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Why Is PepsiCo (PEP) Down 1.9% Since Last Earnings Report?
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A month has gone by since the last earnings report for PepsiCo (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 its most recent earnings report in order to get a better handle on the important drivers.
PepsiCo Beats Earnings and Revenue Estimates in Q1
PepsiCo reported strong first-quarter 2020 results, wherein earnings and sales surpassed estimates. The company primarily gained from its strong portfolio of brands, a responsive supply chain and flexible go-to-market systems, which helped maintain continued supplies amid the coronavirus pandemic.
Despite a strong first-quarter performance, the company expects unprecedented uncertainties across its geographies, retail channels and consumer behaviors due to the coronavirus outbreak. Consequently, it withdrew guidance for 2020. However, it expects to maintain a strong balance sheet, increased cash generation and ample liquidity to invest in its business and reward shareholders.
For 2020, the company plans to return $7.5 billion of cash to shareholders, comprising $5.5 billion of dividends and $2 billion of share repurchases. Further, it expects core effective tax rate of 21%. Moreover, it expects currency headwinds to hurt revenues and core EPS by 3-4 percentage points in 2020, based on current rates.
Quarter in Detail
PepsiCo’s first-quarter core EPS of $1.07 beat the Zacks Consensus Estimate of $1.02. However, core EPS increased 10% year over year. In constant currency too, core earnings were up 10% from the year-ago period. The company’s reported EPS of 96 cents declined 4% year over year.
Net revenues of $13,881 million advanced 7.7% year over year and surpassed the Zacks Consensus Estimate of $13,226 million. On an organic basis, revenues rose 7.9% year over year. Foreign currency impacts on revenues and earnings remained neutral in the first quarter.
Revenue growth, on a reported and organic basis, was primarily driven by strength in all of the company’s businesses as well as robust pricing and volume. Notably, all segments witnessed organic and reported revenue growth in the first quarter. This was driven by strong progress on its strategic priorities, and investments made in its capabilities, brands, manufacturing, supply chain and go-to-market capacity, which helped deliver growth amid the coronavirus pandemic.
Total volume was up 6% in the reported quarter. Meanwhile, volume for organic snacks/food and beverage increased 5.5% and 6%, respectively, in the reported quarter. Meanwhile, net pricing improved 2% in the first quarter, driven by strong pricing across almost all segments.
On a consolidated basis, reported gross margin expanded 1 basis point (bps), while core gross margin improved 27 bps. Reported operating margin contracted 172 bps, while core operating margin declined 18 bps. The decline in operating margin was mainly owing to higher SG&A expenses.
Segment Details
Reported revenues improved 14% in Europe, 9% in AMESA, 6% each in APAC and Latin America, and 7% each in PBNA, FLNA and QFNA segments. Meanwhile, organic revenues increased 14% each at AMESA and Europe, 8% at Latin America, 7% each at APAC, FLNA and QFNA, and 6% each PBNAA segment.
Operating profit (on a reported basis) declined 24% for the PBNA segment. However, it grew 33% for APAC, 28% for Europe, 26% for AMESA, 8% for QFNA, 4% for FLNA and 1% for Latin America.
Financials
The company ended first-quarter 2020 with cash and cash equivalents of $11,089 million, long-term debt of $35,361 million, and shareholders’ equity (excluding non-controlling interest) of $13,465 million. Net cash used in operating activities was $749 million as of Mar 21, 2020, compared with $345 million of cash used as of Mar 23, 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -16.54% due to these changes.
VGM Scores
At this time, PepsiCo has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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 #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is PepsiCo (PEP) Down 1.9% Since Last Earnings Report?
A month has gone by since the last earnings report for PepsiCo (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 its most recent earnings report in order to get a better handle on the important drivers.
PepsiCo Beats Earnings and Revenue Estimates in Q1
PepsiCo reported strong first-quarter 2020 results, wherein earnings and sales surpassed estimates. The company primarily gained from its strong portfolio of brands, a responsive supply chain and flexible go-to-market systems, which helped maintain continued supplies amid the coronavirus pandemic.
Despite a strong first-quarter performance, the company expects unprecedented uncertainties across its geographies, retail channels and consumer behaviors due to the coronavirus outbreak. Consequently, it withdrew guidance for 2020. However, it expects to maintain a strong balance sheet, increased cash generation and ample liquidity to invest in its business and reward shareholders.
For 2020, the company plans to return $7.5 billion of cash to shareholders, comprising $5.5 billion of dividends and $2 billion of share repurchases. Further, it expects core effective tax rate of 21%. Moreover, it expects currency headwinds to hurt revenues and core EPS by 3-4 percentage points in 2020, based on current rates.
Quarter in Detail
PepsiCo’s first-quarter core EPS of $1.07 beat the Zacks Consensus Estimate of $1.02. However, core EPS increased 10% year over year. In constant currency too, core earnings were up 10% from the year-ago period. The company’s reported EPS of 96 cents declined 4% year over year.
Net revenues of $13,881 million advanced 7.7% year over year and surpassed the Zacks Consensus Estimate of $13,226 million. On an organic basis, revenues rose 7.9% year over year. Foreign currency impacts on revenues and earnings remained neutral in the first quarter.
Revenue growth, on a reported and organic basis, was primarily driven by strength in all of the company’s businesses as well as robust pricing and volume. Notably, all segments witnessed organic and reported revenue growth in the first quarter. This was driven by strong progress on its strategic priorities, and investments made in its capabilities, brands, manufacturing, supply chain and go-to-market capacity, which helped deliver growth amid the coronavirus pandemic.
Total volume was up 6% in the reported quarter. Meanwhile, volume for organic snacks/food and beverage increased 5.5% and 6%, respectively, in the reported quarter. Meanwhile, net pricing improved 2% in the first quarter, driven by strong pricing across almost all segments.
On a consolidated basis, reported gross margin expanded 1 basis point (bps), while core gross margin improved 27 bps. Reported operating margin contracted 172 bps, while core operating margin declined 18 bps. The decline in operating margin was mainly owing to higher SG&A expenses.
Segment Details
Reported revenues improved 14% in Europe, 9% in AMESA, 6% each in APAC and Latin America, and 7% each in PBNA, FLNA and QFNA segments. Meanwhile, organic revenues increased 14% each at AMESA and Europe, 8% at Latin America, 7% each at APAC, FLNA and QFNA, and 6% each PBNAA segment.
Operating profit (on a reported basis) declined 24% for the PBNA segment. However, it grew 33% for APAC, 28% for Europe, 26% for AMESA, 8% for QFNA, 4% for FLNA and 1% for Latin America.
Financials
The company ended first-quarter 2020 with cash and cash equivalents of $11,089 million, long-term debt of $35,361 million, and shareholders’ equity (excluding non-controlling interest) of $13,465 million. Net cash used in operating activities was $749 million as of Mar 21, 2020, compared with $345 million of cash used as of Mar 23, 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -16.54% due to these changes.
VGM Scores
At this time, PepsiCo has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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 #3 (Hold). We expect an in-line return from the stock in the next few months.