PepsiCo
stock fell Friday despite reporting better-than-expected earnings after the beverages and food maker reported a surprise drop in quarterly revenue.
Sales fell 0.5% in the fourth quarter to $27.9 billion. Analysts were expecting a 1.4% increase to $28.4 billion. Pepsi beat earnings estimates, however. The company reported adjusted earnings of $1.78 a share, compared with analysts’ expectations of $1.72. It also raised its annual dividend to $5.42 a share from $5.06.
The stock fell 2.1% in premarket trading to $170.20. Coming into the session, the shares have risen 2.4% since the start of the year.
The company said it expects to deliver 4% organic revenue growth this year and 8% per-share earnings growth this year.
“Moving forward, we will further sharpen our focus on providing consumers great-tasting products that offer convenience and compelling value,” CEO Ramon Laguarta said in the release.
This is breaking news. Read a preview of PepsiCo earnings below and check back for more analysis soon.
When PepsiCo reports earnings Friday morning, its results should help paint of picture of how consumers have responded to consistently higher prices at the grocery store.
Like many of its snack and beverage peers, Pepsi has had to carefully navigate how to raise prices in an inflationary environment—without losing the customers that buy its popular brands, which include Lay’s, Doritos, and, of course, Pepsi.
For the three months ended in September, Pepsi’s prices were 11% higher than the year-ago quarter. The period marked the seventh straight quarter that the company had raised prices by at least 10% on a year-over-year basis.
Pepsi’s price increases far outpace those of its broader category: Consumer prices for all food at home gained an average of 3% during those three months, according to the Bureau of Labor Statistics.
Investors will be watching to see how higher price tags might have affected Pepsi’s results for the last three months of 2023. Pepsi reports before the market opens Friday.
On Wall Street, analysts polled by FactSet expect PepsiCo to post net sales of $28.4 billion for the fourth quarter, up 1.4% from a year ago. Adjusted earnings are expected to come in at $1.72 a share, which would mark 3% growth from the same quarter last year.
The stock had languished in the past several months. As of Thursday’s close, share prices have fallen 11% since they peaked in May, despite strong headline sales number in 2023. The stock has been gaining back some ground in 2024, though, with a 2.4% gain so far.
For the first three quarters of 2023, Pepsi posted 12% organic sales growth across all seven segments, compared with the same period a year earlier. But a closer look suggests that sales volume, or the unit of products sold, dropped 2% for convenient food, while the beverage segment in North America saw a decline of 4.5% in the first 9 months of 2023. European consumers, meanwhile, bought about 3% less.
For the long term, investors are also concerned that weight-loss drugs like Ozempic could reduce consumers’ spending on packaged foods and snacks, denting food companies’ sales. But the drug’s use seems limited so far, and Wall Street analysis suggests the damage on food sales wouldn’t be significant.
Nonetheless, food companies have been preparing for a future where people eat healthier. Pepsi has invested in smaller-portion packages, zero-sugar beverages, and convenient foods with lower sodium and low-or-no saturated fat content.
The snack giant purchased Rockstar Energy Beverages in 2020; CytoSport, which makes protein shakes and bars, in 2019; and dried-fruit brand Bare Foods in 2018.
Pepsi has previously said it expects to deliver 10% organic revenue growth and 13% earnings-per-share growth for the full year of 2023, excluding the impact from foreign exchange.
For 2024, management has previously projected that they company will hit the upper end of their long-term targets of 4% to 6% annual organic revenue growth and high-single-digit percentage EPS growth. That would be a much more moderate rate from 2023’s expected growth, reflecting cooling inflation.
PepsiCo remains a strong dividend stock: 2023 marked the company’s 51st consecutive annual dividend increase. This week, the company declared a dividend of $1.265 per share for the first quarter of 2024, a 10% increase from the year-earlier period.
The stock now has a dividend yield of 3%. This might not look particularly attractive when the 10-year Treasury yield trades above 4%. But if the Federal Reserve cut its target rates this year and Treasury yields continue to fall, Pepsi stock could be a stable dividend play.
Write to Evie Liu at [email protected]
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