October 08, 2024 10:43 GMT
CONSUMER STAPLES: Pepsi (PEP; A1/A) 3Q (3m to 7th September) Results
CONSUMER STAPLES
Equities -1% in US pre-market
Results continue the trend but credit has been ignoring the declining volume and issues with recalls in Quaker for a while now. (adjusted) EPS guidance left firm (+8%) may allow it to continue doing that. This is still a wide moat co (F and B across multiple brands) - but with over half the sales US based where it is struggling more. We don't have any single A names in F&B to offer for rotations but Danone at the top of BBB is giving firmer guidance - the spread pickup is unfortunately not great in the well compressed sector.
- Organic revenue growth was +1.3% (miss on c+3%) while constant currency EPS was +5%. Reported EBIT was $3.9b at a 16.6% margin (adj. consensus was at $4.2b, 17.9%). EBIT is down -3.6%yoy with margin contracting -50bps. It has it expanding +73bps yoy on adjusted basis.
- Revises down FY revenue guidance to LSD growth (prev. 4% which was already revised down from "at least 4%" in July). Somewhat reassuringly EPS growth has been left unch at "at least 8%".
- All guidance is in organic and constant currency terms - net revenue is weaker YTD on a FX headwind of 1-2% and guidance is for a both revenue and EPS to face a 1% headwind on FX for the FY.
- Volume trends: Frito-Lay (the NA snacks business) -1.5%, Quacker foods (NA Cereal, faced recalls) -13%, Pepsi NA -3%, LATAM food -2% & beverages -1%, Europe food +1%. YTD volume for food is -2% while beverages are -1% (across the group).
- EBIT trends over the quarter for NA food were weak; -9% for Frito-Lay and -28% for Quacker. But beverages (+7%) and international (LATMA +9%, Europe +11%) are netting the weakness out. YTD EBIT is +6% (cc) with net a softer +3%.
- Guidance left unch for shareholder returns of $8.2b (consensus has $7.8 in FCF). Debt levels look stable YTD.
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