Shares of PepsiCo Inc.
PEP,
rose 2% Tuesday after the beverage and snack giant reported third-quarter earnings that topped consensus and raised its full-year guidance, after it again raised prices.
“We are pleased with our performance as our businesses and associates displayed tremendous agility and resilience across geographies and categories in an evolving and dynamic environment,” Chief Executive Ramon Laguarta said in a statement.
In prepared comments published ahead of the company’s call with analysts, Laguarta said consumer preferences have continued to move toward smaller packages.
That allows for greater convenience, variety and portion control, he said, and the company is continuing its push toward healthier snacking and beverage options, including zero-sugar beverages and nutritious convenience foods with lower sodium content.
The new class of weight-loss drugs that Walmart Inc.
WMT,
said last week was leading customers to cut back on calories, sending shares of PepsiCo and rival Coca-Cola Co
KO,
lower, has so far had a “negligible” effect on the business, he said.
“Obviously we’re looking at this along with many other positive and negative potential risks for our business and our category,” he said.
For now, urbanization is a big driver of adoption of PepsiCo’s categories, as well as middle-class development and the trend of people eating snacks as meals.
“So we’re seeing a lot of tailwinds that will continue to drive our categories. Of course we’re observing the growth of these new drugs and its potential impact,” he said.
Net income rose to $3.092 billion, or $2.24 a share, from $2.702 billion, or $1.95 a share, in the same period a year ago. Excluding nonrecurring items, core earnings per share of $2.25 were ahead of the FactSet consensus of $2.15.
Revenue grew to $23.453 billion from $21.971 billion, also ahead of the FactSet consensus of $23.413 billion.
Wedbush analysts said revenue growth was “completely price-led,” with 11 points of price/mix offset by a low-single-digit volume decline.
“We note that five of PepsiCo’s seven segments realized operating margin expansion, with four segments delivering triple-digit expansion, led by Europe (280 basis points), followed by APAC (250 bps), PBNA (150 bps) and Latam (120 bps),” the analysts wrote in a note to clients, referring to the Asia-Pacific, North American and Latin American regions.
Wedbush rates the stock the equivalent of buy, with a 12-month price target of $195, or 21% above its current price.
By business segment, revenue at Frito-Lay North America rose 7% in the quarter, while it was up 5% at Quaker Foods North America. PepsiCo Beverages North America rose 8%, while Latin America was up 21% and Europe was up 2%.
Revenue for Africa, the Middle East and South Asia fell 6%, while for the Asia-Pacific, Australia and New Zealand and China regions, revenue was up 4%.
For 2023, the company revised its core earnings-per-share guidance to $7.54 from $7.47.
“For fiscal year 2024, we expect to deliver results towards the upper end of our long-term target ranges for both organic revenue and core constant currency EPS growth,” the statement said.
The company’s long-term target ranges for organic revenue growth — 4% to 6% growth — and for core constant currency EPS growth — high-single-digit percentage increase — remain unchanged.
The stock has fallen 11% in the year to date, while the S&P 500
SPX
has gained 13%.
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