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Will Demand & Pricing Trends Aid PepsiCo's (PEP) Q3 Earnings?

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PepsiCo, Inc. (PEP - Free Report) is expected to register bottom and top-line growth when it reports third-quarter 2023 numbers on Oct 10, before the opening bell. The Zacks Consensus Estimate for third-quarter revenues is pegged at $23.4 billion, implying 6.5% growth from the year-ago quarter's reported figure.

For quarterly earnings, the Zacks Consensus Estimate is pegged at $2.17, suggesting 10.2% growth from the $1.97 reported in the prior-year quarter. The consensus mark has moved down by a penny in the past 30 days.

In the last reported quarter, the company reported an earnings beat of 7.2%. It has delivered an earnings surprise of 6.3%, on average, in the trailing four quarters.

PepsiCo, Inc. Price and EPS Surprise

 

PepsiCo, Inc. Price and EPS Surprise

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

Key Factors to Note

PepsiCo has been benefiting 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 is likely to have gained from delivering convenience, variety and value proposition to customers through its brands in the to-be-reported quarter.

PEP’s third-quarter results are expected to reflect gains from improved pricing across all segments. The bottom line is likely to reflect the continued benefits of the mitigation of inflationary pressures through cost-management and revenue-management initiatives. PepsiCo is likely to have benefited from the resilience and strength of the global beverage and convenient food businesses.

We expect year-over-year consolidated organic revenue growth of 8% for the third quarter, driven by a 12.1% rise in the price/mix, offset by a 4.1% decline in volume.

Market share growth in the liquid refreshment beverage category, with share gains in the carbonated soft drinks, ready-to-drink tea and water categories, is likely to have aided the improvement in the beverage category. Investments in innovation and execution also bode well.

The company’s food business has been gaining from revenue growth across core brands like Doritos, Lay’s, Ruffles, Tostitos and Cheetos. The Quaker business has been benefiting from market share gains in the rice and pasta, lite snacks, ready-to-eat cereal, and snack bar categories, as it has been capitalizing on the elevated demand for tasty products that deliver convenience and value.

However, PepsiCo’s third-quarter gross margin is expected to have been partly negated by inflationary labor, transportation and commodity costs. Adverse currency rates are also likely to have been headwinds.

Increased advertising and marketing expenses, along with additional investments to build digital capabilities and integrate purpose throughout the company, are likely to have led to a rise in SG&A expenses in the to-be-reported quarter.

We anticipate the adjusted gross margin to expand 60 bps to 54% in the third quarter. Margin growth can be attributed to the easing of supply-chain headwinds, partly offset by inflationary costs. Meanwhile, our estimate for adjusted SG&A expenses of $8.5 billion indicates a year-over-year rise of 4.3%. Driven by the gross margin expansion and higher SG&A expenses, our model suggests a 30-bps operating margin expansion to 16.7% in the third quarter.

Zacks Model

Our proven model does not conclusively predict 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 chances 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 has a Zacks Rank #4 and an Earnings ESP of -0.09%.

Stocks to Consider

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

Coca-Cola (KO - Free Report) currently has an Earnings ESP of +1.45% and a Zacks Rank #3. The company is expected to register top-line growth when it reports third-quarter 2023 numbers. The Zacks Consensus Estimate for KO’s quarterly revenues is pegged at $11.5 billion, which suggests growth of 3.8% from the prior-year quarter’s reported figure.

You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Coca-Cola’s quarterly earnings has been unchanged in the past 30 days at 69 cents per share. The estimate suggests flat results from the year-ago reported quarter. KO has delivered an earnings beat of 5.2%, on average, in the trailing four quarters.

Procter & Gamble (PG - Free Report) currently has an Earnings ESP of +0.06% and a Zacks Rank #3. PG is anticipated to register top and bottom-line growth when it reports first-quarter fiscal 2024 results. The Zacks Consensus Estimate for Procter & Gamble’s quarterly revenues is pegged at $21.6 billion, indicating growth of 5% from the figure reported in the prior-year quarter.

The Zacks Consensus Estimate for Procter & Gamble’s bottom line has been unchanged in the past 30 days at $1.71 per share. The consensus estimate suggests growth of 8.9% from the prior-year quarter’s reported figure. PG has delivered an earnings beat of 2.4%, on average, in the trailing four quarters.

Colgate-Palmolive (CL - Free Report) has an Earnings ESP of +0.20% and a Zacks Rank #3 at present. CL is likely to register top and bottom-line growth when it releases third-quarter 2023 results. The Zacks Consensus Estimate for its quarterly revenues is pegged at $4.8 billion, which suggests growth of 8.2% from the figure reported in the prior-year quarter.

The Zacks Consensus Estimate for Colgate’s quarterly earnings has been unchanged in the past 30 days at 80 cents per share, suggesting growth of 8.1% from the year-ago quarter’s reported number. CL has delivered an earnings surprise of 1.7%, on average, in the trailing four quarters.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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