We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Pre-Q2 Earnings Review: To Buy or Not to Buy PepsiCo (PEP)?
Read MoreHide Full Article
PepsiCo, Inc. (PEP - Free Report) is expected to register bottom and top-line growth when it reports second-quarter 2024 numbers on Jul 11, before the opening bell.
The Zacks Consensus Estimate for second-quarter revenues is pegged at $22.6 billion, implying 1.2% growth from the year-ago quarter's reported figure. For quarterly earnings, the consensus mark is pegged at $2.16, suggesting 3.4% growth from the $2.09 reported in the prior-year quarter. The consensus mark has been unchanged in the past 30 days.
Image Source: Zacks Investment Research
In the last reported quarter, the company registered an earnings beat of 5.9%. It has delivered an earnings surprise of 5.1%, on average, in the trailing four quarters.
Image Source: Zacks Investment Research
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for PepsiCo this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
PepsiCo benefits from strength and resilience in its diversified portfolio, modernized supply chain, improved digital capabilities, flexible go-to-market distribution systems and robust consumer demand trends. The company is anticipated to have reaped gains from the resilience and strength of the global beverage business.
Market share growth in the liquid refreshment beverage category, with share gains in the carbonated soft drinks, ready-to-drink tea and water categories, is likely to have aided the improvement in the beverage category. PEP’s food business is expected to have benefited from gains across core brands like Doritos, Lay’s, Ruffles, Tostitos and Cheetos, offset by softness in the Quaker Foods North America (“QFNA”) segment due to recent product recalls.
The December 2023 and January 2024 product recalls at the QFNA segment have eaten into PEP’s first-quarter revenues and profits, mainly denting its sales in the United States. The company has been on track to resume more production of certain products affected by the recalls through other facilities.
Although PepsiCo expects the recall-related financial impacts to moderate as the year progresses, we expect the product recall-related implications to affect second-quarter results, to some extent. Our model numbers indicate a 22% decline in organic revenues for the QFNA segment.
Nonetheless, PEP’s top line is expected to reflect gains from improved pricing across all segments. Additionally, strength in the international business, capitalizing on strong category growth in the developing and emerging markets, is expected to have boosted the top line in the second quarter.
Our model predicts consolidated year-over-year organic revenue growth of 2.8% for the second quarter, driven by a 4.5% rise in the price/mix, offset by a 1.7% decline in volume.
On an organic basis, we expect the company to deliver notable revenue growth across its international units in the second quarter. However, the North America business is expected to reflect softness due to the continued impacts of the product recalls in QFNA, and moderated revenue growth in the Frito-Lay North America and PepsiCo Beverages North America segments.
Our model estimates organic revenue growth of 6% each in Latin America and AMESA, 10% in Europe, and 8% in the APAC, reflecting continued momentum in the international units. Then again, we expect organic revenues to decline 22% at QFNA and increase 1% in PBNA, while the FLNA is expected to report flat organic revenues in the second quarter.
The company’s bottom line and margin performance in the to-be-reported quarter is expected to reflect the continued benefits of its ongoing holistic cost-management initiatives that have been driving superior supply chain and distribution efficiencies, offset by ongoing inflationary pressures and planned business investments.
We anticipate the adjusted gross margin to increase 20 basis points (bps) year over year to 54.9% in the second quarter. Gross margin growth is expected to result from eased supply-chain headwinds, partly offset by inflationary costs.
Price Performance & Valuation
PepsiCo’s shares have exhibited a downward trend, shedding a notable percentage over the year-to-date period. Specifically, the stock has declined 3.2% against the broader industry and the Consumer Staples sector’s growth of 1.7% and 0.6%, respectively. Additionally, PepsiCo's stock has lagged the S&P 500 significantly, which rallied 17.5% during the same period.
Image Source: Zacks Investment Research
PepsiCo's stock performance shows a stark contrast to its arch-rival Coca-Cola (KO - Free Report) , which saw its shares rise 8.2% year to date. This disparity highlights a significant dip in PepsiCo's stock price relative to its key rival. Meanwhile, shares of competitors, including Monster Bevearge (MNST - Free Report) and Keurig Dr Pepper (KDP - Free Report) , recorded declines of 13.6% and 2%, respectively, in the same period.
Currently trading at $164.39, PepsiCo’s stock is closer to its 52-week low of $155.83 and reflects a 14.5% discount from its 52-week high of $192.38.
Image Source: Zacks Investment Research
Despite this recent downturn, PEP’s valuation on a forward 12-month P/E basis suggests that it may be an attractive pick for investors. The stock is trading at a forward P/E ratio of 19.33X, below the industry average of 20.29X and the S&P 500’s average of 21.91X.
While PepsiCo faces challenges, including underperformance compared with industry peers and broader market indices, its current valuation discount and strong brand portfolio could present a buying opportunity for long-term investors.
Investment Thesis
PepsiCo has demonstrated consistent revenue growth and solid profitability, supported by its diverse product range and global reach. The company is focused on continually driving greater efficiency and effectiveness by reducing costs and plowing back these savings to develop scale and core capabilities. In 2024, the company anticipates elevating its focus on holistic cost-management initiatives to boost productivity and using these savings to mitigate cost inflation and prioritize investments in its brands, innovation and channel expansion.
Additionally, PepsiCo has been investing heavily in its digital transformation and e-commerce capabilities. Its efforts to enhance its direct-to-consumer platforms and digital marketing initiatives have been paying off, as evident from its contribution to revenue growth. The company has a strong balance sheet, with healthy cash flows that enable it to invest in growth opportunities, pay dividends and conduct share buybacks.
While PepsiCo’s strong financial performance and strategic initiatives provide a solid foundation for growth, the evolving industry dynamics and external risks justify a neutral stance on its investment potential. Inflationary pressures, product recalls at QFNA and changing consumer behavior are some factors affecting its financial performance in recent quarters.
Conclusion
As PepsiCo prepares to announce its second-quarter 2024 earnings, trends such as strengths in the beverage segment, robust trends in international business, digital growth, sustainability efforts, inflationary challenges, innovative product launches and geopolitical factors all play a crucial role in shaping PepsiCo's performance. Investors and analysts will be keen to see how these trends translate into financial results and what guidance the company provides for the remainder of the year.
While PEP’s strong financial performance and strategic initiatives provide a solid foundation for growth, the evolving industry dynamics and external risks justify a neutral stance on its investment potential. Investors should closely monitor the company's ability to navigate these challenges and capitalize on emerging opportunities to assess its long-term viability. As the company continues to navigate market dynamics and implement strategic initiatives, its ability to regain momentum and deliver value to shareholders will be crucial.
Image: Shutterstock
Pre-Q2 Earnings Review: To Buy or Not to Buy PepsiCo (PEP)?
PepsiCo, Inc. (PEP - Free Report) is expected to register bottom and top-line growth when it reports second-quarter 2024 numbers on Jul 11, before the opening bell.
The Zacks Consensus Estimate for second-quarter revenues is pegged at $22.6 billion, implying 1.2% growth from the year-ago quarter's reported figure. For quarterly earnings, the consensus mark is pegged at $2.16, suggesting 3.4% growth from the $2.09 reported in the prior-year quarter. The consensus mark has been unchanged in the past 30 days.
Image Source: Zacks Investment Research
In the last reported quarter, the company registered an earnings beat of 5.9%. It has delivered an earnings surprise of 5.1%, on average, in the trailing four quarters.
Image Source: Zacks Investment Research
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for PepsiCo this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
PepsiCo has a Zacks Rank #3 and an Earnings ESP of 0.00%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Trends Leading Up to PEP’s Q2 Results
PepsiCo benefits from strength and resilience in its diversified portfolio, modernized supply chain, improved digital capabilities, flexible go-to-market distribution systems and robust consumer demand trends. The company is anticipated to have reaped gains from the resilience and strength of the global beverage business.
Market share growth in the liquid refreshment beverage category, with share gains in the carbonated soft drinks, ready-to-drink tea and water categories, is likely to have aided the improvement in the beverage category. PEP’s food business is expected to have benefited from gains across core brands like Doritos, Lay’s, Ruffles, Tostitos and Cheetos, offset by softness in the Quaker Foods North America (“QFNA”) segment due to recent product recalls.
The December 2023 and January 2024 product recalls at the QFNA segment have eaten into PEP’s first-quarter revenues and profits, mainly denting its sales in the United States. The company has been on track to resume more production of certain products affected by the recalls through other facilities.
Although PepsiCo expects the recall-related financial impacts to moderate as the year progresses, we expect the product recall-related implications to affect second-quarter results, to some extent. Our model numbers indicate a 22% decline in organic revenues for the QFNA segment.
Nonetheless, PEP’s top line is expected to reflect gains from improved pricing across all segments. Additionally, strength in the international business, capitalizing on strong category growth in the developing and emerging markets, is expected to have boosted the top line in the second quarter.
Our model predicts consolidated year-over-year organic revenue growth of 2.8% for the second quarter, driven by a 4.5% rise in the price/mix, offset by a 1.7% decline in volume.
On an organic basis, we expect the company to deliver notable revenue growth across its international units in the second quarter. However, the North America business is expected to reflect softness due to the continued impacts of the product recalls in QFNA, and moderated revenue growth in the Frito-Lay North America and PepsiCo Beverages North America segments.
Our model estimates organic revenue growth of 6% each in Latin America and AMESA, 10% in Europe, and 8% in the APAC, reflecting continued momentum in the international units. Then again, we expect organic revenues to decline 22% at QFNA and increase 1% in PBNA, while the FLNA is expected to report flat organic revenues in the second quarter.
The company’s bottom line and margin performance in the to-be-reported quarter is expected to reflect the continued benefits of its ongoing holistic cost-management initiatives that have been driving superior supply chain and distribution efficiencies, offset by ongoing inflationary pressures and planned business investments.
We anticipate the adjusted gross margin to increase 20 basis points (bps) year over year to 54.9% in the second quarter. Gross margin growth is expected to result from eased supply-chain headwinds, partly offset by inflationary costs.
Price Performance & Valuation
PepsiCo’s shares have exhibited a downward trend, shedding a notable percentage over the year-to-date period. Specifically, the stock has declined 3.2% against the broader industry and the Consumer Staples sector’s growth of 1.7% and 0.6%, respectively. Additionally, PepsiCo's stock has lagged the S&P 500 significantly, which rallied 17.5% during the same period.
Image Source: Zacks Investment Research
PepsiCo's stock performance shows a stark contrast to its arch-rival Coca-Cola (KO - Free Report) , which saw its shares rise 8.2% year to date. This disparity highlights a significant dip in PepsiCo's stock price relative to its key rival. Meanwhile, shares of competitors, including Monster Bevearge (MNST - Free Report) and Keurig Dr Pepper (KDP - Free Report) , recorded declines of 13.6% and 2%, respectively, in the same period.
Currently trading at $164.39, PepsiCo’s stock is closer to its 52-week low of $155.83 and reflects a 14.5% discount from its 52-week high of $192.38.
Image Source: Zacks Investment Research
Despite this recent downturn, PEP’s valuation on a forward 12-month P/E basis suggests that it may be an attractive pick for investors. The stock is trading at a forward P/E ratio of 19.33X, below the industry average of 20.29X and the S&P 500’s average of 21.91X.
While PepsiCo faces challenges, including underperformance compared with industry peers and broader market indices, its current valuation discount and strong brand portfolio could present a buying opportunity for long-term investors.
Investment Thesis
PepsiCo has demonstrated consistent revenue growth and solid profitability, supported by its diverse product range and global reach. The company is focused on continually driving greater efficiency and effectiveness by reducing costs and plowing back these savings to develop scale and core capabilities. In 2024, the company anticipates elevating its focus on holistic cost-management initiatives to boost productivity and using these savings to mitigate cost inflation and prioritize investments in its brands, innovation and channel expansion.
Additionally, PepsiCo has been investing heavily in its digital transformation and e-commerce capabilities. Its efforts to enhance its direct-to-consumer platforms and digital marketing initiatives have been paying off, as evident from its contribution to revenue growth. The company has a strong balance sheet, with healthy cash flows that enable it to invest in growth opportunities, pay dividends and conduct share buybacks.
While PepsiCo’s strong financial performance and strategic initiatives provide a solid foundation for growth, the evolving industry dynamics and external risks justify a neutral stance on its investment potential. Inflationary pressures, product recalls at QFNA and changing consumer behavior are some factors affecting its financial performance in recent quarters.
Conclusion
As PepsiCo prepares to announce its second-quarter 2024 earnings, trends such as strengths in the beverage segment, robust trends in international business, digital growth, sustainability efforts, inflationary challenges, innovative product launches and geopolitical factors all play a crucial role in shaping PepsiCo's performance. Investors and analysts will be keen to see how these trends translate into financial results and what guidance the company provides for the remainder of the year.
While PEP’s strong financial performance and strategic initiatives provide a solid foundation for growth, the evolving industry dynamics and external risks justify a neutral stance on its investment potential. Investors should closely monitor the company's ability to navigate these challenges and capitalize on emerging opportunities to assess its long-term viability. As the company continues to navigate market dynamics and implement strategic initiatives, its ability to regain momentum and deliver value to shareholders will be crucial.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.