PepsiCo (PEP -0.62%) is much more than just a soda company. It's a diversified food and beverage giant, making money through an array of products ranging from your favorite chips to that refreshing can of soda. The company's most recent earnings report tells a tale of strategic success, and its results led to an upward revision of its 2023 earnings outlook. Amid the tides of inflation and pricing challenges, PepsiCo sailed smoothly, especially in its North American food divisions.
Here's why PepsiCo just might be a no-brainer stock pick ahead of 2024.
Impressive performance, greater-than-expected earnings
PepsiCo's third-quarter results show the company continues to effectively navigate complex economic conditions. The standout figure was a 16% rise in core constant-currency earnings per share (EPS) for the period. That led to an update of guidance on that metric to 13% growth for the year from the prior forecast of 12%.
This figure signifies not just raw profit, but efficient cost management and operational strength, which is especially important in fluctuating economic conditions. PepsiCo's ability to outperform its EPS projections suggests a robust business strategy, capable of adjusting to challenges like inflation and pricing pressures.
Addressing the challenges head-on
PepsiCo's recent performance in the face of rising inflation and market volatility comes down to more than numbers. It's also about strategic foresight and adaptability. As CFO Hugh F. Johnston explained during the Q3 investor call, planning centers on key areas like commodity inflation, with a focus on forward-buying strategies to mitigate the impacts of inflation.
Johnston also highlighted the balancing of PepsiCo's cost structure, emphasizing the company's drive for productivity and the elimination of unnecessary costs. These measures include investments in digitalization and global business services, reflecting a strong commitment to operational efficiency. Moves such as this reinforce the image of a well-managed company that is proactive in its approach to maintaining profitability amid economic shifts. This proactive stance in navigating economic uncertainties and maintaining a balanced cost plays a crucial role in PepsiCo's potential for sustained growth and profitability in the coming years.
The strength of PepsiCo's business model
PepsiCo's diverse business model, spanning both beverages and convenient foods, has been a key factor in its enduring success. This product diversity helps in mitigating risks and tapping into varied consumer preferences across different markets.
The numbers speak for themselves. In the third quarter, the Frito-Lay North America division reported revenue of over $5.9 billion, a notable increase from around $5.5 billion the previous year. The PepsiCo Beverages North America division also showed strong growth with revenues rising to more than $7.1 billion from $6.6 billion the year prior. This robust performance in key segments demonstrates PepsiCo's capacity to generate consistent revenue streams across its diversified portfolio.
PepsiCo effectively balances its portfolio between beverages and convenient foods. The convenient food segment, encompassing a wide range of products, constitutes a significant 55% of PepsiCo's consolidated net revenue, while beverages contribute over 45%. This balance ensures that PepsiCo doesn't rely on only one type of product, providing a stable revenue base even in fluctuating market conditions.
PepsiCo's diversified model extends geographically as well, with significant operations worldwide. This global presence not only helps mitigate risks associated with market-specific challenges, but also enables the company to capture growth opportunities in various regions. The wide geographical footprint suggests a strategic advantage in understanding and catering to diverse consumer preferences and market dynamics.
Is PepsiCo a no-brainer investment choice?
PepsiCo's upward revision for 2024, with its expectations of high organic revenue and EPS growth, signals continued momentum and confidence in its long-term strategy. Investors looking at PepsiCo will find a compelling mix of stability and potential growth. The company's diversified portfolio, balancing beverage and snack segments across a global stage, offers a buffer against market volatility. This strategic diversity, backed by consistent financial strength, places PepsiCo in a strong position to navigate economic uncertainties while seizing growth opportunities.
PepsiCo stands out as a prudent investment choice. Its ability to effectively manage economic headwinds, coupled with a promising growth trajectory for 2024, underscores its potential as a resilient and forward-looking investment. PepsiCo's solid fundamentals, strategic diversity, and proactive management approach make it a no-brainer choice for investors seeking a blend of stability and growth in their portfolio.
