PepsiCo tops analysts’ estimates, posts upbeat Q2 results, and raises revenue forecast for the year
Revenue: $20.2 billion (actuals) vs $19.51 billion (expected)
Earnings: $1.86 per share (actuals) vs $1.74 per share (expected)
Beverage giant PepsiCo (PEP) announced its Q2 earnings recently, surpassing both revenue and profit expectations. It also raised its outlook for the second half of 2022.
The company reported better than expected Q2 earnings, with its core earnings rising to $1.86 per share, up 8.2% from last year and its net revenue increasing by 5.2% year over year to $20.2 billion.
The company also raised its organic revenue growth forecast to 10% from the previous 8% and expects its core earnings per share (EPS) to increase by 8%.
Exhibit 1: Q2 Revenue Comparison with previous years
Source: Company Financials, Data as of 12 July 2022
PepsiCo profited from a diversified product portfolio and solid positioning in its biggest regions during the second quarter of 2022. In Q2, the company’s global convenience food business saw organic sales growth of 17%, and its global beverage business saw an organic revenue increase of 8%.
Exhibit 2: YTD Stock performance comparison with the S&P 500 Index
Source: Yahoo Finance, Data as of 12 July 2022
The year-to-date stock performance of PepsiCo has been very strong despite the geopolitical and macroeconomic pressures. When compared to S&P 500 index, the stock only fell by 2.4% this year, while the S&P 500 index fell by a whopping 19.1%. This shows that the stock has held on to itself without losing much of its grip even during the current volatile markets.
Exhibit 3: PepsiCo & Subsidiaries (segment-wise) Q2 revenue Comparison
Source: Company Financials, Data as of July 2022
Record revenues across all business divisions
Except for Europe and PepsiCo Beverages North America, the company recorded revenue growth across all of its business divisions. According to stated figures, revenues increased by 14% in Frito-Lay North America, 17% in Quaker Foods North America, 23% in Latin America, 6% in America, Middle East and South Asia, and 3% in the Asia Pacific, Australia, New Zealand and China. In the meantime, revenues in PepsiCo Beverages North America and Europe fell by 1% and 8%, respectively.
Management Guidance and Outlook for the rest of 2022
As a result of the company’s strong position in expanding categories, PepsiCo believes it is well-positioned to function in this difficult market. It anticipates that despite the macroeconomic and geopolitical instability, it’s North American operations will continue to be resilient and the majority of its overseas markets will remain strong. In contrast to their earlier projection of 8%, the company anticipates delivering 10% organic sales growth for the fiscal year 2022.
Consistent with its previous guidance for 2022, the Company continues to expect:
- An 8% growth in its core EPS
- 20% basic annual effective tax rate
- $7.7 billion in total cash transfers to shareholders, made up of $6.2 billion in dividends and $1.5 billion in share repurchases.
The management also expressed that as a result of inflationary pressure and dollar appreciation, the company expects headwinds in earnings and volumes but believes it is well positioned and well prepared to combat these challenges by shrinking its product sizes and by deploying other ways to manage rising cost.
PepsiCo’s Chairman and CEO Ramon Laguarta, in the company’s earnings call, said he is pleased with the quarterly results and expressed his belief in the management and his positive outlook for the second half of 2022.
“We are pleased with our results for the second quarter as our business momentum continued despite ongoing macroeconomic and geopolitical volatility and higher levels of inflation across our markets,” said CEO Ramon Laguarta.
“Our results are indicative of our highly dedicated employees, the strength and resilience of our categories, agile supply chain and go-to-market systems and strong marketplace execution. Our performance also gives us confidence that our investments to become an even Faster, even Stronger, and even Better organization by winning with pep+ are working. Given our year-to-date performance, we now expect our full-year organic revenue to increase 10 percent (previously 8 percent), and we continue to expect core constant currency earnings per share to increase 8 percent,” he added.