PepsiCo Beats Q2 Earnings, Reaffirms FY19 EPS View

PepsiCo Beats Q2 Earnings, Reaffirms FY19 EPS View
July 10, 2019


Snack and beverage company PepsiCo Inc. (Nasdaq: PEP) posted a 12% y-o-y rise in net income for the fiscal 2019 second-quarter yesterday, mainly due to a reasonable increase in revenues. Both the top and bottom line of the company surpassed analysts’ estimates. Furthermore, PepsiCo reasserted its earnings and organic revenue growth view for fiscal 2019. Following the results, shares of the $185.8 billion enterprise closed at $131.74, down $0.82 or 0.62% from the prior close. Notably, the shares of PepsiCo have appreciated almost 20% so far in 2019.

Purchase, New York-based PepsiCo posted 2Q19 revenue of $16.45 billion, up 2.2% from $16.09 billion in the year-ago period. Analysts anticipated revenues of $16.42 billion. During the second quarter, organic revenue grew 4.5% on a y-o-y basis.

For the quarter ended June 15th, 2019, net income increased to $2.04 billion, or $1.44 per share, from $1.82 billion, or $1.28 per share, in the similar period last year.

Core earnings for the June quarter were $1.54 per share, down from $1.61 per share in the similar period last year. On average, analysts surveyed by Thomson Reuters anticipated the firm to report Q2 earnings of $1.50 per share.

Commenting on the results, Chairman and CEO Ramon Laguarta, said, “We are pleased with our results for the second quarter. While adverse foreign exchange translation negatively impacted our reported net revenue performance, our organic revenue growth was 4.5% in the quarter.”

During the reported quarter, Frito-Lay North America, PepsiCo Beverages North America and Quaker Foods Europe, Sub-Saharan Africa, North America, Latin America, reported higher revenues. However, a portion of these gains in revenues was nullified by lower revenues in Asia, the Middle East, and North Africa.

Laguarta, however, believes that the company is on the right track to achieve the fiscal 2019 objectives. He said, “Our performance for the first half and the progress we are making on our strategic priorities give us increased confidence in achieving the 2019 financial targets we communicated earlier this year.”

During the second quarter, the rebound in the North American beverage business was aided by its water and Starbucks coffee products business. As customers preferences change (decline in soda consumption), Pepsi has switched to beverages that offer higher-growth, launching energy drinks like Mtn Dew, Game Fuel, and leaping onto the sparkling water boom with Bubly.

Regarding the performance of Bubly, Laguarta said: “is going to be one of our next billion-dollar brands. That’s our goal.”

The CEO said Pepsi intends to launch Bubly in containers of several sizes and also in mini bottles. The firm has been marketing beverages and snacks in smaller packing, enabling the company to charge higher while reaching clients who want smaller pie.

With organic revenue growth of 5%, Frito-Lay was the best performer. The maker of Cheetos gave credit to convenience and dollar stores for the success of the business division. The company is also expanding its range of health drinks with the launch of brands such as Bare, which is focused on making vegetable snacks and baked fruit.

In North American Quaker Foods business, the company’s cereal and Aunt Jemima maple syrup business recorded its strongest growth since 2016.

Going forward, the company anticipates FY19 core earnings of $5.50 per share, reflecting a 3% decline from core earnings of $5.66 per share reported in the similar period of fiscal 2018. The Street analysts anticipate PepsiCo to earn $5.53 per share for FY19.

PepsiCo stated that it continues to anticipate FY19 organic revenue growth of 4%. Laguarta does not see any signals of a slowdown in the market. During the conference call with analysts, Laguarta said: “We cannot see any signals that tell us that the consumer is slowing down, at least in our categories.”

The strong results and weaker FY19 earnings outlook is anticipated to keep the stock range bound in the days to come.

The historical price chart indicates that the stock is facing resistance at 132 levels. Additionally, the stochastic indicator is in the overbought region. As a result, we can expect the stock to undergo a slight price correction in the days to come.

pep - technical analysis - 10th July 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.


Andrew Wright

Prior to founding in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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