PepsiCo Beats On Q3 Earnings, reaffirms FY19 EPS View

PepsiCo Beats On Q3 Earnings, reaffirms FY19 EPS View
October 4, 2019


The soft drink giant PepsiCo Inc. (Nasdaq: PEP) reported better-than-anticipated fiscal 2019 third-quarter results on Thursday. However, the Q3 earnings declined 16% on a y-o-y basis, mainly due to higher income tax provisions. The snack and beverage giant also confirmed its fiscal 2019 earnings and revenue growth outlook. The stock of Pepsi ended Thursday’s trading session at $137.93, up $3.99 or 2.98% from the prior close.

Harrison, New York-based Pepsi posted third-quarter revenue of $17.19 billion, up 4.3% from $16.49 billion in the similar period last year. Analysts surveyed by Thomson Reuters anticipated revenues of $16.93 billion. The quarterly organic revenue growth was 4.3%.

For the recent quarter, the company reported net income of $2.10 billion, or $1.49 per share, compared with $2.50 billion, or $1.75 per share, in the prior-year quarter.

Core earnings for the third quarter were $1.56 per share, down from $1.59 per share last year. The Wall Street analysts anticipated the company to report earnings of $1.50 per share for the quarter.

Commenting on the results, Chairman and CEO Ramon Laguarta, said, “We are pleased with our results for the third quarter. While adverse foreign exchange translation negatively impacted reported net revenue performance, organic revenue growth was 4.3% in the quarter.”

According to the company’s CFO Hugh Johnston, the company’s strategy of increasing investment in marketing and advertising is paying back.

Johnston said, “The increased advertising that we have is causing consumers to shop us more aggressively, and our customers are rewarding us with that [grocery] space because they know that we can help them grow.”

For the quarter, Quaker Foods North America, Latin America, Frito-Lay North America, PepsiCo Beverages Europe, North America, Sub-Saharan Africa and Asia, the Middle East, and North Africa posted higher revenues. Specifically, Frito Lay North America, which consists of brands like Doritos and Cheetos, recorded revenue growth of 5.5%.

North American beverage business reported 3.5% revenue growth. Gatorade gained market share and posted positive net revenue growth during the third quarter. Particularly, the no-sugar product Gatorade Zero surpassed $500 million sales. Notably, Gatorade Zero was launched in May 2018.

Pepsi anticipates Bubly to be the next billion-dollar brand. In the flavored sparkling-water group, Bubly continues to increase its market share against competitors such as La Croix.

The company has been expanding its range of snacks with healthier options by launching brands such as Bare and Off the Eaten Path (veggie crisps). Revenue growth from popular chip brands and healthier snacks enabled the company to negate the double-digit sales declines of Sabra hummus (blend of chickpeas, garlic, and strong flavors) and guacamole, an avocado-based dip. Through a partnership with Strauss Group, Pepsi owns a 50% share of the hummus venture.

Regarding future growth initiatives, Laguarta said: “We are making good progress against our strategic priorities and our businesses are performing well as we continue to make the necessary investments in our capabilities, brands, manufacturing and go-to-market capacity to propel our future growth.”

Going forward, PepsiCo continues to expect FY19 earnings per share of $5.50, representing a 3% decline in core earnings per share of $5.66 posted in FY18. The Street has forecast earnings of $5.52 per share for fiscal 2019.

PepsiCo also hopes to meet or surpass its FY19 organic revenue growth target of 4%.

The upbeat results and confirmation of FY19 earnings outlook are expected to keep the stock bullish in the short-term.

Technically, the price chart indicates that the stock is moving along the ascending trend line, as shown in the image below. The stochastic indicator is also in the bullish region. Additionally, the stock is trading well above the 50-day moving average. As a result, we can expect the stock to move up in the short-term.

pep - technical analysis - 4th Oct 2019

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Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be

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