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PepsiCo (PEP) to Report Q3 Earnings: Will It Beat Estimates?

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PepsiCo, Inc. (PEP - Free Report) is set to report third-quarter 2020 results on Oct 1, before market open. In the last reported quarter, the company delivered an earnings surprise of 5.6%. Moreover, its bottom line beat the Zacks Consensus Estimate over the trailing four quarters, delivering a surprise of nearly 4%, on average.

The Zacks Consensus Estimate for third-quarter earnings is pegged at $1.48, implying a 5.1% decline from the year-earlier quarter's reported figure. Notably, the consensus mark has moved up by a penny in the past seven days. For quarterly revenues, the Zacks Consensus Estimate stands at $17.26 billion, suggesting a 0.4% increase from the prior-year quarter’s reported figure.

Key Factors to Note

PepsiCo has been displaying strength amid the coronavirus pandemic on its strong portfolio of brands, a responsive supply chain and flexible go-to-market systems, which have helped maintain continued supplies. Further, robust pricing and volume gains have been aiding its performance.

PepsiCo, Inc. Price and EPS Surprise

 

PepsiCo, Inc. Price and EPS Surprise

PepsiCo, Inc. price-eps-surprise | PepsiCo, Inc. Quote

The coronavirus pandemic has led to an increase in at-home consumption for soft drink lovers, which has led to a splurge in at-home channel sales. Moreover, the work-from-home trend and inability to visit coffee shops have increased in-home coffee consumption, which is likely to beef up market share for this category. Higher in-home beverage and coffee demand is likely to compensate for the sluggishness in the away-from-home channel due to the pandemic. Notably, PepsiCo has been witnessing strong growth for energy drinks and ready-to-drink coffee products, which is likely to have continued in the third quarter. Further, the company has been benefiting from consumers’ shift to making online purchases amid the pandemic through strength in the online channel.

To capitalize on the growing digital commerce trends, the company launched two online sites on May 11 for consumers to shop during the coronavirus pandemic and beyond. The sites, namely PantryShop.com and Snacks.com, offer all of PepsiCo’s beverage, snack and food assortments. Gains from the launch of these sites are expected to get reflected in the company’s top-line results for the third quarter.

Moreover, the resilience in the snacks/food business worked well for the company amid the coronavirus pandemic. The stay-at-home trend resulted in evolved consumer eating habits, giving rise to at-home breakfast, snacking and dinner occasions. This has provided an opportunity for the company’s Frito-Lay and Quaker food businesses to capitalize and improve household penetration. Impacts of the continuation of this trend are likely to get reflected in the robust sales for the company’s QFNA and FLNA segments.

However, PepsiCo’s beverage business has been hurt by a decline in the convenience and gas and away-from-home channels. The soft trends in the away-from-home channels are likely to have continued in the third quarter as consumers are unwilling to step out due to the pandemic-related concerns. Moreover, the company has been incurring higher labor, logistics and service costs to meet customer demand, which are likely to have persisted in the third quarter.

Zacks Model

Our proven model predicts 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 odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

PepsiCo carries a Zacks Rank #3 and an Earnings ESP of +0.97%.

Other Stocks to Consider

Here are some other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat:

Deckers Outdoor Corporation (DECK - Free Report) has an Earnings ESP of +5.43% and it currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Amazon.com, Inc. (AMZN - Free Report) presently has an Earnings ESP of +25.14% and a Zacks Rank #3.

Philip Morris International Inc. (PM - Free Report) currently has an Earnings ESP of +2.41% and a Zacks Rank #3.

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