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PepsiCo’s Revenue Miss, Profit Beat & Dividend Lift

  • Shares of PepsiCo Inc. slump on first revenue miss in at least five years
  • Company announces a 7% increase in annual dividend
  • Full-year sales-growth outlook is trimmed
  • Net income jumps to $1.3 billion, beating expectations
  • PepsiCo Beverages North America, Frito-Lay North America, and Quaker Foods North America revenue decline
  • Latin America is the only region that reports revenue growth
  • New annual dividend implies a dividend yield above industry benchmarks
  • PepsiCo expects organic revenue growth of at least 4% for 2024

Introduction

PepsiCo Inc., the popular beverage and snack giant, reported a surprise decline in revenue, marking its first miss of expectations in at least five years. While the company’s quarterly profit beat expectations and an increase in the annual dividend was announced, PepsiCo trimmed its full-year sales-growth outlook. This unexpected revenue decline highlights the challenges faced by the company in its North America businesses.

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Revenue Decline and Profit Beat

PepsiCo reported a decline in revenue of 0.5% to $27.85 billion, missing the expected increase of 1.4% to $28.40 billion. However, the company’s net income jumped to $1.3 billion, or 94 cents a share, from $518 million, or 37 cents a share, in the same period a year ago. Excluding nonrecurring items, core earnings per share of $1.78 beat the FactSet consensus of $1.72.

Weakness in North America Businesses

PepsiCo Beverages North America revenue fell 2.4% to $7.91 billion, Frito-Lay North America revenue declined 3% to $7.47 billion, and Quaker Foods North America revenue sank 15.7% to $893 million. This weakness in the North America businesses can be attributed to consumers being more cautious with their budgets and choices due to economic uncertainties.

Positive Growth in Latin America

Latin America was the only geographic region that reported growth, with revenue rising 17.6% to $3.97 billion. This positive growth indicates that PepsiCo is performing well in this region despite the challenges faced in other areas.

Dividend Increase

In a move to reward shareholders, PepsiCo announced a 7% increase in its annual dividend. The new dividend rate of $5.42 per share, effective in June, implies a dividend yield of 3.21%. This is above the yield for the Consumer Staples Select Sector SPDR ETF and more than double the implied yield for the S&P 500 index.

Outlook for 2024

PepsiCo expects organic revenue growth of “at least” 4% for 2024, compared to its previous forecast of growth “at the upper end” of its long-target range of 4%-to-6% growth. The company also anticipates core earnings per share of “at least” $8.15 for 2024.

Conclusion

PepsiCo’s surprise revenue decline and trimmed sales-growth outlook reflect the challenges faced by the company in its North America businesses. However, the strong quarterly profit beat and the increase in the annual dividend demonstrate the company’s resilience and commitment to rewarding shareholders. As PepsiCo looks towards the future, it remains focused on driving organic revenue growth and delivering value to its investors.

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