A month has gone by since the last earnings report for PepsiCo (PEP Quick QuotePEP - Free Report) . Shares have added about 6% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is PepsiCo due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

PepsiCo Q3 Earnings & Sales Beat, Raises View

PepsiCo reported robust third-quarter 2021 results, wherein earnings and revenues beat the Zacks Consensus Estimate and improved year over year. The company continues 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 its global snacks and foods business as well as growth in the beverage category. It witnessed resilient trends in the North America business, while the international business delivered growth despite uneven recovery across geographies.

PepsiCo’s third-quarter core earnings per share (EPS) of $1.79 beat the Zacks Consensus Estimate of $1.73 and increased 7.8% year over year. In constant currency, core earnings were up 5.5% from the year-ago period. The company’s reported EPS of $1.60 declined 3% year over year. Foreign currency aided earnings per share by 2% in the reported quarter.

Net revenues of $20,189 million improved 11.6% year over year and surpassed the Zacks Consensus Estimate of $19,441 million. Revenues benefited from volume growth and robust price/mix in the reported quarter. On an organic basis, revenues grew 9% year over year, driven by broad-based growth across categories and geographies. On a two-year basis, organic revenues increased 13.3%. Foreign currency aided revenues by 2% in the third quarter.

Consolidated organic volume was up 4% and price/mix improved 5% in the third quarter. Pricing gains were driven by strong realized prices across all segments. The unit volume was up 4% year over year for the snacks/food business and 8% for the beverage business.

Revenues were also aided by the resilience in the snacks business as well as gains in the beverage business. Organic revenues grew 8% for the snacks business and 10% for the beverage business. Region-wise, organic revenues improved 6% for the North America business and 14% for the international business.

On a consolidated basis, reported gross profit increased 8.7% year over year to $10,795 million. The core gross profit rose 9%. The reported gross margin contracted 145 basis points (bps), while the core gross margin declined 118 bps.

The reported operating income of $3,159 million increased 4.9% year over year, while the core operating income improved 6%. The reported operating margin fell 100 bps, while the core operating margin declined 77 bps. The soft margin performance can be attributed to the impacts of supply-chain disruptions as well as the negative effects of the inflationary pressures from labor, transportation and commodity costs. The factors impacted core operating profits for the FLNA and QFNA segments.

Segment Details

On a segmental basis, the company witnessed revenue growth across all segments. Organic revenues also ascended for all segments.

Revenues, on a reported basis, improved 6% in FLNA, 2% in QFNA, 7% in PBNA, 9% in Europe, 33% in AMESA, and 27% each in Latin America and APAC segments. Organic revenues increased 5% for FLNA, 1% for QFNA, 7% for PBNA, 19% for Latin America, 8% for Europe, 20% for AMESA and 15% for APAC segments.

The operating profit (on a reported basis) was flat for FLNA, while it increased 11% for PBNA, 57% for Latin America, 63% for AMESA and 23% for APAC. However, it declined 27% for QFNA and 8% for Europe.

Financials

The company ended the third quarter with cash and cash equivalents of $6,506 million, long-term debt of $37,023 million, and shareholders’ equity (excluding non-controlling interest) of $15,872 million.

Net cash used in operating activities was $6,634 million as of Sep 4, 2021, compared with $6,123 million as of Sep 5, 2020.

Outlook

Backed by the strong results, the company raised its sales guidance for 2021. It now expects organic revenue growth of 8% compared with 6% growth stated earlier. Core constant currency earnings per share are expected to increase 11% versus the previously mentioned 11% growth. Core earnings per share are anticipated to rise 12% compared with 12% growth stated earlier. Consequently, it estimates core earnings per share of $6.20 for 2021, whereas it reported $5.52 in 2020.

The company continues to expect a core effective tax rate of 21%. It expects currency tailwinds to aid its revenues and core earnings per share by 1 percentage point in 2021, based on the current rates.

PepsiCo remains committed to rewarding its shareholders through dividends and share buybacks. The company anticipates total cash returns to shareholders of $5.9 million, including $5.8 million of cash dividends and $106 million of share repurchases. It has completed its share-repurchase authorization and expects no more share repurchase through the rest of 2021.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, PepsiCo has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, PepsiCo has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.