Pepsi stock rises after earnings and guidance boost

PepsiCo shares rose Thursday after the beverage and snack maker posted a beat and rise in the quarter in the three months to the end of June.

Pepsi (ticker: PEP ) reported earnings per share of $1.99 for the June quarter, topping analysts’ expectations of $1.96. Quarterly revenue was $22.3 billion, beating the consensus estimate of $21.7 billion.

Even better was the view. Pepsi raised its guidance for full-year organic revenue growth to 10% from the 8% it outlined in April, while earnings per share rose to 12% from a previous forecast of 9%.

Shares of Pepsi gained 1.8% in premarket trading on Thursday.

This is breaking news. Read Pepsi’s earnings preview below and watch for more analysis soon.

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Most consumer staples stocks have fallen this year, but, by comparison, Pepsi has risen. Investors are eager to see if the beverage and snack maker can continue that momentum with its second-quarter results before Thursday.

Analysts expect PepsiCo (ticker: PEP ) to post earnings per share of $1.96, up from $1.86 in the year-ago period, with estimates rising over the past month. Consensus calls for revenue to increase to $21.73 billion in the second quarter of 2022 from $20.23 billion.

In April, Pepsi delivered first-quarter Beat-and-Rice, which sent shares soaring. Pepsi stock has risen 1.8% so far this year, while its peers tracked by the Consumer Staples Sector SPDR fund ( XLP ) fell 1% through Tuesday’s close. While Pepsi is up 8.5% and XLP is up 1.3% over the past 12 months, its positive performance gap widens further.

Part of what made the stock so successful was on display in the first quarter—namely the company’s ability to raise prices to cover increased costs without affecting demand. Although inflation has cooled, many households are still struggling to afford essential goods. Wall Street is laser-focused on whether or not packaged food companies can keep prices at levels that keep margins healthy without sacrificing too much on revenue.

Investors will no doubt want to revisit it this quarter. For her part, Goldman Sachs analyst Bonnie Herzog believes Pepsi can deliver. Last week, he reiterated a buy rating on the stock, arguing that “strong fundamental momentum for Pepsi’s businesses” should allow it to deliver another top- and bottom-line beat—and another possible guidance. He also noted that “consumer elasticity remains surprisingly resilient despite the challenging macro environment.”

In other words, he thinks shoppers will continue to pay for Pepsi products.

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Of course, the company isn’t immune to broader factors weighing on packaged food and beverage sales in recent weeks. Some investors worry about an inevitable slowdown in organic growth — both for Pepsi and peers.

Nevertheless, UBS analyst Jay Soule argues that “the company has demonstrated the ability to increase organic revenue growth over time and will continue to outperform the broader staples universe in the face of this broader recession.” He also predicts a surprise second-quarter earnings for Pepsi, and maintains a buy rating on the stock.

If Pepsi offers some positive feedback about its future organic growth outlook, it could ease some fears about its sales trajectory—even if the company doesn’t raise its full-year forecast.

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Less than half of analysts tracked by FactSet have an average price target for Pepsi of $200, 8% above where the stock closed Tuesday.

Write to Teresa Rivas at [email protected]

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