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PepsiCo (PEP) Rises on Q4 Earnings and Sales Beat, Upbeat View
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PepsiCo, Inc. (PEP - Free Report) has reported robust fourth-quarter 2022 results, wherein revenues and earnings surpassed the Zacks Consensus Estimate and our estimate. The top and bottom lines also improved year over year.
The company continued 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 the global beverage and convenient food businesses. The company provided a positive view for 2023.
Driven by the strong results and the upbeat view, the company’s shares rallied 1.63% in the pre-market session following the earnings release on Feb 9. Shares of the Zacks Rank #3 (Hold) company have risen 1.9% in the past year compared with the industry’s 3.3% growth.
Image Source: Zacks Investment Research
Quarter in Detail
PepsiCo’s fourth-quarter core EPS of $1.67 beat the Zacks Consensus Estimate of $1.64 and our estimate of $1.61. Core EPS also increased 9.2% year over year. In constant currency, core earnings were up 10% from the year-ago period, backed by the mitigation of inflationary pressures through cost-management and revenue-management initiatives. The company’s reported EPS of 37 cents declined 61.1% year over year in the quarter due to the effects of impairments related to certain brands and assets. Adverse currency rates impacted EPS by 1% in the quarter.
Net revenues of $27,996 million improved 10.9% year over year and surpassed the Zacks Consensus Estimate of $26,849 million and our estimate of $26,347.5 million. Revenues benefited from robust price/mix in the reported quarter. Unit volume declined 2% year over year for the convenient food business and was flat year over year for the beverage business. Foreign currency impacted revenues by 3%.
On an organic basis, revenues grew 15% year over year, driven by broad-based growth across categories and geographies. This marked the fifth straight quarter of double-digit organic revenue growth for the company. Consolidated organic volume was down 2%, while effective net pricing improved 16% in the fourth quarter. Pricing gains were driven by strong realized prices across all segments.
Improvements across categories resulted from accelerated growth in the global beverage and convenient food businesses, reflecting strength in its diversified portfolio. On a year-over-year basis, organic revenues grew 10% for the beverage business and 18% for the convenient food business. Region-wise, organic revenues improved 14% and 16%, respectively, in North America and International businesses.
On a consolidated basis, the reported gross profit increased 11.1% year over year to $14,576 million. Core gross profit rose 11.5% year over year to $14,705 million. The reported gross margin expanded 11 basis points (bps), while the core gross margin expanded 27 bps.
The reported operating income of $815 million declined 68.2% year over year. Core operating income rose 7% year over year to $2,930 million and core constant-currency operating income improved 8%. The reported operating margin declined 723 bps to 2.9% from 10.1% in the year-ago quarter. Meanwhile, the core operating margin contracted 39 bps due to strong double-digit increase in advertising and marketing expense, along with additional investments to build digital capabilities and integrate purpose throughout the company.
Segmental Details
The company witnessed revenue growth across all segments, except Europe. Organic revenues improved for all segments.
Revenues, on a reported basis, improved 25% in FLNA, 16% in QFNA, 6% in PBNA, 21% in Latin America, 4% in AMESA and 2% in APAC. However, revenues declined 2% in Europe in the fourth quarter. Organic revenues increased 18% for FLNA, 10% each for QFNA and PBNA, 19% for Latin America, 12% for Europe, 21% for AMESA and 12% for APAC.
Operating profit (on a reported basis) increased 9% for FLNA, 13% for PBNA and 5% for Latin America. However, it declined 3% for QFNA, 420% for Europe, 148% for AMESA and 215% for APAC.
Financials
The company ended 2022 with cash and cash equivalents of $4,954 million, long-term debt of $35,657 million and shareholders’ equity (excluding non-controlling interest) of $17,149 million.
Net cash from operating activities was $10,811 million as of Dec 31, 2022, compared with $11,616 million as of Dec 25, 2021.
Outlook
PepsiCo outlined its revenue and earnings guidance for 2023. The company expects organic revenue growth of 6% for 2023. It anticipates core constant-currency earnings per share to increase 8% from the year-ago period.
PEP expects currency headwinds to hurt revenues and core earnings per share by 2 percentage points in 2023, based on the current rates. The company expects a core effective tax rate of 20% for 2023.
Based on the above assumption, PepsiCo expects its core earnings per share to be $7.20 for 2023. This suggests a 6% increase from the core EPS of $6.79 reported in 2022.
PepsiCo remains committed to rewarding shareholders through dividends and share buybacks. The company raised its annualized dividend by 10%, which is payable from the June 2023 payment. This will represent the company’s 51st consecutive yearly increase in dividend. Additionally, the company plans to repurchase shares worth $1.0 billion in 2023.
Don’t Miss These Better-Ranked Stocks
We have highlighted some better-ranked stocks from the broader Consumer Staples space, namely Fomento Economico Mexican (FMX - Free Report) , Coca-Cola (KO - Free Report) and Monster Beverage (MNST - Free Report) .
Fomento Economico Mexicano, alias FEMSA, has exposure in various industries, including beverage, beer and retail, which gives it an edge over its competitors. It presently has a Zacks Rank of 1 (Strong Buy). FEMSA has a trailing four-quarter negative earnings surprise of 15%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for FEMSA’s sales for the current financial year suggests growth of 20.1% from the year-ago period’s reported figure. The consensus mark for earnings per share suggests a fall of 3.1%. The current financial year’s earnings per share have moved up 0.5% in the past 30 days. FMX has an expected EPS growth rate of 11.4% for three to five years.
Coca-Cola, the behemoth soft-drinks company, presently carries a Zacks Rank #2 (Buy). KO has an expected long-term earnings growth rate of 6.2%.
The Zacks Consensus Estimate for Coca-Cola’s sales and earnings for the current financial year suggests growth of 10.9% and 6.9%, respectively, from the year-ago reported levels. The consensus estimate for earnings has been unchanged in the past 30 days. KO has a trailing four-quarter earnings surprise of 8.8%, on average.
Monster Beverage is a marketer and distributor of energy drinks and alternative beverages. It currently has a Zacks Rank #2. MNST has an expected EPS growth rate of 11.4% for three to five years.
The Zacks Consensus Estimate for Monster Beverage’s sales for the current financial year suggests growth of 15.2% from the year-ago reported levels. The consensus mark for earnings per share suggests a fall of 11.3%. The consensus estimate for earnings has been unchanged in the past 30 days. MNST has a trailing four-quarter negative earnings surprise of 7.5%, on average.
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PepsiCo (PEP) Rises on Q4 Earnings and Sales Beat, Upbeat View
PepsiCo, Inc. (PEP - Free Report) has reported robust fourth-quarter 2022 results, wherein revenues and earnings surpassed the Zacks Consensus Estimate and our estimate. The top and bottom lines also improved year over year.
The company continued 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 the global beverage and convenient food businesses. The company provided a positive view for 2023.
Driven by the strong results and the upbeat view, the company’s shares rallied 1.63% in the pre-market session following the earnings release on Feb 9. Shares of the Zacks Rank #3 (Hold) company have risen 1.9% in the past year compared with the industry’s 3.3% growth.
Image Source: Zacks Investment Research
Quarter in Detail
PepsiCo’s fourth-quarter core EPS of $1.67 beat the Zacks Consensus Estimate of $1.64 and our estimate of $1.61. Core EPS also increased 9.2% year over year. In constant currency, core earnings were up 10% from the year-ago period, backed by the mitigation of inflationary pressures through cost-management and revenue-management initiatives. The company’s reported EPS of 37 cents declined 61.1% year over year in the quarter due to the effects of impairments related to certain brands and assets. Adverse currency rates impacted EPS by 1% in the quarter.
Net revenues of $27,996 million improved 10.9% year over year and surpassed the Zacks Consensus Estimate of $26,849 million and our estimate of $26,347.5 million. Revenues benefited from robust price/mix in the reported quarter. Unit volume declined 2% year over year for the convenient food business and was flat year over year for the beverage business. Foreign currency impacted revenues by 3%.
On an organic basis, revenues grew 15% year over year, driven by broad-based growth across categories and geographies. This marked the fifth straight quarter of double-digit organic revenue growth for the company. Consolidated organic volume was down 2%, while effective net pricing improved 16% in the fourth quarter. Pricing gains were driven by strong realized prices across all segments.
PepsiCo, Inc. Price, Consensus and EPS Surprise
PepsiCo, Inc. price-consensus-eps-surprise-chart | PepsiCo, Inc. Quote
Improvements across categories resulted from accelerated growth in the global beverage and convenient food businesses, reflecting strength in its diversified portfolio. On a year-over-year basis, organic revenues grew 10% for the beverage business and 18% for the convenient food business. Region-wise, organic revenues improved 14% and 16%, respectively, in North America and International businesses.
On a consolidated basis, the reported gross profit increased 11.1% year over year to $14,576 million. Core gross profit rose 11.5% year over year to $14,705 million. The reported gross margin expanded 11 basis points (bps), while the core gross margin expanded 27 bps.
The reported operating income of $815 million declined 68.2% year over year. Core operating income rose 7% year over year to $2,930 million and core constant-currency operating income improved 8%. The reported operating margin declined 723 bps to 2.9% from 10.1% in the year-ago quarter. Meanwhile, the core operating margin contracted 39 bps due to strong double-digit increase in advertising and marketing expense, along with additional investments to build digital capabilities and integrate purpose throughout the company.
Segmental Details
The company witnessed revenue growth across all segments, except Europe. Organic revenues improved for all segments.
Revenues, on a reported basis, improved 25% in FLNA, 16% in QFNA, 6% in PBNA, 21% in Latin America, 4% in AMESA and 2% in APAC. However, revenues declined 2% in Europe in the fourth quarter. Organic revenues increased 18% for FLNA, 10% each for QFNA and PBNA, 19% for Latin America, 12% for Europe, 21% for AMESA and 12% for APAC.
Operating profit (on a reported basis) increased 9% for FLNA, 13% for PBNA and 5% for Latin America. However, it declined 3% for QFNA, 420% for Europe, 148% for AMESA and 215% for APAC.
Financials
The company ended 2022 with cash and cash equivalents of $4,954 million, long-term debt of $35,657 million and shareholders’ equity (excluding non-controlling interest) of $17,149 million.
Net cash from operating activities was $10,811 million as of Dec 31, 2022, compared with $11,616 million as of Dec 25, 2021.
Outlook
PepsiCo outlined its revenue and earnings guidance for 2023. The company expects organic revenue growth of 6% for 2023. It anticipates core constant-currency earnings per share to increase 8% from the year-ago period.
PEP expects currency headwinds to hurt revenues and core earnings per share by 2 percentage points in 2023, based on the current rates. The company expects a core effective tax rate of 20% for 2023.
Based on the above assumption, PepsiCo expects its core earnings per share to be $7.20 for 2023. This suggests a 6% increase from the core EPS of $6.79 reported in 2022.
PepsiCo remains committed to rewarding shareholders through dividends and share buybacks. The company raised its annualized dividend by 10%, which is payable from the June 2023 payment. This will represent the company’s 51st consecutive yearly increase in dividend. Additionally, the company plans to repurchase shares worth $1.0 billion in 2023.
Don’t Miss These Better-Ranked Stocks
We have highlighted some better-ranked stocks from the broader Consumer Staples space, namely Fomento Economico Mexican (FMX - Free Report) , Coca-Cola (KO - Free Report) and Monster Beverage (MNST - Free Report) .
Fomento Economico Mexicano, alias FEMSA, has exposure in various industries, including beverage, beer and retail, which gives it an edge over its competitors. It presently has a Zacks Rank of 1 (Strong Buy). FEMSA has a trailing four-quarter negative earnings surprise of 15%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for FEMSA’s sales for the current financial year suggests growth of 20.1% from the year-ago period’s reported figure. The consensus mark for earnings per share suggests a fall of 3.1%. The current financial year’s earnings per share have moved up 0.5% in the past 30 days. FMX has an expected EPS growth rate of 11.4% for three to five years.
Coca-Cola, the behemoth soft-drinks company, presently carries a Zacks Rank #2 (Buy). KO has an expected long-term earnings growth rate of 6.2%.
The Zacks Consensus Estimate for Coca-Cola’s sales and earnings for the current financial year suggests growth of 10.9% and 6.9%, respectively, from the year-ago reported levels. The consensus estimate for earnings has been unchanged in the past 30 days. KO has a trailing four-quarter earnings surprise of 8.8%, on average.
Monster Beverage is a marketer and distributor of energy drinks and alternative beverages. It currently has a Zacks Rank #2. MNST has an expected EPS growth rate of 11.4% for three to five years.
The Zacks Consensus Estimate for Monster Beverage’s sales for the current financial year suggests growth of 15.2% from the year-ago reported levels. The consensus mark for earnings per share suggests a fall of 11.3%. The consensus estimate for earnings has been unchanged in the past 30 days. MNST has a trailing four-quarter negative earnings surprise of 7.5%, on average.