A month has gone by since the last earnings report for PepsiCo (
PEP Quick Quote PEP - Free Report) . Shares have lost about 1.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is PepsiCo due for a breakout? 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 drivers.
PepsiCo Q1 Earnings & Revenues Beat Estimates
PepsiCo has reported robust first-quarter 2023 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’s strong results reflect gains from strength and resilience in its diversified portfolio, modernized supply chain, improved digital capabilities, flexible go-to-market distribution systems, and robust consumer demand trends.
The company also gained from the resilience and strength in the global beverage and convenient food businesses. The company has raised its view for 2023.
PepsiCo’s first-quarter core EPS of $1.50 beat the Zacks Consensus Estimate of $1.37 and our estimate of $1.36. Core EPS also increased 16.3% year over year. In constant currency, core earnings were up 18% 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 $1.40 declined 54% year over year in the quarter. Adverse currency rates impacted EPS by 2% in the quarter.
Net revenues of $17,846 million improved 10.2% year over year and surpassed the Zacks Consensus Estimate of $17,199 million and our estimate of $16,929 million. Revenues benefited from robust price/mix in the reported quarter. Unit volume declined 3% year over year for the convenient food business and was up 1% year over year for the beverage business. Foreign currency impacted revenues by 2.5%. On an organic basis, revenues grew 14.3% year over year, driven by broad-based growth across categories and geographies. This marked the sixth straight quarter of double-digit organic revenue growth for the company. The consolidated organic volume was down 2%, while effective net pricing improved 16% in the first 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 12% for the beverage business and 16% for the convenient food business. Region-wise, organic revenues improved 14% and 15%, respectively, in North America and International businesses. On a consolidated basis, the reported gross profit increased 12.4% year over year to $9,858 million. The core gross profit rose 11.2% year over year to $9,871 million. The reported gross margin expanded 112 basis points (bps), while the core gross margin expanded 51 bps. The reported operating income of $2,629 million declined 50% year over year. The core operating income rose 17.1% year over year to $2,802 million and the core constant-currency operating income improved 19%. The reported operating margin declined 1,778 bps to 14.7% from 32.5% in the year-ago quarter. Meanwhile, the core operating margin expanded 93 bps due to ongoing productivity initiatives, offset by a double-digit increase in advertising and marketing expenses. Segmental Details
The company witnessed revenue growth across all segments, except for APAC. Organic revenues improved for all segments.
Revenues, on a reported basis, improved 15% in FLNA, 9% in QFNA, 8% in PBNA, 21% in Latin America, 5% in Europe and 2% in AMESA. However, revenues declined 1% in APAC in the first quarter. Organic revenues increased 16% each for FLNA and Latin America, 10% for QFNA, 12% for PBNA, 14% for Europe, 29% for AMESA and 4% for APAC. Operating profit (on a reported basis) increased 23% for FLNA, 18% for QFNA, 13% for Latin America and 5.5% for APAC. However, it declined 86% for PBNA and 6% for AMESA. Financials
The company ended first-quarter 2023 with cash and cash equivalents of $4,770 million, long-term debt of $37,486 million, and shareholders’ equity (excluding non-controlling interest) of $17,042 million. Net cash used in operating activities was $392 million as of Mar 25, 2023, compared with $174 million used as of Mar 19, 2023.
PepsiCo raised its revenue and earnings guidance for 2023. The company expects organic revenue growth of 8% for 2023 compared with the 6% rise mentioned earlier. It anticipates core constant-currency earnings per share to increase 9% from the year-ago period’s reported figure versus 8% growth stated earlier. 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 $7.27 for 2023 compared with $7.20 per share mentioned earlier. This suggests a 7% increase from the core EPS of $6.79 reported in 2022 compared with 6% growth expected earlier. PepsiCo has been committed to rewarding shareholders through dividends and share buybacks. It expects to return value worth $7.7 billion in 2023, including $6.7 billion of dividends. Additionally, the company plans to repurchase shares worth $1.0 billion in 2023. How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
At this time, PepsiCo has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
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 #2 (Buy). We expect an above average return from the stock in the next few months.