The PepsiCo strategy works, let it work for you
PepsiCo (NASDAQ 🙂 Q3 confirms several things. Among them are the pervasive impacts of global supply chain issues, but also the company’s ability to navigate through these issues while producing earnings growth. PepsiCo’s Faster Stronger Better program has helped position the company for success by streamlining operations and focusing on the supply chain, and now the PepsiCo Positive program should build on that success.
Based on the results and our dividend outlook, we believe PepsiCo remains a high quality choice for dividend growth investors. The stock is returning almost 3.0% with stocks trading near $ 150 and it’s a safe and growing return at that.
PepsiCo Outperforms Top and Bottom Results
PepsiCo delivered a strong performance in the third quarter despite the problems plaguing the rest of the market. While supply chain issues affected the results, the impact is negligible compared to what we’ve seen elsewhere in the market. The company reported consolidated net sales of $ 20.19, which is an 11.6% gain from last year. Revenue is also up sequentially and over the third quarter 2019 period and exceeds the consensus estimate by 410 basis points. Growth was driven by the organic strength of all of Pepsi’s operating segments and is a testament to the success of Pepsi’s diversification strategy.
On one, sales are up 9% from last year and are made worse by a + 2% tailwind from foreign currencies. On a sector basis, the core business of PepsiCo North America is up 7% while Frito-Lay North America is up 6%. Quaker Foods, which has received a significant boost from the pandemic and the pantry-loading craze, is up 2% from double-digit gains last year, while the Latin America and Emerging Markets / Asia all posted strong double-digit gains.
On the bottom line, the company has seen some reduction in its gross and operating margins, but far less than others have reported. The gross margin declined by approximately 150 basis points to 53.47% while the operating margin declined by approximately 100 basis points to 15.65%. This led to GAAP earnings of $ 1.60 and adjusted earnings of $ 1.79 which are mixed compared to analysts’ expectations. GAAP earnings were below consensus by $ 0.10 and are down 3% from a year ago, while adjusted earnings are above consensus by $ 0.06 and are up 0.13 $ compared to last year. GAAP profits were impacted by higher provisions for pensions and taxes.
PepsiCo guides above, but
PepsiCo has issued favorable indications, but there is a caveat in the data. The company raised its organic revenue growth target to around 8% from the previous 6%, with EPS of around $ 6.20. Revenue forecast is higher than Marketbeat.com consensus target but BPA’s forecasts do not suggest that the pressure on margins will continue at least into the current quarter. The result is that cash flow and free cash flow remain strong, leaving the
PepsiCo’s price action rose following the third quarter earnings report, but formed a red candle early in the session. This suggests some indecision and some market rotation, but we are seeing higher prices down the road. Earnings growth is in serious question for the entire market, so high-quality dividend producers like PepsiCo, which also increase bottom line and bottom line, should stay in favor.
Key support is currently at the $ 150 level. If the price action were to fall below this level, there is a great risk of a deeper correction for the stock. Assuming support remains strong at $ 150, we see this stock rally to re-test the recently set all-time high and resume the long-term uptrend.
Fusion media or anyone involved with Fusion Media will accept no responsibility for any loss or damage resulting from reliance on any information, including data, quotes, graphics and buy / sell signals contained in this website. Please be fully informed about the risks and costs associated with trading in the financial markets, it is one of the riskiest forms of investing possible.