PepsiCo, the global snack and beverage giant, delivered a robust performance in its third quarter results for 2023, but despite strong earnings, the company has lowered its guidance for 2024.
Strong Q3 Performance
PepsiCo posted a net revenue of $23.45 billion in Q3 2023, representing a 6.7% year over year increase. This exceeded expectations of $23.39 billion. Core earnings per share for the quarter were $2.24, an impressive 15% rise from $1.97 in the same period last year.
The performance was driven by strong demand in the snack and beverage divisions. Frito Lay North America saw revenue grow by 7% to $5.95 billion, while PepsiCo Beverages North America delivered an 8% revenue increase, reaching $7.16 billion. Latin America was another bright spot, with revenue surging by 21%.
PepsiCo’s pricing power was evident as the company was able to pass on increased costs to consumers without significantly denting demand. This resilience helped PepsiCo maintain a solid operating margin of 15.6%, demonstrating effective cost management in a difficult inflationary environment.
Why Has PepsiCo Lowered Its 2024 Outlook?
Despite the strong Q3, PepsiCo revised its 2024 outlook downward, projecting lower than expected EPS growth. The company now forecasts high single digit growth in core EPS for 2024, down from the previously anticipated range of 8-9%. Several factors are behind this revision:
Rising costs: PepsiCo expects continued pressure from input costs, including higher prices for raw materials like corn and energy.
Foreign exchange impacts: The strong US dollar has negatively affected PepsiCo’s international revenue. With more than 40% of its sales generated abroad, fluctuations in currency exchange rates could weigh on 2024 results.
Consumer spending concerns: With inflation persisting and interest rates remaining high, PepsiCo foresees a slowdown in consumer demand, particularly in Europe and North America.
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What Does This Mean for Investors?
For long term investors, PepsiCo remains a stable option. It continues to be a strong dividend paying company, offering a dividend yield of 2.8%, with a track record of consistent dividend growth over the last 50 years. The lowered guidance signals potential short term challenges. Investors seeking high growth opportunities may want to consider diversifying into other sectors less affected by global economic volatility.
While PepsiCo’s resilient Q3 reassured markets, the cautious outlook for 2024 reflects the difficult challenges that even industry giants face.
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