Inflation and product recalls could be to blame, the firm’s CEO argued
PepsiCo‘s (NASDAQ:PEP) mixed Q3 2024 financial results have been described by the firm’s executives as “subdued”, with soft demand for the company’s Frito-Lay snacks and drinks and a recall of several Quaker Oats products cited as key factors.
Released today, the soda and snack giant’s quarterly report indicates that inflation-wracked Americans are pushing back against PepsiCo’s previous price increases, with revenue falling more than 2% short of Wall Street’s expectations at $23.3 billion.
CEO Ramon Laguarta argued that PepsiCo worked to make its Lay’s brand products more affordable in Q3 2024, but conceded that this may have been “too little, too late” for inflation-weary consumers.
“After three years of outsized growth for Frito-Lay, we knew this year was going to be a year of normalization, and that’s what’s happened,” Laguarta said in a conference call with investors.
Slight earnings beat and a guidance cut
Despite the revenue shortfall, PepsiCo reported third-quarter 2024 earnings of $2.31 per share, narrowly edging out analysts’ consensus estimates of $2.29.
This may have been a catalyst for buying activity, with PepsiCo stock trading up 1% and touching the $169 level on Tuesday morning.
The firm’s quarterly report also guided for a full-year 2024 organic revenue percentage increase “in the low single digits”. That’s a notable downward revision compared to PepsiCo’s prior guidance of approximately 4% full-year organic revenue growth.
Analysis: Nothing spectacular, but healthy dividend remains
In summary, there’s nothing spectacular for investors to celebrate in PepsiCo’s headline quarterly results and guidance. Sure, PepsiCo stock is a ‘steady Eddie’ type of stock, but the company should still give prospective investors a good reason to take the trade.
But this doesn’t mean there’s no reason whatsoever to invest in PepsiCo. For what it’s worth, the company offers a forward annual dividend yield of 3.12%, which compares favorably to the consumer defensive average dividend yield of 2.125%.
That’s all fine and well, but it’s not necessarily a sufficient reason to start investing in PepsiCo stock. After all, U.S. Treasury bonds still offer a competitive yield if that’s your main focus, and they’re relatively risk-free.
Besides, it sounds like PepsiCo doesn’t expect strong sales growth in the near future. To quote Brian Mulberry, client portfolio manager at Zacks Investment Management, “it is looking like Pepsi is in need of its own energy shot to boost revenues”.
Hence, investors shouldn’t chase after PepsiCo’s dividend distributions, even if they’re fairly attractive.