PepsiCo ($PEP) – Earnings Summary – July 13, 2024
Results
- Missed revenue estimates by 0.5%.
- Beat $2.16 GAAP EPS estimates by $0.07.
- Beat $2.20 EPS estimates by $0.08.
- Beat 55.0% GAAP gross profit margin (GPM) estimates by 50 bps.
- Beat EBIT estimates by 3.5%
Source: Brad Freeman – SEC Filings, Company Presentations, and Company Press Releases
Guidance & Valuation
Pepsi lowered annual organic revenue growth guidance from at least 4% Y/Y to 4% Y/Y. This reflects YTD North American food weakness described below. It reiterated its $8.15+ annual EPS guide and $8.2 billion shareholder return guide.
Pepsi trades for 20x this year’s EPS expectations. EPS is set to grow by 7% Y/Y this year and 8% Y/Y next year. Here’s how that current multiple compares to its historical norms (only marginally higher than the COVID low):
Balance Sheet
- $6.7 billion in cash & equivalents; $5.9 billion in inventory vs. $5.3 billion 6 months ago.
- $2.7 billion in investments.
- $44.8 billion in total debt with $8.3 billion in current debt.
- Share count fell by 0.4% Y/Y.
- Dividend payments rose by 9.6% Y/Y; Bought back $461 million in stock during the quarter.
Macro:
Pepsi cited a moderation in category-wide growth rates as consumers remain “choiceful with their purchases.” It still sees resilient international growth and North American performance brightening. It’s laser-focused on driving more productivity gains and also “investing in the marketplace to stimulate growth.” It’s these investments, which include bolstering its distribution network, marketing and omni-channel presence, that give Pepsi confidence in improving results later this year. It sees inflationary pressures not vanishing this year, but “moderate versus the prior year.”
Quaker Foods North America:
Aside from tough macro and also difficult Y/Y growth comps, Quaker Foods recalls hurt Pepsi’s results during the quarter. Revenue relatedly fell 18% Y/Y for this segment and reduced its organic revenue growth rate from 2.5% Y/Y to the 1.9% Y/Y result it posted. The impact from these recalls will moderate in the second half of the year.
Frito Lay North America & PepsiCo Beverages North America:
Frito Lay has gained more than 2 points of savory snack market share since 2020. The aforementioned consumer weakening is impacting things here as discretionary snack purchases are slowing. Consumers are “becoming more value-conscious with their spending patterns and preferences” according to Pepsi’s leadership team. Revenue for the category fell by 0.5% Y/Y.
For beverages, revenue rose by 1% Y/Y compared to a lofty 10% Y/Y growth result in Q2 2023. Its EBIT margin rose by 200 bps, which the company thinks will keep expanding over time. Pepsi and Mountain Dew zero sugar products performed well and the Gatorade brands took market share in sports drinks.
Take
Between recalls and tougher macro, Pepsi is experiencing rough times. It did directly cite higher cost of capital weighing on consumer budgets as a reason, so perhaps impending rate cuts will be good for this company going forward. The quarter was a bit underwhelming, but macro won’t be sour forever, comps will get easier and this firm still has a plethora of great brands to drive additional steady growth.
