How much have supply chain disruptions impacted Pepsi’s (PEP) operating metrics? While the snack and beverage giant is broadly seen as a safety and value play, thanks to its solid execution and inflationary effects, the company has had to increase costs and limit its output as it adjusts to supply-chain headwinds.
Pepsi has felt the impact of both labor and price inflation, which could impact its near-term profitability. To what extent remains to be seen. The snack and beverage giant is set to report fourth quarter fiscal 2021 earnings results after the closing bell Wednesday. Because of these headwinds, some analysts expect the company to report quarterly EPS that would be flat on a year-over-year basis and potentially 4 cents below consensus.
Pepsi shares have nonetheless performed well over the past six months, rising 10.5% against 2.75% rise in the S&P 500 Index. The stock has traded flat year to date, compared to a better-than 5% decline in the S&P 500 Index. The company has been rewarded for its strong execution, reporting not only rapid organic sales growth, but also consistently strong free cash flow growth. The company is investing in new brands and adapting to new trends which has begun to pay dividends evidenced by the 8% organic revenue growth forecast for 2021 in the last quarter.
Meanwhile, unit volume was also strong for food/snacks, while rising by mid-single digits for beverages. While beverages volumes have taken a hit during the pandemic, the impact has been offset by its snack business and prepared-food brands such as Quaker Foods and Rice-A-Roni, among others. Still, management remains optimistic that there is plenty of room for growth in both core snacks and beverages business. On Wednesday Pepsi will need to demonstrate that growth.
For the three months that ended December, Wall Street expects the company to deliver EPS of $1.52 per share on revenue of $24.23 billion. This compares to the year-ago quarter when earnings were $1.47 per share on $22.45 billion in revenue. For the full year, earnings of $6.24 per share would increase 13% year over year, while full-year revenue of $78.29 billion would rise about 11.2% year over year.
Backed by its framework, termed Faster, Stronger and Better, the company has delivered consistent organic operational growth over the past several quarters. This is a remarkable accomplishment not only on account of Pepsi's size, but also the level of competition the company gets from the likes of rivals such a Coca-Cola (KO) and Keurig Dr. Pepper Snapple (KDP). What’s more, Pepsi’s diversified food and beverage portfolio continues to be a notable asset, driving market share gains in several key categories.
Not only has the company grown its share in total juices and juice drinks, Pepsi has also taken share in sparkling water categories, as well as ready-to-drink tea and coffee beverages. These were highlighted in the third quarter when it beat on both the top and bottom lines, reporting Q3 adjusted EPS of $1.79 per share, beating the $1.73 expected, while Q3 revenue of $20.19 billion grew 11.6% year over year, topping estimates b $800 million.
Q3 organic revenue, which strips out the impact of foreign currency, acquisitions and divestitures, rose by 9% in the quarter, suggesting continued consumer demand across all geographic segments. Volumes was up 4% and 8% respectively for the food/snack and beverage segments. Given these strong operating trends, it would be a mistake to part with Pepsi stock at current levels. On Wednesday Pepsi will need to build on that performance with another top- and bottom line beat.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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