Macroeconomic headwinds did not slim down the third quarter results of PepsiCo Inc (NASDAQ: PEP) who today smashed Wall Street estimates along with raising its full-year guidance for a third consecutive quarter, sending shares more than 2% up during pre-market trading.
Earlier this summer, PepsiCo rival, Coca Cola (NYSE: KO) also lifted its full-year revenues fueled by a stronger-than-expected second quarter performance that included price hikes of around 10% across the board, which offset flat overall case volumes.
Fiscal Third Quarter Highlights
For the quarter ended in September, the packaged foods and beverage maker reported revenue grew 6.7% to $23.45 billion, topping LSEG's estimate of $23.39 billion, while organic revenue that excludes the impact of acquisitions and divestitures, rose 8.8%. PepsiCo made a net income of $3.09 billion, or $2.24 per share. Adjusted earnings amounted to $2.25, also topping the expected $2.15.
Yet, PepsiCo's volume, which strips out pricing and currency changes, fell again this quarter as inflation harmed product demand. In response, Pepsi has been shrinking portions and making smaller value packs to provide consumers with more affordable options. During the quarter, Pepsi executed price increases of about 11%.
Food Performed Better Than Beverages
North American food divisions outperformed the beverages unit that contracted 6%. In North America, Quaker Foods experienced a 1% volume rise as its brands gained market share in key categories, while Frito-Lay's volume was flat.
2024 Outlook
Organic revenue growth has been guided at the high end of 4% to 6% with core constant currency earnings per share growing in high single digits.
Consumers Digested Higher Prices Of Snacks
Pepsi reported added another successful round of price increases to its solid organic sales growth, allowing to drinks and snacks giant to lift its full year profit forecast for the third consecutive quarter.
The Threat Of Weight Loss Drugs
Last Thursday, shares of both PepsiCo and Coca Cola got smashed when Walmart Inc (NYSE: WMT) executive John Furner told Bloomberg that new generation of weight loss drugs are causing consumers to cut back on groceries and beverages that are high in calories. Coca Cola shares had a rough week that added to a challenging year. But Coca Cola has a balance sheet that is literally built to weather the worst possible recession with ease. With net debt is only about two times its annual net income, Coca Cola can navigate through challenging times but besides the commentary of the Walmart executive, even analysts have expressed concerns regarding the implications of the growing popularity of anti-obesity drugs.
Although the Walmart executive spoke mainly of a changing consumer behavior in terms of the changes in customers' baskets, these drugs reduce appetite and cravings, therefore altering the physiology that goes on within the body and possibly even eliminate the need for snacks altogether. Considering that about 45% of the U.S. population is deemed as obese with as much as 70% categorized as overweight, the weight loss craze will undoubtedly have a profound impact on PepsiCo and Coca Cola, as well as Walmart, as they will all be forced to alter their offerings to fit their consumers.
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