PepsiCo stock falls after revenue miss and trimmed outlook – What next?

Key points

• PepsiCo released its Q2 earnings today. posting mixed results.

• The firm's stock dipped by more than 2% in pre-market as a result.

• With this mixed picture, we examine whether Tesla stock is a buy right now.

PepsiCo misses revenue, trims outlook, but stock May still have some room for growth.

PepsiCo (NASDAQ: PEP) reported mixed second-quarter results Thursday, causing the firm’s stock to drop more than 2% in pre-market trading.

The food and drink giant’s earnings per share (EPS) comfortably Wall Street estimates, coming in at $2.28. However, revenue was up less than 1% to $22.5 billion, falling shot of the consensus estimate of $22.66 billion.

Globally, the company’s sales were down 3%, marking its eighth straight quarter of falling sales volumes. The beverage maker admitted that some of the drop in sales was strategic, as the company has been shrinking package sizes.

The company also cut down its revenue outlook for the full year.

PepsiCo earnings – A closer look

PepsiCo has been raising the price of its products for the past two years to cover the rising ingredients and packaging costs.

Segment-wise, Frito-Lay North America’s revenue was $5.87 billion, down 0.5% year-over-year and missing consensus estimate of $5.94 billion. Revenue from PepsiCo Beverages North America came in at $6.81 billion, down from $6.76 billion in the previous year and missing the estimate of $6.86 billion.

Quaker Foods North America reported revenue of $561 million, a drop of 18% year-over-year and below the consensus estimate of $588.2 million. The company’s sales have been marred by the recalls for potential salmonella contamination issued in December and January. However, the company expects the segment’s volume to improve over the next six months.

Chairman and CEO Ramon Laguarta noted that the company will ramp up deals and advertising in an effort to push sales up in the second half of 2024.

PepsiCo trimmed its revenue outlook for 2024. The company now expects organic revenue growth of about 4%, compared to the earlier forecast of at least 4%. Moreover, the company reiterated its guidance for an earnings growth of at least 8%.

The company forecasts an EPS of $8.15 and revenue of $94.31 billion for the full year 2024.

What does this mean for PepsiCo stock?

PepsiCo stock lost over 2% in pre-market trading Thursday. The stock has gained only marginally since hitting the $150 level in early January 2021. On Wednesday, the stock closed at $163.59, up 1%. By comparison, the S&P 500 has gained about 45% over the past three years or so.

PepsiCo stock’s annual performance has also been volatile compared to the S&P 500. The stock returned 17% in 2021, 4% in 2022, and -6% in 2023, compared to 27%, -19 %, and 24% for the S&P 500.

PepsiCo could face some headwinds in H2 2024 due to the uncertain macroeconomic environment, which includes high oil prices and elevated interest rates. However, the stock looks like it still has some room for growth.

On Monday, Bank of America Securities analyst Bryan Spillane trimmed his price target on the stock to $190 from $210. Despite the price cut, the analyst is bullish on PepsiCo and believes the company’s long-term earnings power to be stable. Spillane’s price target also represents almost 20% upside from the current share price.

Additionally, there are a few more factors that could push the stock up. Firstly, the worst of the Quaker Foods’ recalls may be over, which means the segment will likely witness increased sales, which the company also expects.

PepsiCo is also an excellent dividend grower. The firm has raised its dividend by an average of 6.6% for the past five years, and for 52 consecutive years. This does present an enticing case to invest in the company.

The stock also has some room for growth from a valuation perspective. Using the company’s own EPS estimate of $8.15 for 2024, its valuation represents more than 10% upside from the current level.