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PepsiCo, Inc. (PEP - Free Report) reported robust third-quarter 2023 results, wherein revenues and earnings surpassed the Zacks Consensus Estimate. The top and bottom lines also improved year over year. The strong results reflect gains from strength and resilience in its categories, 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 robust performance in the global beverage and convenient food businesses. Driven by strong results and business momentum, the company has raised its core constant-currency earnings per share (EPS) view for 2023.
PEP shares rose 2.1% in the pre-market session following the earnings release on Oct 10, owing to the upbeat third-quarter performance and raised EPS view. Shares of the Zacks Rank #4 (Sell) company have lost 12.3% in the past three months compared with the industry’s 7% decline.
Image Source: Zacks Investment Research
Quarter in Detail
PepsiCo’s third-quarter core EPS of $2.25 beat the Zacks Consensus Estimate of $2.17 and increased 14.2% year over year. In constant currency, core earnings improved 16% from the year-ago period, backed by strong top-line growth, as well as the mitigation of inflationary pressures through cost-management and revenue-management initiatives. The company’s reported EPS of $2.24 rose 15% year over year in the quarter. Adverse currency rates impacted EPS by 2% in the quarter.
Net revenues of $23,453 million improved 6.7% year over year, surpassing the Zacks Consensus Estimate of $23,378 million. Revenues benefited from a robust price/mix in the reported quarter. Unit volume declined 1.5% year over year for the convenient food business and was flat year over year for the beverage business. Foreign currency impacted revenues by 2%.
On an organic basis, revenues grew 8.8% year over year, driven by broad-based growth across categories and geographies. This marked the 10th straight quarter of at least high-single-digit organic revenue growth for the company. The consolidated organic volume was down 2.5%, while effective net pricing improved 11% in the third quarter. Pricing gains were driven by strong realized prices across all segments.
Our model had predicted organic revenue growth of 8% for the third quarter, with a 12.1% gain from price/mix and a 4.1% decline in volume.
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 8% for the global beverage business and 9% for the convenient food business. Region-wise, organic revenues improved 7% and 12%, respectively, in North America and International businesses.
On a consolidated basis, the reported gross profit increased 9.6% year over year to $12,778 million. The core gross profit rose 8.8% year over year to $12,766 million. The reported gross margin expanded 140 basis points (bps), while the core gross margin expanded 104 bps.
We anticipated the core gross margin to expand 60 bps to 54%. In dollar terms, core gross profit was anticipated to increase 4.7% year over year.
The reported operating income of $4,015 million rose 19.7% year over year. The core operating income rose 12.1% year over year to $4,029 million and the core constant-currency operating income improved 14%. The reported operating margin expanded 186 bps from the year-ago quarter. Meanwhile, the core operating margin expanded 82 bps due to ongoing holistic cost-management initiatives to drive superior supply chain and distribution efficiencies, offset by a double-digit increase in advertising and marketing expenses.
Our model predicted core SG&A expenses of $8.5 billion, which indicated year-over-year growth of 4.3%. As a percentage of sales, core SG&A expenses were anticipated to increase 30 bps to 37.3%.
We expected a core operating margin of 16.7%, suggesting a 30-bps expansion from the year-ago quarter’s actual.
Segmental Details
The company witnessed revenue growth across all segments, except for AMESA. Organic revenues improved for all segments.
Revenues, on a reported basis, improved 7% in FLNA, 5% in QFNA, 8% in PBNA, 21% in Latin America, 2% in Europe, and 4% in APAC. However, revenues declined 6% in AMESA in the third quarter. Organic revenues increased 7% for FLNA, 5% for QFNA, 6% for PBNA, 9% for Latin America, 13% for Europe, 17% for AMESA and 9% for APAC.
Operating profit (on a reported basis) increased 5% for FLNA, 11% for QFNA, 24% for PBNA, 28% for Latin America, 17% for Europe, and 20% for APAC. However, it declined 11% for AMESA.
Financials
The company ended third-quarter 2023 with cash and cash equivalents of $10,017 million, long-term debt of $35,837 million, and shareholders’ equity (excluding non-controlling interest) of $18,806 million.
Net cash provided by operating activities was $7,630 million as of Sep 9, 2023, compared with $6,306 million as of Sep 3, 2022.
Outlook
PepsiCo raised its core EPS guidance for 2023. The company reaffirms its organic revenue growth prediction of 10% for 2023. It now anticipates core constant-currency EPS growth of 13% from the year-ago period’s reported figure versus 12% growth stated earlier.
PEP expects currency headwinds to hurt revenues and core EPS 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 a core EPS of $7.54 for 2023 compared with the $7.47 mentioned earlier. This suggests an 11% increase from the core EPS of $6.79 reported in 2022 compared with 10% growth expected earlier.
PepsiCo has been committed to rewarding shareholders through dividends and share buybacks. It expects to return a 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.
The company also outlined its initial view for 2024. It expects to deliver organic revenue and core constant currency EPS growth at the upper end of its long-term guidance ranges for 2024. The company had earlier predicted organic revenue growth of 4-6% and core constant currency EPS growth of high-single digit over the long term.
Don’t Miss These Better-Ranked Stocks
We have highlighted three better-ranked stocks from the Consumer Staple sector, namely Dutch Bros (BROS - Free Report) , Barfresh Food Group (BRFH - Free Report) and Keurig Dr Pepper (KDP - Free Report) .
The Zacks Consensus Estimate for Dutch Bros’ current financial-year sales and EPS suggests growth of 29.7% and 25%, respectively, from the year-ago period’s reported figures. BROS has a trailing four-quarter earnings surprise of 44.6%, on average.
Barfresh currently has a Zacks Rank #2. Shares of BRFH have rallied 24.2% in the past three months. The company has a trailing four-quarter negative earnings surprise of 157.1%, on average.
The Zacks Consensus Estimate for Barfresh’s current financial-year sales suggests growth of 8.7% from the year-ago period’s reported figure. The consensus mark for the company’s loss per share has narrowed 65.85% from the year-ago quarter’s reported loss.
Keurig Dr Pepper has a trailing four-quarter earnings surprise of 1.5%, on average. It currently carries a Zacks Rank #2. Shares of KDP have declined 5.3% in the past three months.
The Zacks Consensus Estimate for Keurig Dr Pepper’s current financial-year sales and earnings suggests growth of 6% and 7%, respectively, from the year-ago period's reported figures.
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PepsiCo (PEP) Q3 Earnings & Revenues Top, Raises 2023 EPS View
PepsiCo, Inc. (PEP - Free Report) reported robust third-quarter 2023 results, wherein revenues and earnings surpassed the Zacks Consensus Estimate. The top and bottom lines also improved year over year. The strong results reflect gains from strength and resilience in its categories, 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 robust performance in the global beverage and convenient food businesses. Driven by strong results and business momentum, the company has raised its core constant-currency earnings per share (EPS) view for 2023.
PEP shares rose 2.1% in the pre-market session following the earnings release on Oct 10, owing to the upbeat third-quarter performance and raised EPS view. Shares of the Zacks Rank #4 (Sell) company have lost 12.3% in the past three months compared with the industry’s 7% decline.
Image Source: Zacks Investment Research
Quarter in Detail
PepsiCo’s third-quarter core EPS of $2.25 beat the Zacks Consensus Estimate of $2.17 and increased 14.2% year over year. In constant currency, core earnings improved 16% from the year-ago period, backed by strong top-line growth, as well as the mitigation of inflationary pressures through cost-management and revenue-management initiatives. The company’s reported EPS of $2.24 rose 15% year over year in the quarter. Adverse currency rates impacted EPS by 2% in the quarter.
Net revenues of $23,453 million improved 6.7% year over year, surpassing the Zacks Consensus Estimate of $23,378 million. Revenues benefited from a robust price/mix in the reported quarter. Unit volume declined 1.5% year over year for the convenient food business and was flat year over year for the beverage business. Foreign currency impacted revenues by 2%.
On an organic basis, revenues grew 8.8% year over year, driven by broad-based growth across categories and geographies. This marked the 10th straight quarter of at least high-single-digit organic revenue growth for the company. The consolidated organic volume was down 2.5%, while effective net pricing improved 11% in the third 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
Our model had predicted organic revenue growth of 8% for the third quarter, with a 12.1% gain from price/mix and a 4.1% decline in volume.
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 8% for the global beverage business and 9% for the convenient food business. Region-wise, organic revenues improved 7% and 12%, respectively, in North America and International businesses.
On a consolidated basis, the reported gross profit increased 9.6% year over year to $12,778 million. The core gross profit rose 8.8% year over year to $12,766 million. The reported gross margin expanded 140 basis points (bps), while the core gross margin expanded 104 bps.
We anticipated the core gross margin to expand 60 bps to 54%. In dollar terms, core gross profit was anticipated to increase 4.7% year over year.
The reported operating income of $4,015 million rose 19.7% year over year. The core operating income rose 12.1% year over year to $4,029 million and the core constant-currency operating income improved 14%. The reported operating margin expanded 186 bps from the year-ago quarter. Meanwhile, the core operating margin expanded 82 bps due to ongoing holistic cost-management initiatives to drive superior supply chain and distribution efficiencies, offset by a double-digit increase in advertising and marketing expenses.
Our model predicted core SG&A expenses of $8.5 billion, which indicated year-over-year growth of 4.3%. As a percentage of sales, core SG&A expenses were anticipated to increase 30 bps to 37.3%.
We expected a core operating margin of 16.7%, suggesting a 30-bps expansion from the year-ago quarter’s actual.
Segmental Details
The company witnessed revenue growth across all segments, except for AMESA. Organic revenues improved for all segments.
Revenues, on a reported basis, improved 7% in FLNA, 5% in QFNA, 8% in PBNA, 21% in Latin America, 2% in Europe, and 4% in APAC. However, revenues declined 6% in AMESA in the third quarter. Organic revenues increased 7% for FLNA, 5% for QFNA, 6% for PBNA, 9% for Latin America, 13% for Europe, 17% for AMESA and 9% for APAC.
Operating profit (on a reported basis) increased 5% for FLNA, 11% for QFNA, 24% for PBNA, 28% for Latin America, 17% for Europe, and 20% for APAC. However, it declined 11% for AMESA.
Financials
The company ended third-quarter 2023 with cash and cash equivalents of $10,017 million, long-term debt of $35,837 million, and shareholders’ equity (excluding non-controlling interest) of $18,806 million.
Net cash provided by operating activities was $7,630 million as of Sep 9, 2023, compared with $6,306 million as of Sep 3, 2022.
Outlook
PepsiCo raised its core EPS guidance for 2023. The company reaffirms its organic revenue growth prediction of 10% for 2023. It now anticipates core constant-currency EPS growth of 13% from the year-ago period’s reported figure versus 12% growth stated earlier.
PEP expects currency headwinds to hurt revenues and core EPS 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 a core EPS of $7.54 for 2023 compared with the $7.47 mentioned earlier. This suggests an 11% increase from the core EPS of $6.79 reported in 2022 compared with 10% growth expected earlier.
PepsiCo has been committed to rewarding shareholders through dividends and share buybacks. It expects to return a 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.
The company also outlined its initial view for 2024. It expects to deliver organic revenue and core constant currency EPS growth at the upper end of its long-term guidance ranges for 2024. The company had earlier predicted organic revenue growth of 4-6% and core constant currency EPS growth of high-single digit over the long term.
Don’t Miss These Better-Ranked Stocks
We have highlighted three better-ranked stocks from the Consumer Staple sector, namely Dutch Bros (BROS - Free Report) , Barfresh Food Group (BRFH - Free Report) and Keurig Dr Pepper (KDP - Free Report) .
Dutch Bros currently carries a Zacks Rank #2 (Buy). Shares of BROS have lost 16.4% in the past three months. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Dutch Bros’ current financial-year sales and EPS suggests growth of 29.7% and 25%, respectively, from the year-ago period’s reported figures. BROS has a trailing four-quarter earnings surprise of 44.6%, on average.
Barfresh currently has a Zacks Rank #2. Shares of BRFH have rallied 24.2% in the past three months. The company has a trailing four-quarter negative earnings surprise of 157.1%, on average.
The Zacks Consensus Estimate for Barfresh’s current financial-year sales suggests growth of 8.7% from the year-ago period’s reported figure. The consensus mark for the company’s loss per share has narrowed 65.85% from the year-ago quarter’s reported loss.
Keurig Dr Pepper has a trailing four-quarter earnings surprise of 1.5%, on average. It currently carries a Zacks Rank #2. Shares of KDP have declined 5.3% in the past three months.
The Zacks Consensus Estimate for Keurig Dr Pepper’s current financial-year sales and earnings suggests growth of 6% and 7%, respectively, from the year-ago period's reported figures.