PepsiCo (PEP) Up 2.6% Since Last Earnings Report: Can It Continue?

A month has passed since PepsiCo’s (PEP) last earnings report. Shares rose about 2.6% in that time, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is PepsiCo headed for a recession? Before we dive into the recent reaction from investors and analysts, let’s take a quick look at the company’s most recent earnings report in order to get a better handle on the important factors influencing the situation.

PepsiCo first quarter sales results and results, aids for international units

PepsiCo reported strong first-quarter 2024 results, with revenues and earnings surpassing the Zacks Consensus Estimate and improving year over year. The company’s results were mainly influenced by the improvement of its international operations, which ensured a significant increase in volumes and an organic increase in revenues by 9%.

PEP noted that each of its international companies reported at least high single-digit organic revenue growth, along with organic volume growth in most units. In the international business, organic revenues increased by 9% in the convenience food segment and by 10% in the beverages category.

The results also reflect increased strength and resilience in their categories, a diversified portfolio, a modernized supply chain, enhanced digital capabilities, flexible distribution systems to enable market entry, and solid consumer demand trends.

PepsiCo’s first-quarter core EPS of $1.61 surpassed the Zacks Consensus Estimate of $1.52 and increased 7.3% year-over-year. In constant currency, core earnings increased 7% year-on-year, supported by easing inflationary pressures through cost and revenue management initiatives. The company’s reported EPS of $1.48 increased 6% year-over-year in the quarter. The impact of exchange rates on quarterly EPS was neutral.

Net revenues of $18,250 million increased 2.3% year-over-year and surpassed the Zacks Consensus Estimate of $18,155 million. Revenues driven by improved pricing/assortment in the reporting quarter, offset by a 0.5% unit volume decline in the convenience food business and flat unit volume in the beverage business. Foreign currency affected revenues by 0.5%.

Organically, revenue increased 2.7% year-over-year, driven by growth in all categories and geographies except QFNA. Consolidated organic volume declined 2%, while effective net prices increased 5% in the first quarter. The price increase was due to high prices realized in all segments except QFNA and AMESA.

Our model projected first-quarter organic revenue growth of 3.7% year-over-year, with price/mix growth of 8.1% and volume decline of 4.4%.

On a consolidated basis, reported gross profit increased 1.5% year over year to $10,002 million. Core gross profit increased 2.9% year-over-year to $10,162 million. Reported gross margin decreased by 43 basis points (bps), while underlying gross margin increased by 37 bps.

We expected core gross margin to remain unchanged at 55.3% in the first quarter. In dollar terms, core gross profit was expected to increase 1.9% year-over-year.

The company reported operating income of $2,717 million increased 3.3% year-over-year. Core operating income increased 4.9% year over year to $2,939 million, and core operating income in constant currency improved 10%. Reported operating margin increased 16 basis points compared to the prior-year quarter. Meanwhile, core operating margin increased by 40 basis points thanks to continuous total cost management initiatives aimed at ensuring the highest efficiency of the supply chain and distribution.

Our model projected core selling, general and administrative expenses of $7.3 billion, an increase of 2.7% year-over-year. Core selling, general and administrative expenses were expected to be 39.9%, an increase of 30 basis points from the prior-year quarter as a percentage of sales. We expected a core operating margin of 15.4%, down 30 basis points from the prior quarter’s actual margin.

The story continues

Segment details

The company achieved reported and organic revenue growth in all operating segments except QFNA. Revenues in the QFNA segment were impacted by the discontinuation of certain products and a significant increase in revenues compared to the previous year.

Revenues, according to reporting data, in the FLNA and AMESA segments increased by 2% each year. Reported revenues also increased by 16% in Latin America, 1% in PBNA, 3% in Europe and 6% in APAC. Organic revenues increased by 2% for FLNA, 1% for PBNA, 8% for Latin America, 10% for Europe, 7% for AMESA and 11% for the APAC segment. However, QFNA segment revenues declined 24% on both a reported and organic basis.

Financial

The company ended the first quarter of 2024 with cash and cash equivalents of $8,047 million, long-term debt of $37,707 million and equity (excluding non-controlling interests) of $19,190 million. Net cash used in operating activities as of March 23, 2024 was $1,041 million compared to $392 million as of March 25, 2023.

Perspectives

PepsiCo maintained its view for 2024. The company expects organic revenue growth in 2024 by at least 4%. It expects core EPS to grow in constant currency by at least 8% compared to prior-year data. PEP expects unfavorable currency conditions to reduce revenues and underlying EPS by 1 percentage point in 2024, based on current interest rates. The company expects that in 2024 the basic effective tax rate will be 20%.

Based on the above assumption, PepsiCo expects underlying EPS to be at least $8.15 in 2024. This represents an increase of 7% from the underlying EPS of $7.62 recorded in 2023.

PepsiCo is committed to rewarding shareholders through dividends and share buybacks. It expects to return $8.2 billion in value in 2024, including $7.2 billion in dividends. Additionally, the company plans to repurchase shares worth $1 billion in 2024.

How have estimates changed since then?

Last month, investors saw a downward trend in new estimates.

VGM results

PepsiCo currently has an average Growth Score of C, although it lags in the Momentum Score with an F. However, the stock is rated a C on the value side, ranking in the middle 20% in that range. investment strategy.

Overall, the stock has a Total VGM Score of D. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, PepsiCo has a Zacks Rank of #2 (Buy). We expect an above-average rate of return on shares in the coming months.

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