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Here's What Investors Should Know Heading Into PepsiCo's Q3 Earnings

By Parkev Tatevosian, CFA – Sep 30, 2021 at 8:10AM

Key Points

  • Analysts expect PepsiCo to report Q3 revenue of $19.3 billion and earnings per share of $1.73.
  • PepsiCo is planning on raising prices to offset the impact of rising production costs.
  • The stock is trading at a price-to-earnings ratio of 25.8.

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The international snack and beverage giant is set to report third-quarter earnings on Oct. 5.

PepsiCo's (PEP -0.67%) business is demonstrating resilience during the pandemic. At the onset, the company's snack segment bolstered revenue thanks to more folks staying at home and needing something to snack on. That helped offset declining beverage sales from places that people were avoiding, like restaurants and indoor entertainment venues.

While the pandemic is far from over, a robust worldwide vaccination campaign has given folks the confidence to again leave their homes and venture into group settings. As a result, sales in away-from-home channels that suffered early in the pandemic are now recovering. Still, it's not time for PepsiCo management to celebrate. Several challenges remain, including supply chain bottlenecks worldwide and rising costs for commodities and labor.

Here's what investors should know heading into PepsiCo's third-quarter earnings report, scheduled for Tuesday, Oct. 5.   

A young girl drinking soda.

Image source: Getty Images.

The pandemic and its effects linger on 

The first half of fiscal 2021 has gone well for PepsiCo. So well, in fact, that management raised expectations for the rest of the year. Before second-quarter results were announced, the company was estimating revenue growth in the mid-single digits. Management firmed up that estimate at 6% for the full year. PepsiCo raised the fiscal 2021 earnings per share target to 11%, up from the previously estimated high-single-digits.

Since those mid-July forecasts, world economies have adjusted to deal with a surge in coronavirus cases caused by the delta variant. Thankfully, this rising trend of COVID-19 infection has leveled off, at least in the U.S. Nonetheless, the surge caused plenty of heartbreak and added to the economic destruction. 

One of the more significant economic effects as the pandemic lingers is supply chain bottlenecks. Consumer demand remains robust. However, several companies are finding it difficult to fulfill the demand. Most recently, Nike reported lower sales than it could have made because it did not have the needed merchandise. It will be interesting to see if PepsiCo skirted supply chain issues and delivered enough beverages and snacks to the parts of the world that wanted to buy them. 

Typically, when there are supply shortages, it tends to increase prices and cause inflation. The current scenario is no different. Part of PepsiCo's plan to deal with rising costs across its business is to raise prices on its products. CFO Hugh Johnson said in response to an analyst question in the company's second-quarter conference call: 

So, is there somewhat more inflation out there? There is. Are we going to be pricing to deal with it? We certainly are. The investments in our brands and the investments that we've made in supplying our customers I think is what enables us to take that pricing as we have every year.

PepsiCo stock is not cheap

Analysts on Wall Street expect PepsiCo to report revenue of $19.3 billion and EPS of $1.73 in the third quarter, which would be increases of 6.8% and 4.2%, respectively, from the same quarter last year.

Share prices of PepsiCo are up 6% on the year and 4.4% in the last three months. The company's stock is trading at a price-to-earnings ratio of 25.84, which is roughly the average it has sold for in the last five years. Since PepsiCo's stock is not cheap and there are question marks about how rising COVID-19 cases impacted third-quarter earnings, investors are better off waiting after earnings are released to consider whether to add shares.

Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nike. The Motley Fool has a disclosure policy.

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Stocks Mentioned

PepsiCo Inc. Stock Quote
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$182.66 (-0.67%) $-1.23
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$106.22 (1.20%) $1.26

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