 results, wherein revenues and earnings surpassed the Zacks Consensus Estimate and improved year over year. The company continued to benefit from investments in brands, go-to-market systems, supply chains, manufacturing capacity and digital capabilities to build competitive advantages. It also gained from the resilience and strength in the global beverage and convenient food businesses.
Shares of the Zacks Rank #4 (Sell) company have risen 11.5% in the past year compared with the industry’s 7.1% rally.
Image Source: Zacks Investment Research
Quarter in Detail
PepsiCo’s second-quarter core EPS of $1.86 beat the Zacks Consensus Estimate of $1.72 and increased 8.1% year over year. In constant currency, core earnings were up 10% from the year-ago period, backed by the mitigation of inflationary pressures through cost-management and revenue-management initiatives. The company’s reported EPS of $1.03 declined 39.4% year over year in the quarter. Adverse currency rates impacted EPS by 2% in the quarter.
Net revenues of $20,225 million improved 5.2% year over year and surpassed the Zacks Consensus Estimate of $19,767 million. Revenues benefited from volume growth and robust price/mix in the reported quarter. Unit volume improved 3% and 6% year over year for the convenient food and beverage businesses, respectively. Foreign currency impacted revenues by 3%.
On an organic basis, revenues grew 13% year over year, driven by broad-based growth across categories and geographies. Consolidated organic volume was up 1% and effective net pricing improved 12% in the second quarter. Pricing gains were driven by strong realized prices across all segments.
PepsiCo, Inc. Price, Consensus and EPS Surprise
PepsiCo, Inc. price-consensus-eps-surprise-chart | PepsiCo, Inc. Quote
Improvements across categories resulted from accelerated growth in the global beverage and convenient food businesses, reflecting strength in its diversified portfolio. On a year-over-year basis, organic revenues grew 8% for the beverage business and 17% for the convenient food business. Region-wise, organic revenues improved 11% for the North America business and 15% for the international business.
On a consolidated basis, the reported gross profit increased 4.6% year over year to $10,810 million. Core gross profit rose 4.3% year over year to $10,789 million. The reported gross margin contracted 35 basis points (bps), while the core gross margin declined 46 bps, driven by the impacts of ongoing inflationary pressures.
The reported operating income of $2,077 million declined 33.6% year over year. Core operating income rose 7.5% year over year to $3,408 million and core constant-currency operating income improved 10%. The reported operating margin declined by a significant 602 bps to 10.3% from 16.2% in the year-ago quarter due to higher SG&A expenses and pre-tax impairment charges related to intangible assets, offset by gains from the Juice transaction.
Meanwhile, the core operating margin expanded 36 bps, driven by gains from the cost management initiatives, offset by inflationary pressures on operating expenses.
Segment Details
On a segmental basis, the company witnessed revenue growth across all segments, except for PBNA and Europe. Organic revenues ascended for all segments.
Revenues, on a reported basis, improved 14% in FLNA, 17% in QFNA, 23% in Latin America, 6% in AMESA and 3% in APAC. Meanwhile, revenues, on a reported basis, declined 1% in PBNA and 8% in Europe. Organic revenues increased 14% for FLNA, 18% for QFNA, 9% for PBNA, 22% for Latin America, 9% for Europe, 23% for AMESA and 13% for APAC.
Operating profit (on a reported basis) increased 5% each for FLNA and QFNA segments, 18% for Latin America, 14% for AMESA and 7% for APAC. Yet, it declined 20% for PBNA and 297% for Europe.
Financials
The company ended second-quarter 2022 with cash and cash equivalents of $5,405 million, long-term debt of $33,247 million, and shareholders’ equity (excluding non-controlling interest) of $18,553 million.
Net cash from operating activities was $1,881 million as of Jun 11, 2022, compared with $2,340 million as of Jun 12, 2021.
Outlook
Given the year-to-date performance, PepsiCo has raised the revenue guidance for 2022. The company expects organic revenue growth of 10% for 2022 compared with 8% growth mentioned earlier. It continues to anticipate core constant-currency earnings per share to increase 8% from a year ago. The company notes that it will have the 53rd week in 2022 for the North America business, which reports on a calendar basis. The company’s organic revenue growth outlook excludes the impact of the extra week.
Based on the above assumption, PepsiCo has reiterated its core earnings per share view of $6.63 for 2022, suggesting a 6% increase from $6.26 reported in 2021. PEP expects currency headwinds to hurt revenues and core earnings per share by 2 percentage points in 2022, based on the current rates. The company continues to expect a core effective tax rate of 20%.
PepsiCo remains committed to rewarding shareholders through dividends and share buybacks. The company anticipates total cash returns to shareholders of $7.7 million, including $6.2 million of cash dividends and $1.5 billion of share repurchases.
Don’t Miss These Better-Ranked Stocks
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Coca-Cola FEMSA (KOF - Free Report) , Fomento Economico Mexican (FMX - Free Report) and The Duckhorn Portfolio (NAPA - Free Report) .
Coca-Cola FEMSA, a franchise bottler that produces, markets, sells and distributes Coca-Cola trademark beverages, presently carries a Zacks Rank #2 (Buy). The KOF stock has gained 4.5% in the past year. It has an expected long-term earnings growth rate of 6.6%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Coca-Cola FEMSA’s sales for the current financial year suggests growth of 5.1% from the year-ago reported levels. The consensus mark for earnings per share suggests a fall of 16% from the year-ago quarter. The consensus estimate for earnings has moved up 0.97% in the past 30 days. KOF has a trailing four-quarter earnings surprise of 15.6%, on average.
Fomento Economico Mexicano, alias FEMSA, has exposure in various industries, including beverage, beer and retail, which gives it an edge over its competitors. It presently has a Zacks Rank of 2. FEMSA has a trailing four-quarter earnings surprise of 3.9%, on average. Shares of FMX have declined 28.2% in the past year.
The Zacks Consensus Estimate for FEMSA’s sales for the current financial year suggests growth of 5.3% from the year-ago period’s reported figure. The consensus mark for earnings per share suggests a fall of 7.1%. The current financial year’s earnings per share have moved down 1.6% in the past 30 days. FMX has an expected EPS growth rate of 8.8% for three to five years.
Duckhorn currently has a Zacks Rank #2 and an expected long-term earnings growth rate of 12.2%. NAPA has a trailing four-quarter earnings surprise of 94.4%, on average. The company has declined 8% in the past year.
The Zacks Consensus Estimate for Duckhorn’s current financial-year sales and earnings per share suggests growth of 10.8% and 6.9%, respectively, from the year-ago reported numbers. The consensus mark for NAPA’s earnings per share has been unchanged in the past 30 days.