The beverage maker beat revenue and earnings estimates.
PepsiCo (NASDAQ:PEP) stock was moving higher Thursday, up about 6% in morning trading following the release of its second quarter earnings.
While PepsiCo beat earnings and revenue estimates in the quarter, it was a bit of a mixed bag. Sales in its largest market, North America, sputtered but that was offset by solid gains in international markets.
PepsiCo generated $22.7 billion in revenue in the quarter, up 1% year-over-year. This bested estimates of roughly $22.3 billion. Organic, or non-GAAP, revenue rose 2.5% in the quarter, with international organic revenue increasing 6%.
Net income was only about $1.3 billion, or 92 cents per share, down significantly from $3.1 billion in the same quarter a year ago. But this was due to a $1.9 billion impairment related to its Rockstar energy drink and the Be & Cheery snack brand. Impairments typically happen when the value of a brand is reassessed lower.
But on an adjusted basis, minus the impairment, earnings were $2.12 per share, down from $2.28 in Q2 2024. Expense growth of 4% outpaced revenue growth, which contributed to the adjusted earnings decline. However, this was better than analysts’ estimates of $2.03 per share.
“We’re encouraged by the acceleration in our net revenue growth versus the previous quarter with our businesses effectively navigating through a challenging environment. Our international business momentum continued, while our North America businesses improved their execution and competitiveness in key subcategories and channels,” PepsiCo Chairman and CEO Ramon Laguarta said.
International sales rise, North America sales sputter
Overall, the volume of sales fell 1.5% in the quarter. In North America, food volumes dropped 1% while beverage volumes sank 2%. But its international beverages franchise saw sales volume rise 1%. In the EMEA, snack food volume dropped 6%, but beverage volume was up 1%. In Latin America and Asia Pacific, snack foods volume gained 4% and 5%, respectively, while beverage volumes were flat.
Revenue in North America for PepsiCo foods rose 1% while beverage sales were flat. But that was offset by a 3% increase in international franchise revenue and an 8% jump in EMEA revenue.
“Our international beverages business performed well and delivered 9 percent organic revenue growth in the second quarter,” Laguarta said. “The growth was driven by good performance in markets including Mexico, Brazil, Germany, Poland, France, Egypt, Türkiye, Saudi Arabia, Pakistan and Thailand. Year-to-date, we held or gained share in Mexico, Brazil, Guatemala, U.K., Germany, Poland, Spain, France, China, South Korea and Pakistan.”
The other factor that boosted revenue was pricing. Effective net pricing was up 4% overall in the quarter. This reflects the year-over-year impact of various pricing actions, sales incentive activities and mix, selling varying products in different package sizes.
In EMEA, pricing was up 11% year-over-year. In North America, food pricing was flat, but beverage prices jumped 4%.
All hail the Dividend King
PepsiCo stock shot about 6% higher on Thursday, which is a little bit of a headscratcher given the mixed results.
It was likely related to its outlook for the fiscal year, which calls for a low-single digit increase in organic revenue, which would be roughly in line with Q2. It also calls for earnings to be flat.
Again, the outlook is nothing too exciting. However, dividend investors should know that PepsiCo is one of the best, most consistent dividend payers on the market. It has raised its dividend each year for the past 52 straight years, making it a Dividend King. It raised its dividend last quarter to $1.43 per share.
PepsiCo also pays out a ridiculously high yield of 4.20%, which is some four times the S&P 500 average.
So, in uncertain times, with tariffs back on the table, investors may be flocking to the safety of a Dividend King. In addition, PepsiCo stock has a median price target of $145.50, which would be a 7.5% gain, so analysts see some upside there.
