PepsiCo Inc. (PEP) is proving its ability to exceed expectations on earnings day.
Shares of the Purchase, New York-based beverage and snack food giant were slightly higher in Tuesday's pre-market trading after reporting adjusted earnings of $1.54 a share for its fiscal second quarter ended June 15 on group revenue of nearly $16.5 billion.
Both figures narrowly edged the FactSet Wall Street consensus, aided by very strong performance in the snacks category and a slight pickup in North American Beverage sales that outweighed negative impact of foreign exchange translations.
"We are pleased with our results for the second quarter," PepsiCo CEO Ramon Laguarta said. "While adverse foreign exchange translation negatively impacted our reported net revenue performance, our organic revenue growth was 4.5% in the quarter."
Frito-Lay North America was the standout performer for the company, reporting 5% organic revenue growth as former CEO Indra Nooyi's plan to pursue healthier options in the portfolio and expand snack selection appears to be paying dividends. Laguarta said smaller snack packages that achieve a better selling price and a more convenience-focused snacking consumer helped drive the performance.
Moving forward, Laguarta affirmed PepsiCo's organic revenue growth forecast of around 4% and core earnings per share for the full year of around $5.50.
"We are also pleased with the progress on our priorities to make PepsiCo a faster, stronger and better company by building new capabilities, strengthening our brands, adding capacity to grow and transforming our culture," Laguarta said. "Our performance for the first half and the progress we are making on our strategic priorities give us increased confidence in achieving the 2019 financial targets we communicated earlier this year."
Despite the key seasonal positive the summer brings, analysts were largely pleased with the maintenance of the prior guidance given wide swings in foreign currency impacts that could hurt results.
PepsiCo shares already are up 20% for the year to date, more than doubling the performance of its chief rival Coca-Cola Co. (KO) and keeping the market behind new CEO Laguarta. PepsiCo has been able to deliver results that have come in line with or better than expectations during his time atop the company, and the stock has trended toward all-time highs under his watch.
Still, with such strong performance many analysts have not been overly eager to buy into a stock near all-time highs.
"It's clear PEP's reinvestment is beginning to pay dividends," RBC analyst Nik Modi commented in an early morning note. "PEP shares have performed well thus far in 2019 (largely due to general move higher for yield/defensive stocks). We rate PEP Sector Perform and would not chase the stock at current levels."
Modi noted that the good showing from PepsiCo should work as a positive for its peers, especially into the key summer season for beverage sales.
"Pricing was the dominant driver of the 4.5% organic top-line growth -- with Pepsi Beverages North America generating 4% price/mix in the quarter -- a clear positive for Coca-Cola and Keurig Dr Pepper (KDP) ," Modi commented.
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