PepsiCo's Q2 Performance, Annual Outlook Underwhelms Investors, Stock Slides

PepsiCo Inc PEP shares are trading lower after the company reported worse-than-expected second-quarter FY24 revenue.

The company reported second-quarter sales growth of 0.8% year-on-year to $22.501 billion, missing the analyst consensus estimate of $22.599 billion.

Net revenue from Frito-Lay North America decreased 0.5% Y/Y, Quaker Foods North America plunged 18%, and PepsiCo Beverages North America climbed 1%.

Latin America sales jumped 7% Y/Y, and Europe sales rose 2.5%. Gross profit increased 3.2% Y/Y to $12.6 billion, and the margin expanded 126 basis points Y/Y to 55.9%.

Operating margin expanded by 160 basis points to 18%, and operating income for the quarter increased 10.6% to $4 billion.

The company held $6.4 billion in cash and equivalents as of June 15. Operating cash flow for the six months totaled $1.3 billion.

Adjusted EPS of $2.28 beat the consensus estimate of $2.16.

Chairman and CEO Ramon Laguarta, said, “During the second quarter, our business delivered net revenue growth, strong gross and operating margin expansion and double-digit EPS growth, remaining agile despite facing difficult net revenue growth comparisons versus the prior year, subdued category performance within North America convenient foods and the impacts associated with certain product recalls at Quaker Foods North America.”

Outlook: PepsiCo expects approximately 4% organic revenue growth for FY24 (previously at least 4%) and at least 8% increase in core constant currency EPS.

PepsiCo’s assumption and the guidance imply 2024 adjusted EPS of at least $8.15 (consensus $8.16), a 7% increase compared to 2023 adjusted EPS of $7.62.

The company continues to expect total cash returns to shareholders to be approximately $8.2 billion, consisting of dividends of $7.2 billion and share repurchases of $1.0 billion.

Price Action: PEP shares are trading lower by 2.41% at $159.65 in premarket at the last check Thursday.

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