This could be a big week ahead for PepsiCo (PEP 1.08%) investors. The company's last earnings report covered the maximum impact to date of the COVID-19 pandemic, which powered historic demand swings in each part of its global drink and snack foods business.
On Thursday, Pepsi will likely announce similarly sharp demand swings, perhaps in opposite directions. But its overall results are likely to be positive on both the sales and earnings sides of the business.
Let's look at the key trends to watch in the upcoming earnings report set for Thursday, Oct. 1.
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Snacks and drinks
Pepsi's broad food portfolio turned out to be a huge asset during the early days of the COVID-19 crisis. On-the-go drink demand slumped as consumers stayed home, just as Coca-Cola reported. But shoppers ramped up their snack and prepared food purchases so that Pepsi's overall organic sales were flat in the fiscal second quarter.
This quarter's report will show swings back toward normal for both portfolio segments. But investors will get important insights about market share, too. We'll learn whether the Quaker Food division has made defensible inroads into new demographics, for example. And Thursday's report might contain more evidence that Pepsi is winning market share against Coke.
Overall, CEO Ramon Laguarta and his team predicted slight sales growth this quarter and most investors who follow the stock are expecting to see a less-than-1% revenue uptick on Thursday.
Rising costs
Pepsi in mid-July reported weaker profitability and management asked investors to brace for further declines ahead. The supply chain is dealing with some historic stresses as demand soars for some products, and in some geographies, while tanking in others. There are extra COVID-19 related costs around health and safety, too.
PEP Operating Margin (TTM) data by YCharts
Investor expectations for Thursday include a slight earnings drop as profits fall to $1.48 per share from $1.56 per share a year ago. But what's more important than those short-term headline numbers is Pepsi's cash performance. Operating cash flow was up solidly over the past six months, and that success was the key reason why management affirmed plans to spend $7.5 billion on dividends and stock repurchases this year.
The second half of 2020
While Pepsi isn't likely to offer any detailed growth projections for the second half of 2020, shareholders should hear confirmation about whether its spending and investment plans are still on track. From marketing increases to a splashy acquisition of the Rockstar energy drink brand, all the indications to date have been that Pepsi is in a solidly offensive growth posture. Coke, in contrast, has been focused more on cutting costs and repositioning the business for a potentially long, slow recovery ahead.
Thursday's report could paint a brighter picture for Pepsi investors, both when it comes to growth opportunities and to direct cash returns. As the company looks out to an unusually cloudy demand period ahead over the next six months, it should have plenty of positive things to say about its finances, its competitive positioning, and its performance through the first phases of the COVID-19 pandemic.
