PepsiCo Inc. (PEP) shares are taking a hit in pre-market trading after the company released a mixed bag of third-quarter results, leading to a downward revision of its 2024 organic revenue guidance. The company reported a 0.6% year-over-year decline in net revenue, reaching $23.319 billion. Organic revenue growth clocked in at 1.3%, falling short of the consensus estimate of $23.825 billion. Despite the revenue miss, PepsiCo managed to expand its gross margin by 94 basis points to 55.4% for the quarter. However, the operating margin contracted by 51 basis points to 16.6%.
Performance across various segments varied. Frito-Lay North America saw a 1% year-over-year decrease in net revenue, while Quaker Foods North America dropped 13%. PepsiCo Beverages North America remained flat. International sales were mixed, with Latin America declining 5% YoY, Europe rising 7%, Africa, Middle East, and South Asia down 4%, and Asia Pacific, Australia, New Zealand, and China sales falling 2%.
PepsiCo’s financial health remains robust, with $7.3 billion in cash and equivalents as of September 7. Operating cash flow for the first nine months totaled $6.22 billion, compared to $7.63 billion in the same period last year. Adjusted EPS of $2.31 exceeded the consensus estimate of $2.29.
Despite the challenges, Chairman and CEO Ramon Laguarta highlighted the company’s resilience, stating that businesses remained strong in the third quarter despite North American recalls, geopolitical tensions, and weak category trends. Strong cost controls coupled with investments to enhance competitiveness boosted profitability. Looking ahead, Laguarta commented, “Given our performance to date and our outlook for the fourth quarter, we now expect to deliver a low single-digit increase in organic revenue (previously approximately 4 percent organic revenue growth). We continue to expect to deliver at least 8 percent core constant currency EPS growth as we will focus on tightly managing our costs to better align with the subdued growth environment that we are currently operating in.”
For 2024, PepsiCo anticipates a low single-digit increase in organic revenue, a revision from the previous estimate of approximately 4%. The company remains confident about delivering at least an 8% increase in core constant currency EPS. This outlook suggests that 2024 adjusted EPS of at least $8.15 (consensus $8.15) will represent a 7% year-over-year increase. PepsiCo’s commitment to shareholder returns remains strong, with plans for total cash returns of approximately $8.2 billion, including $7.2 billion in dividends and $1.0 billion in share repurchases.
