PepsiCo Misses Revenue, Trims Outlook, but Stock May Still Have Some Room for Growth
PepsiCo (NASDAQ:PEP) reported mixed second-quarter results Thursday, causing the firm’s stock to drop greater than 2% in pre-market trading.
The food and drinks giant’s earnings per share (EPS) comfortably Wall Street estimates, coming in at $2.28. Nevertheless, revenue was up lower than 1% to $22.5 billion, falling shot of the consensus estimate of $22.66 billion.
Globally, the corporate’s sales were down 3%, marking its eighth straight quarter of falling sales volumes. The beverage maker admitted that a number of the drop in sales was strategic, as the corporate has been shrinking package sizes.
The corporate also cut down its revenue outlook for the complete 12 months.
PepsiCo earnings – A better look
PepsiCo has been raising the worth of its products for the past two years to cover the rising ingredients and packaging costs.
Segment-wise, Frito-Lay North America’s revenue was $5.87 billion, down 0.5% year-over-year and missing consensus estimate of $5.94 billion. Revenue from PepsiCo Beverages North America got here in at $6.81 billion, down from $6.76 billion within the previous 12 months and missing the estimate of $6.86 billion.
Quaker Foods North America reported revenue of $561 million, a drop of 18% year-over-year and below the consensus estimate of $588.2 million. The corporate’s sales have been marred by the recalls for potential salmonella contamination issued in December and January. Nevertheless, the corporate expects the segment’s volume to enhance over the following six months.
Chairman and CEO Ramon Laguarta noted that the corporate will ramp up deals and promoting in an effort to push sales up within the second half of 2024.
PepsiCo trimmed its revenue outlook for 2024. The corporate now expects organic revenue growth of about 4%, in comparison with the sooner forecast of not less than 4%. Furthermore, the corporate reiterated its guidance for an earnings growth of not less than 8%.
The corporate forecasts an EPS of $8.15 and revenue of $94.31 billion for the complete 12 months 2024.
What does this mean for PepsiCo stock?
PepsiCo stock lost over 2% in pre-market trading Thursday. The stock has gained only marginally since hitting the $150 level in early January 2021. On Wednesday, the stock closed at $163.59, up 1%. By comparison, the S&P 500 has gained about 45% over the past three years or so.
PepsiCo stock’s annual performance has also been volatile in comparison with the S&P 500. The stock returned 17% in 2021, 4% in 2022, and -6% in 2023, in comparison with 27%, -19 %, and 24% for the S&P 500.
PepsiCo could face some headwinds in H2 2024 because of the uncertain macroeconomic environment, which incorporates high oil prices and elevated rates of interest. Nevertheless, the stock looks prefer it still has some room for growth.
On Monday, Bank of America Securities analyst Bryan Spillane trimmed his price goal on the stock to $190 from $210. Despite the worth cut, the analyst is bullish on PepsiCo and believes the corporate’s long-term earnings power to be stable. Spillane’s price goal also represents almost 20% upside from the present share price.
Moreover, there are a number of more aspects that might push the refill. Firstly, the worst of the Quaker Foods’ recalls could also be over, which suggests the segment will likely witness increased sales, which the corporate also expects.
PepsiCo can be a superb dividend grower. The firm has raised its dividend by a median of 6.6% for the past five years, and for 52 consecutive years. This does present an attractive case to take a position in the corporate.
The stock also has some room for growth from a valuation perspective. Using the corporate’s own EPS estimate of $8.15 for 2024, its valuation represents greater than 10% upside from the present level.