Company / Analytics

Analytics, 02 October 2020

PepsiCo Q3 earnings report beats the estimates

PepsiCo on Thursday reported its third-quarter report, which saw a more than 5% growth in sales during the period. The company is forecasting solid full-year profits, as pandemic-inspired snack sales continued to pace topline growth. Here is a look at the earnings report and analyst recommendations.

Earnings report

The global food and beverage company reported revenue and earnings that exceeded analysts’ expectations.

During the third quarter, PepsiCo generated net income of $2.29 billion, or $1.65 per share, up from $2.1 billion, or $1.49 per share, a year earlier.

The company spent $147 million this quarter on costs associated with the coronavirus pandemic, like more expensive labor and buying personal protective equipment.

Net sales rose 5.3% to $18.09 billion, topping expectations of $17.23 billion. Organic revenue, which strips out the impact of foreign currency, acquisitions, and divestitures, grew 4.2% in the quarter.

Both its Frito-Lay and Quaker Foods businesses reported organic revenue growth of 6%, despite economies opening up and consumers feeling more comfortable leaving their homes. Frito-Lay saw higher sales in its Tostitos, Cheetos, and Doritos, while Quaker Foods’ pasta and macaroni and cheese dishes reported double-digit sales growth. Consumers are buying more snacks from their Frito Lay division while working and staying at home during the coronavirus pandemic.

CFO Hugh Johnston said that the company is struggling to keep up with the demand for its new Cheetos macaroni and cheese, CNBC reported.

In North America, organic sales in the beverage unit rose by 3% in the quarter, with double-digit sales growth in Bubly sparkling water brand, Lipton tea, and Starbucks licensed products.

The company also said that Bubly, Gatorade Zero, and Mountain Dew Zero Sugar combined have surpassed $1 billion in sales this year. CEO Ramon Laguarta said that more people are exercising, particularly at home.

Meanwhile, the international business reported organic sales growth of 4%, fueled by higher demand for snacks.

Outlook

The company expects a longer recovery for its beverage business as Covid-19 restrictions are reinstated, especially in Europe, though this would have minimal effects on the business compared to the early phases of Coronavirus.

For the remainder of the financial year 2020, PepsiCo expects organic revenue growth of 4%, in line with its prior outlook, and core earnings per share of $5.50, down 38 cents from its original forecast.

How did the stock move?

PepsiCo shares were marked 0.2% higher in early trading immediately following the earnings release to change hands at $138.65 each, pegging their six-month gain at 17.4%. At the time of writing (Oct 1, 14:34 GMT-4), the stock was trading at $140.18 a share).

What analysts are saying?

There are very few sure things in the stock market these days. And PepsiCo is no different. The company has likely seen weathered the worst of the pandemic, but that doesn’t mean that the company is back to normal. Nonetheless, the company has managed to slough off most of its pandemic losses and is now positive for the year despite the September sell-off.

PepsiCo has been a solid defensive stock, and investors would be wise to play a little defense right now. With a tasty dividend and a little growth to go with it, it’s okay to snack on some PepsiCo stock.

The 19 analysts offering 12-month price forecasts for PepsiCo Inc have a median target of 148.00, with a high estimate of 156.00 and a low estimate of 130.00. The median estimate represents a +5.61% increase from the last price of 140.14, according to CNN Business.

The current consensus among 20 polled investment analysts is to Buy stock in PepsiCo Inc. This rating has held steady since July, when it was unchanged from a Buy rating, according to CNN Business.

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