Consumer shopping, snacking, and drinking behaviors all changed dramatically in 2020. But PepsiCo (PEP +0.13%) never missed a beat.
The consumer staples giant is expected to report another quarter of strong sales growth when it announces fiscal fourth-quarter results in a few days. That boost should cap a financial year that, despite massive volume shifts, maintained its positive market share momentum from 2019.
With that bigger picture in mind, let's take a look at the trends investors might see when Pepsi posts Q4 results on February 11.
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Organic sales
Pepsi's business has shone throughout the COVID-19 pandemic, with organic sales rising 4% in the nine months that ended in early September. Its snack and prepared foods segment, which was a standout performer in 2019, saw accelerated gains that should lift the business again this quarter.
The company is also seeing good results in the beverage segment, with drink volumes rising slightly last quarter compared to Coca Cola's (KO +0.12%) 4% decline. Pepsi's business is tilted more toward at-home consumption, so look for it to widen the gap that's developed between the two companies in recent quarters. Those gains might even be amplified by recent additions to the portfolio in the energy drink and sparkling water niches.
Cash and earnings
Pepsi's growth profile has held steady through 2020, but its earnings outlook is weaker. Profits rose only 2% through the first three quarters of the year, or at about half the pace of sales gains. Management back in October predicted a similar result for Q4 as the company continues investing in its supply chain and works to remove manufacturing bottlenecks. Investors are looking for earnings to hold steady at $1.45 per share this week, which would translate to $5.50 per share for the full year.
The cash outlook is especially bright, with cash production set to hit $6 billion after $4 billion of capital spending is accounted for. This surge should provide Pepsi with plenty of resources to direct toward stock repurchase spending and dividend payments in 2021.
KO Cash from Operations (TTM) data by YCharts
Look out to 2021
Pepsi's 2021 forecast will be complicated by the fact that it will be going up against prior-year periods that were drastically affected by COVID-19. But the diverse business should still allow for a fairly specific growth outlook. Assuming the company meets its Q4 projection, then organic sales will have risen by between 4% and 5% in each of the last two years.
This fiscal year could bring better growth if Pepsi can hold on to a big chunk of the market share it has won in niches like sparkling water, breakfast, and snacks. Sure, consumers should return to their normal habits of eating out once the pandemic threat fades. But Pepsi is aiming to convert many of its newest customers into loyal fans of brands like Quaker and Bubly.
It will be several quarters before investors have a good reading on that growth initiative. But in the meantime, look for CEO Ramon Laguarta and his team to issue a bullish projection for 2021 with respect to sales, cash flow, and core profitability.
