On Friday, Evercore ISI retained its "In Line" rating on PepsiCo Inc. (NASDAQ: NASDAQ:PEP) a price target of $180.00 following the company's fourth-quarter earnings report. The beverage and snack giant recorded an earnings per share (EPS) of $1.78, surpassing the expected $1.72. This beat was attributed to a stronger-than-anticipated operating margin (OM%), which compensated for lower-than-expected volumes.
The company's organic revenue growth stood at 4.5%, which was below the anticipated 6.2%. This figure was bolstered by a 9% increase in pricing, slightly above the forecasted 8.1%, while volume shrank by 4%, a steeper decline than the 2% predicted by analysts. The convenient foods division saw a 5% increase, and global beverages went up by 4%, signaling a slowdown in category trends.
PepsiCo's North American market experienced a 2.3% rise, falling short of the expected 4.2%. Within this region, Frito-Lay North America (FLNA) grew by 3%, compared to a 5% projection, and Pepsi Beverages North America (PBNA) also saw a 3% increase, narrowly missing the 3.6% expectation. Quaker Foods North America (QFNA) notably declined by 10%, a significant deviation from the anticipated 2.3% increase, influenced by a product recall anticipated to extend into 2024.
The moderation in category growth in North America was partly due to consumers adjusting to higher borrowing costs and decreased personal savings, leading to a preference for smaller pack sizes and immediate consumption channels. International business also didn't meet projections, with overall organic sales up 8.1% versus the expected 9.5%. Each segment trailed behind consensus, with Latin America at 8%, Europe at 10%, AMESA at 11%, and APAC decreasing by 1% against an anticipated 4% increase.
These international results were impacted by business disruptions in certain markets due to ongoing international conflicts, which are likely to continue affecting the company into 2024. The disruptions are believed to be related to boycotts of American-made products in some regions. Despite these challenges, PepsiCo's core operating profit rose by 10.2%, outperforming the estimated 9.2%, with a margin of 11.4% exceeding the predicted 11.1%, reflecting the company's ongoing productivity savings.
InvestingPro Insights
PepsiCo's recent earnings report has shown resilience despite market challenges, with a notable earnings per share beat and a strong operating margin. Delving into the company's financial health and stock performance through InvestingPro provides a deeper understanding of its current position.
InvestingPro Data indicates a solid market capitalization of $241.86 billion, demonstrating the scale and stability of PepsiCo in the industry. The company's Price to Earnings (P/E) ratio stands at 28.79, with an adjusted P/E ratio for the last twelve months as of Q3 2023 at 23.57, suggesting a premium valuation compared to historical averages. The Gross Profit Margin for the same period is an impressive 54.03%, reinforcing the InvestingPro Tip that PepsiCo has impressive gross profit margins, which can be indicative of efficient operations and strong pricing power.
InvestingPro Tips highlight that PepsiCo has not only raised its dividend for 51 consecutive years but has actually maintained dividend payments for 54 consecutive years, showcasing a reliable commitment to returning value to shareholders. Additionally, the company's stock generally trades with low price volatility, providing a level of predictability and stability for investors.
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