PepsiCo Struggles Ahead of Q4 Earnings: Time to Invest or Stay Away?

PepsiCo, Inc. PEP is expected to register bottom and top-line growth when it reports fourth-quarter 2024 numbers on Feb. 4, before the opening bell.Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $27.9 billion, implying 0.3% growth from the year-ago quarter's reported figure. For quarterly earnings, the consensus mark is pegged at $1.95, suggesting 9.6% growth from the $1.78 reported in the prior-year quarter. The consensus mark for earnings has been unchanged in the past 30 days.The Zacks Consensus Estimate for 2024 revenues is pegged at $92 billion, implying 0.6% growth from the year-ago quarter's reported figure. For quarterly earnings, the consensus mark is pegged at $8.15, suggesting 7% growth from the prior-year quarter. The consensus mark for earnings has been unchanged in the past 30 days.In the last reported quarter, the company registered an earnings beat of 0.4%. It has delivered an earnings surprise of 4%, 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 -0.43%. You can see the complete list of today’s Zacks #1 Rank stocks here.What to Look for in PEP’s Q3 Earnings ReleasePepsiCo’s fourth-quarter 2024 revenue performance is expected to reflect the impacts of subdued category demand in its North American convenient food business and the effects of a product recall in the Quaker Foods North America (“QFNA”) segment. Additionally, revenues reflected business disruptions caused by escalating geopolitical tensions in some international markets.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 has led to reduced volumes as consumers adjust their spending habits amid economic pressures. These trends 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 be flat in FLNA and increase 1% in the PBNA segment in the fourth quarter of 2024.The QFNA segment, which features brands such as Quaker Oats, has been adversely impacted by product recalls linked to contamination concerns like Salmonella, affecting various cereal and snack items. These recalls have weakened the segment's performance, resulting in diminished sales and profits in recent quarters. Continued headwinds from these recalls and certain inflationary pressures are expected to have resulted in a soft top line for the QFNA segment. Our model predicts organic revenues for the QFNA segment to decline 9% year over year in the fourth quarter and 15.7% in 2024.On the last reported quarter’s earnings call, management predicted year-over-year organic revenue growth in the low-single digits for 2024. It expects core constant-currency EPS growth of at least 8% from the year-ago period’s reported figure. PepsiCo expects a core EPS of at least $8.15 for 2024. This suggests a 7% increase from the core EPS of $7.62 reported in 2023.Our model predicts year-over-year organic revenue growth of 2% for 2024, with core EPS growth of 7%. For the fourth quarter, we expect year-over-year organic revenue growth of 2.3%, with core EPS growth of 9.8%.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 fourth quarter, with growth of 2% in Latin America, 6% in Europe, 13% in the AMESA and 4% 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 130 basis points (bps) year over year to 54.8% in the fourth quarter. Gross margin growth is expected to result 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 8.3% compared with the broader industry and the Consumer Staples sector’s declines of 5.4% and 4.2%, respectively. PepsiCo's stock has underperformed the S&P 500 index, which grew 6% in the same period.PEP Stock’s 3-Month Performance Image Source: Zacks Investment Research PEP’s current stock price of $151.90 reflects a 7.3% premium with its 52-week low mark of $141.51 and a 17.2% discount from its 52-week high of $183.41.The PepsiCo stock’s performance lags its peers, including Coca-Cola KO, Monster Beverage MNST and Keurig Dr Pepper’s KDP declines of 1.6%, 5.5% and 1.9%, respectively, in the past three months. This disparity highlights a significant dip in PepsiCo's stock price relative to its key rivals.PEP’s stock 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 17.71X, below the S&P 500’s average of 22.42X. However, the company trades at a slight premium to the broader industry’s average of 17.48X. Image Source: Zacks Investment Research PEP’s Investment ThesisPepsiCo 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 approaches its fourth-quarter 2024 earnings announcement, investors may wonder if now is the right time to buy the stock. Positive factors such as strong international performance, digital expansion, sustainability initiatives and product innovation could boost the results. However, recent challenges in its North America operations and broader market uncertainties cannot be overlooked.Investors should closely evaluate PepsiCo’s ability to overcome these hurdles and seize growth opportunities to gauge its long-term potential. Given its muted estimate revisions and bearish outlook, a cautious stance is advisable. Waiting for clearer signs of recovery may be the prudent choice, making it wise to hold off on investing until after the earnings release.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 ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks