Wall Street has left PepsiCo (PEP 1.08%) stock out of the 2021 rally despite the business's strength through the pandemic. That narrative could shift in just a few days, though.
The leading snack and beverage giant will announce its fiscal second-quarter results on Tuesday, July 13, in a report set to feature updates about growth, profits, and cash returns for this year and beyond. Let's take a closer look at these three key trends.
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1. Post-pandemic market share
The post-pandemic slowdown is already here. Organic sales rose just 2% through late March compared to a 6% spike in the prior quarter. But PepsiCo is still gaining market share in its snack and prepared food divisions and to a lesser extent in beverages.
Investors will be watching for signs that the food business can protect its recent market share wins and that the drink segment won't see much of a pullback as consumer mobility returns to normal.
Pepsi benefited from pandemic-related changes to shopper behavior, allowing overall growth to hold steady at 5% in 2020 even as Coca-Cola (KO 2.14%) posted sharp declines. The key theme in this week's report is how those relative performances are shifting as the COVID-19 threat wanes.
2. Return on investments
Wall Street is also looking for concrete signs that PepsiCo is investing in the right priorities today. CEO Ramon Laguarta and his team made bold bets last year in pushing into the energy drink and plant-based meat categories. Ideally, these investments will support faster growth and rising profit margins over time.
That profitability spike won't occur this quarter, and probably won't in 2021. Executives are predicting slightly slower earnings growth, in fact, as Pepsi spends cash upgrading its supply chain to support more e-commerce sales and a broader selling footprint.
PEP Operating Margin (TTM) data by YCharts.
That spending is part of management's plan to shift into more of a growth posture, and so investors will be looking for faster growth than the 5% annual pace Pepsi has managed in each of the last two fiscal years.
3. The outlook
Pepsi's official outlook heading into the report is that sales will rise by about the same 5% in 2021. But that forecast might change now that the company is progressing through the second half of the fiscal year. The bullish growth thesis involves persistently higher demand for food products and for Pepsi's widening portfolio of soda, waters, and sports drinks. It also assumes Pepsi can boost margins over time, in part by raising prices and in part by targeting attractive spaces like sparkling water and energy drinks.
The good news for shareholders is that the bar isn't especially high on these points. PepsiCo stock has gone nowhere since mid-2020, even as the broader market is up 16%.
Investor takeaway
That gap sets the stage for some attractive returns for investors willing to own shares today. Those gains will be amplified by a growing dividend, which in 2021 will usher PepsiCo into the exclusive club of Dividend Kings. Reaching five consecutive decades of rising dividend payments requires a special kind of business that can thrive through most selling environments. Pepsi is just that kind of business, and investors should get more confirmation of fact on Tuesday.
