- Pricing power has helped PepsiCo mitigate against cost inflation
- Analysts expect Q4 EPS growth of 8%
- Super-resilient brands are a source of strength
Soft drinks-to-snacks powerhouse PepsiCo (PEP:NASDAQ) serves up results for the fourth quarter and full year to 31 December 2022 before Wall Street’s opening bell on 9 February.
But what should investors expect from the US multinational, which boasts brand strength, pricing power and a track record of beating earnings forecasts and then raising guidance?
WHAT IS WALL STREET FORECASTING?
At $169.1, shares in PepsiCo have softened 5.7% year-to-date, yet Wall Street analysts expect the company to report fourth quarter earnings per share (EPS) of $1.65 on sales of $26.83 billion.
That’s up from $1.53 per share and $25.25 billion respectively in the comparable quarter of 2021 and would represent year-on-year earnings per share and sales growth of 8% and 6.3% respectively.
SUPER-RESILIENT BRANDS
Guided by CEO Ramon Laguarta, PepsiCo’s earnings dependability is driven by its portfolio of super-resilient brands spanning everything from eponymous soft drink Pepsi to Gatorade, Mountain Dew, Frito-Lay, Quaker Oats, Walkers and Tropicana.
Copious cash generation enables the company to sustain investment in brand innovation and marketing to extend market share gains and having raised the dividend for 50 consecutive years, PepsiCo is now buying back up to $10 billion worth of stock over the next three years.
Headwinds including high inflation and supply chain problems have impacted margins, yet PepsiCo has been able to flex its pricing power muscles and pass elevated raw material costs onto shoppers without denting demand. Treats such as fizzy drinks or crisps are affordable repeat purchases which can get consumers through the stresses of everyday life.
Following strong third quarter results (12 October 2022) showing organic sales growth of 16%, PepsiCo raised its year-to-December 2022 organic revenue growth guidance from 10% to 12% and its constant currency earnings per share growth forecast from 8% to 10%.
STILL ROOM FOR GROWTH
Management still see plenty of room for growth in PepsiCo’s core snacks and beverages business and PepsiCo expects unit volume to continue rising by mid-single digits for beverages for the next few quarters and beyond.
On 14 February, PepsiCo’s rival and fellow dividend-paying stalwart Coca-Cola (KO:NYSE) announces its own fourth quarter and full year earnings, which should confirm that the drinks giant sustained positive sales momentum in the final three months of 2022.
Much hinges on the guidance Coca-Cola gives for 2023 and there will be interest around what chairman and CEO James Quincey has to say about commodity costs and the recent reopening of China.
