TLDR
- PepsiCo posted third-quarter adjusted earnings of $2.34 a share, beating the $2.30 analysts expected.
- Revenue grew 5.6% year over year to $25.27 billion, topping forecasts of roughly $25 billion.
- The company cut its full-year core EPS growth guidance to 2.5%-3.5%, down from a prior range of 5%-7%.
- North America remains the weak spot, with convenient foods volume up but pricing still soft.
- PepsiCo plans low to mid single digit price increases on some snacks in the coming months.
PepsiCo stock climbed 2% to $126.50 in early Thursday trading after the company posted third-quarter results that beat Wall Street’s estimates. The gain came even as PepsiCo lowered its full-year profit outlook, pointing to rising costs.
The snacks and beverage maker reported adjusted earnings of $2.34 a share. That topped the $2.30 analysts had forecast heading into the report.
Revenue rose 5.6% from a year ago to $25.27 billion. That beat the roughly $25 billion consensus estimate from analysts polled by FactSet.
Organic sales growth accelerated to 3.1% for the quarter. Both beverages and convenient foods posted volume gains during the period.
Citi analysts said PepsiCo topped estimates on organic sales and gross margin but came in below consensus on operating margin. They noted a negative stock reaction was possible given the guidance cut.
Guidance Cut Raises Questions
PepsiCo now expects core constant-currency earnings growth of just 1% to 2% for the year. That is down from a prior forecast of 4% to 6%.
Core EPS growth guidance was lowered to 2.5% to 3.5%. The company had previously guided to the low end of a 5% to 7% range.
Core operating profit rose 3% to $4.28 billion. Core operating margin narrowed 35 basis points to 16.9%, hurt by higher costs and heavier marketing spending.
PepsiCo narrowed its organic revenue growth forecast to about 3%, down from a 2% to 4% range. It raised its net revenue growth forecast to about 6%, helped by currency and acquisitions.
North America Remains the Weak Spot
North America continued to lag the rest of the business. Convenient foods volume improved from the prior quarter, but softer pricing offset those gains.
Beverages revenue rose 5%, mostly from acquisitions made last year. International segments each posted strong revenue growth for the quarter.
CEO Ramon Laguarta said the company is “acting with urgency” to fix its North American performance. He pointed to new spending on innovation and brand building.
Laguarta also said PepsiCo is searching for more structural cost cuts. The goal is funding growth investments while offsetting rising input costs.
Earlier this year, PepsiCo cut suggested retail prices on brands like Lay’s and Doritos by up to 15%. The move aimed to revive demand that had slowed as shoppers pulled back.
That affordability push is now colliding with inflation. PepsiCo plans low to mid single digit price increases on some snacks later this year or early next year.
Activist investor Elliott Management built a $4 billion stake in PepsiCo last year. The firm has pushed for faster growth and stronger margins at the company.
PEP traded at $126.50 as of mid morning Thursday, up $2.77, or 2.24%, on the day. The stock remains down roughly 14% for the year through Wednesday’s close.
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