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CONSUMER STAPLES: Pepsi (PEP; A1/A) 3Q (3m to 7th September) follow up

CONSUMER STAPLES
BulletCredit Bullets

Circling back to Pepsi after Tuesday's numbers (here). As we said credit has and continues to ignore the weak fundamentals. Some of that is warranted on the wide moat (multiple brands across snacking and beverages) but nevertheless trends are worrying. Earnings call was mostly free-throw questions but relevant remarks;

  • Plays down structural concerns; "we've seen Gen Z snacking patterns and food patterns being in a way that favour the growth of our category. They're snacking more, they're eating mini meals versus large meals, and that favours our brands"
  • But accepts move to healthier; "clearly, the consumer has been moving in some parts of the world towards looking for more permissible snacks or going into more unstructured meals"
  • And is investing there - it calls healthy the permissible portfolio which "is growing very fast, and we continue to put more legs to that business. Now we have SunChips, Simply, PopCorners, we have Smartfood." Worth noting this is not Danone - Pepsi sets the standard low for 'permissible' which are effectively lower fat and salt than normal chips. It even sees recent $1.2b Siete acquisition helping build that out.
  • Goes on to show even staple F&B names will blame macro if they need to; "so China is a market where consumers are feeling a bit more constrained, and we're seeing that in our food business"
  • And even blames US macro; "on the revision from the four to low single digits [referring to FY organic revenue guidance cut] it's a combination of the recovery of the consumer in the U.S., frankly, has been slower than we had anticipated and then to a lesser degree, the geopolitics have impacted international." - for reference we saw better than expected retail sales and real spending over that period.
  • It was asked after a -220bp margin fall in NA snacking (Frito-Lay) if current guidance to remain competitive on prices is indicative for that pressure to remain. Answer was "we're managing the margin at a total portfolio level at this point...but overall, we're focused on the total PepsiCo margin". Group was more stable on margins - support coming from Europe and LATAM.

As we said on Tuesday tough for us to give rotations given sector is well compressed. Danone is among the few giving firmer guidance - FY +3-5% LFL - after +4% over 1H (+2% in volumes). We don't expect Pepsi supply (front € maturity is in 2026). Danone has come twice this year already but we wouldn't rule out a revisit for another single-tranche.

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Circling back to Pepsi after Tuesday's numbers (here). As we said credit has and continues to ignore the weak fundamentals. Some of that is warranted on the wide moat (multiple brands across snacking and beverages) but nevertheless trends are worrying. Earnings call was mostly free-throw questions but relevant remarks;

  • Plays down structural concerns; "we've seen Gen Z snacking patterns and food patterns being in a way that favour the growth of our category. They're snacking more, they're eating mini meals versus large meals, and that favours our brands"
  • But accepts move to healthier; "clearly, the consumer has been moving in some parts of the world towards looking for more permissible snacks or going into more unstructured meals"
  • And is investing there - it calls healthy the permissible portfolio which "is growing very fast, and we continue to put more legs to that business. Now we have SunChips, Simply, PopCorners, we have Smartfood." Worth noting this is not Danone - Pepsi sets the standard low for 'permissible' which are effectively lower fat and salt than normal chips. It even sees recent $1.2b Siete acquisition helping build that out.
  • Goes on to show even staple F&B names will blame macro if they need to; "so China is a market where consumers are feeling a bit more constrained, and we're seeing that in our food business"
  • And even blames US macro; "on the revision from the four to low single digits [referring to FY organic revenue guidance cut] it's a combination of the recovery of the consumer in the U.S., frankly, has been slower than we had anticipated and then to a lesser degree, the geopolitics have impacted international." - for reference we saw better than expected retail sales and real spending over that period.
  • It was asked after a -220bp margin fall in NA snacking (Frito-Lay) if current guidance to remain competitive on prices is indicative for that pressure to remain. Answer was "we're managing the margin at a total portfolio level at this point...but overall, we're focused on the total PepsiCo margin". Group was more stable on margins - support coming from Europe and LATAM.

As we said on Tuesday tough for us to give rotations given sector is well compressed. Danone is among the few giving firmer guidance - FY +3-5% LFL - after +4% over 1H (+2% in volumes). We don't expect Pepsi supply (front € maturity is in 2026). Danone has come twice this year already but we wouldn't rule out a revisit for another single-tranche.