the secret sauce is Frito-Lay and international

It’s the second straight earnings day surprise this year for the usually steady-as-she-goes PepsiCo (PEP).

Shares of the beverage and snacks giant popped 3% in pre-market trading on Thursday amid strong top and bottom line beats in its second quarter earnings report. The company benefited from price increases on its various lines of products and new innovations in the Frito-Lay division, PepsiCo CFO Hugh Johnston told Yahoo Finance Live.

Similar to when the company last reported, it materially hiked its full-year outlook, suggesting the momentum in the business will be sustained.

“The Frito-Lay business is having a very, very strong year. We are expanding the portfolio into permissible snacking and more center-of-the-plate food products. In addition to that, we really have been putting more advertising into the business as well,” Johnston added on the company’s performance.

The earnings rundown

• Net Sales: +10.4% year over year to $22.3 billion vs. estimates for $21.68 billion

  • Frito-Lay North America Sales: +14% year over year to $5.90 billion vs. estimates for $5.77 billion

  • Quaker Foods North America Sales: +1% year over year to $684 million vs. estimates for $704 million

  • North America Beverages: +10% year over year to $6.75 billion vs. estimates for $6.64 billion

  • Europe Sales: +13% year over year to $3.42 billion vs. estimates for $3.14 billion

  • Latin America Sales: +18% year over year to $2.89 billion vs. estimates for $2.7 billion

  • Africa/Middle East Sales: – 8% year over year to $1.57 billion vs. estimates for $1.62 billion

  • Asia Pacific Sales: +1% year over year to $1.12 billion vs. estimates for $1.12 billion

• Organic Sales Growth: +13% year over year vs. estimates for +9.75%

• Core EPS: +15% year over year to $2.09 vs. estimates for $1.96

What else caught our attention

• Organic sales growth for 2023 is seen at 10%, up from 8% previously.

• Core EPS growth for 2023 is seen at 12%, up from 9% previously.

• Profit growth at North America Beverages of 9% was slower than the 10% increase in organic sales.

Story continues

What analysts are saying post-earnings

“We raise our 12-month target by $5 to $225, based on a 2024 P/E of 28x, a justified premium to its 5-year average forward P/E of 24.2x due to its growth potential, strong execution, and dividend yield. We raise our adjusted EPS estimates by $0.10 to $7.50 for ’23 and by $0.05 to $8.05 for ’24. PEP posts Q2 adjusted EPS of $2.09 vs. $1.86 (+12%), well ahead of the $1.96 consensus. Net revenue rose 10% to $22.32B ($590M above consensus) on robust organic revenue growth of 13%, with double-digit increases across all segments with the exception of the Asia Pacific region (+7%) and Quaker Foods (+2%). The bad news was that it appears PEP’s aggressive price increases are beginning to hurt volumes, as beverage volumes were down 1% and food/snack volumes fell 3%. PEP raised full year EPS guidance to $7.47 from $7.27, implying 10% growth from the $6.79 earned in ’22. Incredibly, PEP has posted a quarterly earnings miss only once since 2009.” -Garrett Nelson, CFRA

Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations or anything else? Email [email protected]

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