PepsiCo Inc.’s (PEP) reported stronger-than-expected Q2 results, topping both earnings and revenue estimates. The beat was driven by robust demand as more customers returned to restaurants and movie theatres as economies reopened. Shares of the snack and beverage giant gained 2.3% on July 13 to close at $152.96.
The company reported adjusted earnings of $1.72 per share, beating analysts’ expectations of $1.53 per share. Revenues of $19.22 billion exceeded the consensus estimate of $17.97 billion.
Notably, earnings per share jumped 27%, while net revenues grew 20.5% on a year-over-year basis. The company reported earnings of $1.32 per share in the prior-year period.
PepsiCo CEO Ramon Laguarta commented, “Our results give us confidence that the investments behind our Faster, Stronger and Better framework are working – as we invest in our brands, supply chain and go-tomarket systems, manufacturing capacity, capabilities and culture, and our society by integrating purpose into everything we do. Moving forward, we remain focused on winning in the marketplace and building competitive advantages that will position us well as consumer habits and preferences evolve over time.”
CEO Laguarta also gave some insights during the conference call on higher costs due to inflation on some of its raw ingredients, labor, and freight charges. However, management remains confident that it will able to manage the increased costs through management initiatives, increased productivity, and likely higher prices post Labor Day. (See PepsiCo stock charts on TipRanks)
PepsiCo Extends Restructuring Initiatives through 2026
PepsiCo announced its plans to extend the 2019 Productivity Plan until the end of 2026. Under the extended program, the company will work on various initiatives, like the implementation of newer technologies and the introduction of an automation program to its manufacturing and supply chain, to name a few.
Through the above initiatives, the company forecast annual productivity savings of more than $1 billion through 2026.
The extended plan will lead to higher pre-tax charges of $3.15 billion versus the prior forecast of $2.5 billion due to higher cash expenditures of $0.8 billion. So far, the company has incurred pre-tax charges of $874 million through June 12, 2021.
PepsiCo Raises 2021 Guidance
Based on robust Q2 results, management raised the financial guidance for FY2021. The company now forecasts adjusted earnings of $6.20 per share, while the consensus estimate is pegged at $6.09 per share.
Furthermore, core constant currency EPS growth is expected to be 11% versus the prior guidance of high-single-digit growth. The company now forecasts organic revenue growth of 6% versus mid-single-digit growth predicted earlier.
Following the robust Q2 results, Cowen & Co. analyst Vivien Azer increased the price target from $165 to $185 (21% upside potential) and reiterated a Buy rating on the stock.
Azer said, “Strength was broad-based in the quarter, led by strong DD (double-digit) revenue growth for NAB (North American Beverages), coupled with meaningful margin expansion.”
Consensus among analysts is a Moderate Buy based on 6 Buys and 5 Holds. The average PepsiCo price target of $161.40 implies 5.5% upside potential to current levels.
Pepsi scores a “Perfect 10” on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
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