PepsiCo Q3 earnings report - Summary
- PepsiCo beat analysts expectations in some areas, with a core EPS of $2.29 and a 2.6% revenue growth
- However, its North American food business is still seeing decline
- Volumes also saw decline due to pricing strategy
- PepsiCo is investing in functional health, with a protein and fibre focus
- Walmart’s Steve Schmitt will become new CFO after the retirement of current CFO Jamie Caulfield
PepsiCo has released its Q3 earnings report. The multinational has seen modest gains in revenue and has beat analysts’ expectations in some areas, but is still beset by volume declines.
A modest win
PepsiCo has beat analysts’ expectations in some areas. For example, core earnings per share (EPS) were predicted to be roughly $2.26 (€1.95) whereas they were in fact $2.29 (€1.98).
Contrasting this, reported EPS came in at a mere $1.90 (€1.64) seeing a drop of 11% in this quarter alone.
Net revenue saw a growth of 2.6%, also beating analysts expectations.
The multinational’s North American beverages business saw a 2% growth in revenue. However, its North American foods business was down by 3%, and international beverages by 1%.
PepsiCo Q3 in numbers
- Net revenue grew by 2.6% in Q3
- Organic revenue performance grew by 1.3%
- Earnings-per-share in the third quarter was $1.90, declining by 11%
- Core EPS was $2.29
- Volumes declined by 1% for both foods and beverages
- PepsiCo's North American foods business declined by 3%, its North American beverages business grew by 2%, and its international beverages business declined by 1%
In both food and beverage, PepsiCo’s volumes have declined by 1%.
According to Chairman and CEO, Ramon Laguarta, the reason for volume declines in food is that PepsiCo changed its promotional strategy, aiming to keep products at value prices across all brands.
How PepsiCo is responding to Elliott
PepsiCo has been under pressure recently since major investor Elliott Investment Management proposed a slew of changes to the business last month.
These suggestions included making portfolios leaner and refranchising its bottling network.
Many of the points brought up by Elliott are already in PepsiCo’s strategy, explains Laguarta.
“We’re acting with a sense of urgency on portfolio transformation, simplification of the portfolio, [and] cost reduction to invest in future growth,” he said.
Elliott’s intervention will “drive a sense of urgency” in such transformations, Laguarta suggests.
PepsiCo to invest in functional health
With its food business in decline, PepsiCo needs to shake things up. The way it’s doing this is focusing on functional health.
In a call with investors, CEO Laguarta stressed that PepsiCo planned to invest in functional health, especially protein.
It is incorporating higher levels of protein into major brands such as Doritos and Quaker.
Furthermore, it is developing a GLP-1-friendly product with its brand Propel, which will contain “a special type of electrolyte”, as well as plentiful protein and fibre.
Fibre, Laguarta says, is “the next protein” and PepsiCo are also launching a series of fibre-rich products.
New CFO
PepsiCo has also announced a new CFO. Steve Schmitt will take the role on November 10 after Jamie Caulfield, the company’s current CFO, retires.
Schmitt is new to the company, having previously worked in US supermarket chain Walmart in several leadership positions.
“Steve has a strong track record of proven results and brings critical expertise that aligns with PepsiCo’s growth strategy,” said CEO Laguarta.
“Steve’s experience working with complex supply chains, adapting to the dynamic retail landscape and omnichannel consumers, and delivering operational excellence on a large scale will be impactful at PepsiCo. He will play a crucial role as we accelerate growth, optimize our cost structure, and create greater value for our shareholders.”
