PEP - PepsiCo: Still Looking For The Fizz But Results Are Falling Flat

2024-07-02 15:30:08 ET

Summary

• PepsiCo's Q1 '24 net sales slightly exceeded consensus estimates, with declines in volumes for FLNA and PBNA.
• International markets show strong growth potential, particularly in India, but may pressure operating margins.
• QFNA faced significant challenges with product recalls, impacting sales and operating margin, leading to the closure of a plant.
• We maintain our $151 target price and Sell rating given the overvaluation relative to our DCF and peers, and continued overhang of GLP-1 and Russia risks.

Summary

PepsiCo's ( PEP ) Q1 '24 net sales of ~$18.3bn came in above consensus estimates by ~1%. Volumes declined by ~2% vs consensus at ~3%, with Frito-Lay North America ("FLNA") declining ~2% (vs consensus -1.5%) PepsiCo Beverages North America ("PBNA") declining ~ 5% (vs consensus -5%). Its price/mix growth of ~5% was broadly in line with consensus at 5.4% in most geographies. Operating income of ~$2.9Bn came in ~4% ahead of consensus but did not include ~$170MM of product recall costs at Quaker Foods North America ("QFNA"), which was worth 6 points of operating income growth. Including these costs, Core EPS is in line with consensus at ~$1.52. ...

For further details see: