PepsiCo's (PEP.US) net profit exceeded estimates, but for the first time in nearly four years, quarterly revenues fell by 0.5%, potentially giving sellers reasons to reconsider business prospects in a lower inflation expectation environment that limits price-driven margin improvements. This revenue decline is attributed to high credit costs and reduced savings impacting consumers during the holiday quarter, with disappointing overall demand in North America.
Key Financial Metrics:
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- Revenue: $27.85 billion vs. expected $28.4 billion
- Adjusted Earnings Per Share (EPS): $1.78 vs. expected $1.72
- Net Profit: $1.3 billion vs. $518 million in Q4 2022
Key insights from the report
According to PepsiCo, U.S. consumers unexpectedly changed their habits from eating and drinking at home (lower Pepsi sales) to buying more snacks and Gatorade drinks. The company remains optimistic about the overall state of consumers, citing low unemployment and hopes that interest rates will fall by summer and wages will grow faster than inflation. According to the company, f/x volatility also negatively affected revenues in Q4 2023.
- Organic revenues of Pepsi grew by 4.5% in the quarter, driven by higher prices
- Further price increases seem unfeasible as they have negatively affected product demand; Pepsi’s sales volume fell in Q4
- Consumer preference for smaller packaging due to convenience and cost impacted sales
- Sales volumes fell by 2% for Frito-Lay North America (Cheetos, Doritos) and 6% for Pepsi; Quaker Foods saw an 8% decline, attributed to discontinuing granola bars and cereal
In 2024, Pepsi anticipates that organic revenues will grow by at least 4%, and earnings per share will increase by at least 8%. Previously, Pepsi estimated organic revenue growth between 4% to 6%; however, the earnings forecast remains unchanged. The company now expects a weaker first half of the year due to product withdrawals from the North American Quaker Oats sector. The management expects that global organic revenue growth will exceed growth in North America in 2024.
Source: xStation 5
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