Pepsi's Resilience Amid Economic Downturn

Expectations for Shareholder Return Policy at Around $7.7 Billion This Year

[Asia Economy Reporter Minji Lee] While corporate earnings are shrinking due to inflation and the economic downturn, PepsiCo stands out. Following strong third-quarter results, it is expected to deliver earnings that exceed market expectations in the fourth quarter as well. Securities experts have evaluated it as an attractive investment stock capable of withstanding the global economic recession.

On the 16th, Pepsi’s stock price pointed to $170.19, up 4.91% over the past five trading days. Strong summer demand and price increases, despite inflation and the Russia-Ukraine conflict, helped the company surpass earnings forecasts and raise its annual guidance, driving the stock price higher. Although the stock price fell 1.61% on an annual basis, considering that the S&P 500 index dropped 25% during the same period, Pepsi has maintained a relatively favorable return compared to other companies.

In the third quarter, Pepsi recorded revenue of $21.97 billion, an 8.8% increase compared to the same period last year. Non-GAAP EPS (earnings per share) was $1.97, exceeding market expectations for the second consecutive quarter following the second quarter. Price increases, a surge in snack sales, and continued growth in the core beverage business boosted earnings.

Looking at revenue by segment, North America’s Frito-Lay (snacks) posted $5.6 billion, up 19.6% year-over-year, and Quaker Foods reached $700 million, a 15.4% increase over the same period. PepsiCo Beverages generated $6.6 billion, up 3.6%. Other regions reported revenues of Europe $3.6 billion (0.9%), Latin America $2.5 billion (19.9%), Africa, Middle East, and South Asia $1.7 billion (3.7%), and Asia Pacific, Australia, New Zealand, and China $1.2 billion (2.8%). Han Jae-gu, a researcher at Hanwha Investment & Securities, said, “The company overcame sales volume declines and inflation by raising product prices. Snack sales volume decreased by 1.5%, but average beverage sales volume increased by 3%.”

After this earnings announcement, Pepsi expressed confidence in maintaining solid performance through the end of the year, based on expectations of strong results driven by price increases. The company now expects net sales to grow 12% this year, up from the previous forecast of 10%. Annual EPS was also raised by 5.8% to $6.73 from the prior estimate of $6.36. During the previous upward revision, only sales forecasts were raised, which increased concerns about costs, but by raising core EPS this time, the company avoided cost concerns. Currently, Pepsi’s market share stands at 49%, higher than Coca-Cola’s 33%.

Shim Ji-hyun, a researcher at Shinhan Financial Investment, analyzed, “The fact that Pepsi raised prices more aggressively than competitors, including a second price increase early in the fourth quarter, and is increasing market share in both snacks and beverages across the consumer market is attractive. Although the stock price has shown solid performance recently as a defensive stock, the 12-month forward PER (price-to-earnings ratio) remains at 24 times, which is not expensive.”

Furthermore, Pepsi is expected to actively return value to shareholders based on solid earnings and cash flow. Pepsi plans to allocate $6.2 billion for dividends and $1.5 billion for share repurchases this year, totaling approximately $7.7 billion in shareholder returns. Accordingly, Pepsi is likely to maintain its status as a Dividend King, a company that has increased dividends for more than 50 consecutive years.

This content was produced with the assistance of AI translation services.