PepsiCo Shines Amid Volatility: Analyst Consensus Points To Solid Earnings But Volume Growth Concerns Linger

Beverage giant PepsiCo Inc PEP reported third-quarter FY23 results yesterday, with sales growth of 6.7% year-on-year to $23.45 billion, beating the analyst consensus of $23.43 billion. Adjusted EPS of $2.25 beat the consensus estimate of $2.15.

RBC Capital analyst Nik Modi maintained the Sector Perform Rating and the price target of $180. 

The analyst said PEP over-delivered in the quarter as expected, and momentum was enough to raise bottom-line guidance.

According to the analyst, Volumes were shy of consensus expectations in Lat AM, PBNA and FritoLay NA, despite which PEP delivered strong segment margin performance and high-quality consolidated earnings.

Despite broader concerns regarding the impacts of GLP-1 drugs, so far PEP has seen negligible impacts to the business, noted the analyst.

With pricing over-delivery in the quarter, guide implies softer overall volumes and bottom line guidance raise primarily reflects a flow-through of the strength in the quarter, said the analyst.

The analyst raised FY’23 EPS estimate to $7.54 (from $7.48) and for FY24, organic sales outlook is raised to 5.8% (from 4.8%) and EPS to $8.20.

Morgan Stanley analyst Dara Mohsenian maintained an Equal-Weight rating. The analyst said Pepsi’s robust FY24 EPS guidance towards the higher end of its long-term algorithm and 8% - 9% EPS growth is positive and signals management’s confidence.

Q3 results were solid on the surface, with a 60 bp OSG beat and 0.9% gross/3.9% operating profit beat vs. consensus, but the composition was less favorable with a volume miss, noted the analyst.

PEP growth is at the higher end of CPG peers long-term, and Q3 results were solid, but with decelerating OSG sequentially and lack of volume recovery to the extent expected, the analyst thinks there will be a lid on the stock, even with another GM beat and slight FY EPS raise.

Bernstein (Market Perform Rating and $180 price target) analyst Callum Elliott noted management steered 2024 toward the upper end of its long-term 4%-6% organic and high-single-digit EPS ranges. This steer on 2024 comes as a surprise, as it runs counter to the previous tradition of guiding to the next year only at Q4 results, said the analyst.

The guidance sits against a backdrop of significant ongoing volatility in both fundamentals and share prices and is likely to provide some comfort to beleaguered Staples investors.

However, the analyst noted that volume growth, which has been the main driver of sentiment since Q2 results, is comfortably below expectations.

Price Action: PEP shares are trading lower by 1.22% at $162.39 on the last check Wednesday.