What’s Going On Here?

PepsiCo reported better-than-expected second-quarter sales and profit – but its shares didn’t fizz.

What Does This Mean?

• Last quarter, Pepsi’s “organic” revenue growth (excluding the impact of bought businesses and currency swings – rising US dollar’s value) was 4.5%, beating investors’ forecasts. Compared to the same time last year, Pepsi
  • sold more actual products, and,
  • (given increased gross profit margin) probably managed to raise their prices.
• Investors are braced for second-and third-quarters earnings declines. But for the rest of 2019, Pepsi still thinks its profit will be on par with investors’ expectation – a little less than last year. So investors might see Pepsi’s steadfast prediction as an effervescent spot in what may prove an otherwise flat quarter.

Why Should I Care?

For markets: Pepsi’s missing Mentos. 

• Pepsi shares have risen 20% this year (twice as much as those of Coca-Cola) – but fell on Tuesday. With Pepsi having eclipsed expectations in eight out of its last nine reports, several investors may have chosen to sell and lock in a profit.
• That winning streak might be thanks to the 50% of Pepsi’s sales coming from its snacks segment – where, in developed markets, it’s benefiting from consumers buying more healthy snacks. And (despite sugar taxes in some emerging markets, consumers), there are still sweet on carbonated drinks.

The bigger picture: Conceding to the defense

• Consumer staples companies like Pepsi (selling basic food and drink products) are considered “defensive”: in an economic downturn, consumers tend to keep buying their goods, resulting in stable earnings. 
• Investors may therefore see Pepsi’s annual dividend as reliable and look forward to the estimated $8 billion it’ll give investors this year, making 2019 the 47th year running that Pepsi’s increased its payout.

Content source: Finimize. (2019) Pepsi Looks A Snack. Available from: https://www.finimize.com/wp/news/pepsi-looks-snack/ [Accessed 14 July 2019]