PepsiCo Pre-Q1 Earnings Signal Soft Performance: Hold Tight or Let Go?

PepsiCo, Inc. PEP is expected to register top and bottom-line declines when it reports first-quarter 2025 numbers on April 24, before the opening bell.The Zacks Consensus Estimate for first-quarter revenues is pegged at $17.8 billion, implying a 2.7% decline from the year-ago quarter's reported figure. For quarterly earnings, the consensus mark is pegged at $1.51, suggesting 6.2% growth from the $1.61 reported in the prior-year quarter. The consensus mark for earnings has moved down 1.3% in the past 30 days. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)In the last reported quarter, the company registered an earnings beat of 0.5%. It has delivered an earnings surprise of 3.2%, on average, in the trailing four quarters.PEP's Earnings WhispersOur proven model does not conclusively predict an earnings beat for PepsiCo this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.PepsiCo has a Zacks Rank #4 (Sell) and an Earnings ESP of -1.12%.You can see the complete list of today’s Zacks #1 Rank stocks here.What to Look for in PEP’s Q1 Earnings ReleasePepsiCo’s first-quarter 2024 revenue results are expected to reflect the impacts of subdued category demand in its North America convenient food business and the effects of a product recall in the Quaker Foods North America (“QFNA”) segment. Additionally, revenues are expected to reflect business disruptions caused by escalating geopolitical tensions in some international markets and the looming tariff-related headwinds.PEP’s troubles in the North America markets are partially attributed to increased pricing in response to rising inflation in the past few years, which are expected to have hurt the performances of the Frito-Lay North America (“FLNA”) and PepsiCo Beverages North America (“PBNA”) divisions. We expect organic sales to decline 1% year over year in FLNA and be flat in the PBNA segment in the first quarter of 2024.The QFNA segment, home to brands like Quaker Oats, has faced significant challenges due to product recalls due to contamination issues, including Salmonella, affecting several cereal and snack offerings. These disruptions took a toll on the segment’s performance, leading to declines in sales and profitability in recent quarters. Persistent fallout from the recalls, compounded by inflationary pressures, is expected to continue weighing on the segment’s top-line growth in the to-be-reported quarter. Our model predicts organic revenues for the QFNA segment to decline 4% year over year in the first quarter of 2024.Our model projects year-over-year overall organic revenue growth of 1.7% for first-quarter 2025, with core EPS expected to decline 2.6%.PepsiCo, Inc. Price and EPS Surprise  PepsiCo, Inc. price-eps-surprise | PepsiCo, Inc. QuoteHowever, PEP’s strong international business, aided by category growth in the developing and emerging markets, is expected to have cushioned the top line to some extent in the fourth quarter. On an organic basis, we expect the company to deliver notable revenue growth across its international units in the first quarter, with growth of 3% in Latin America, 7% in Europe, 14% in the AMESA and 5% in the APAC.The company’s bottom line and margin results in the to-be-reported quarter are expected to reflect the continued benefits of its ongoing holistic cost-management initiatives that have been driving superior supply chain and distribution efficiencies. PepsiCo has been continually focused on driving greater efficiency and effectiveness by reducing costs and plowing back these savings to develop scale and core capabilities.The company expects to achieve this productivity goal through savings generated from restructuring actions. Savings from the productivity and restructuring plans should go a long way in driving the top line and margins.We anticipate the adjusted gross margin to increase 20 basis points (bps) year over year to 55.9% in the first quarter. Gross margin growth is expected to have resulted from eased supply-chain headwinds, partly offset by inflationary costs.Price Performance & ValuationPepsiCo’s shares have exhibited a dismal performance in the past three months. The stock has lost 3.5% against the broader industry and the Consumer Staples sector’s growth of 13.5% and 9.2%, respectively. However, the PepsiCo stock has outperformed the S&P 500 index, which declined 13.6% in the same period.PEP Stock’s 3-Month Performance Image Source: Zacks Investment Research PepsiCo’s current stock price of $142.84 reflects a 3.3% premium with its 52-week low mark of $138.33 and a 22.1% discount from its 52-week high of $183.41.The PEP stock’s performance lags its peers Coca-Cola KO, Monster Beverage MNST and Keurig Dr Pepper’s KDP growth of 18.2%, 18.7% and 12.4%, respectively, in the past three months. This disparity highlights a significant dip in PepsiCo's stock price relative to its key rivals.The PEP stock’s valuation on a forward 12-month P/E basis reflects a significant discount with the market at large. While this may seem like an opportunity for some investors, the valuation gap with its peers might not be as advantageous as it appears. The lower price could signal underlying issues rather than presenting an upfront investment opportunity.The stock is trading at a forward P/E ratio of 16.95X, below the S&P 500’s average of 19.54X and the broader industry’s average of 19.23X. Image Source: Zacks Investment Research PepsiCo’s Investment ThesisPEP has consistently delivered revenue growth and strong profitability, driven by its diverse product portfolio and global presence. Investments in brands, distribution systems, supply chains, manufacturing and digital capabilities strengthen its long-term growth potential.Despite its solid financial performance and strategic initiatives, industry dynamics and external risks warrant a cautious investment outlook. Inflationary pressures, operational challenges in North America (including QFNA product recalls) and shifting consumer behavior have been hurting performance. Recent market data suggests bleak prospects for near-term recovery in its North America business.ConclusionAs PepsiCo gears up to report its first-quarter 2025 results, investors may weigh whether it is the right time to jump in. The company’s strong international performance, digital transformation efforts, focus on sustainability, and continued product innovation all stand as potential tailwinds. However, persistent challenges in its North American operations, along with broader market volatility, add a layer of uncertainty.Given the lack of significant estimate upgrades and a cautious outlook from analysts, investors would be wise to take a wait-and-see approach. Monitoring PepsiCo’s ability to navigate these headwinds and capitalize on growth opportunities post-earnings could offer a clearer investment picture, making patience a potentially smarter move for now.Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report CocaCola Company (The) (KO): Free Stock Analysis Report PepsiCo, Inc. (PEP): Free Stock Analysis Report Monster Beverage Corporation (MNST): Free Stock Analysis Report Keurig Dr Pepper, Inc (KDP): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks