PepsiCo Reports Mixed Financial Results Amid Market Challenges

PepsiCo (NYSE: PEP) has announced its fiscal first-quarter results, showing a mixed performance relative to Wall Street expectations. The company achieved revenues of $17.9 billion, slightly surpassing the expected $17.8 billion. However, earnings per share (EPS) of $1.48 fell just short of the consensus estimate of $1.49. This marks a 2% decline in sales year-over-year and an 8% drop in earnings, indicating a challenging beginning to the fiscal year.

Following the report, PepsiCo’s stock dropped by 3% on Thursday, April 24th. This downward movement can be attributed in part to a less optimistic forecast for the remainder of the year. Although the company anticipates low single-digit organic revenue growth, it has adjusted its earnings outlook downward to flat year-over-year, diverging from the earlier expectation of mid-single-digit growth.

Examining PepsiCo’s organic business performance reveals a 2% decline in volume, though this was offset by a 5% increase in pricing. On a geographic scale, the company faced weakened demand in North America but benefitted from strong international sales growth.

Market Conditions and Tariff Effects

The current macroeconomic landscape also brings challenges. Economic concerns in the United States are rising, fueled by recent tariff implementations by the current administration, creating a difficult environment for broader market performance. Consequently, it is unlikely that any significant stock, including PepsiCo, can remain completely insulated from these turbulent conditions.

PepsiCo’s Historical Stock Performance

Historically, PepsiCo’s stock has shown resilience during economic downturns, often outperforming the S&P 500 in percentage decline. Consider the following recent crises:

• Inflation Shock (2022): PepsiCo’s stock fell by 12.5%, compared to a 25.4% decline in the S&P 500. The stock quickly recovered its losses.
• COVID-19 Pandemic (2020): The pandemic caused a 29.3% drop in PepsiCo’s stock, less severe than the S&P 500’s 33.9% decline, with a swift rebound following this dip.
• Global Financial Crisis (2008): The financial crisis resulted in a 42.4% decrease in PepsiCo’s stock value, while the S&P 500 suffered a 56.8% drop, with a longer recovery for PEP stock.

Despite its previous resilience, the combination of soft consumer demand and tariff uncertainties calls for careful evaluation. PepsiCo’s year-to-date stock decline of 7% reflects ongoing investor concerns.

Factors Impacting Future Performance

Several factors are influencing the current cautious outlook:

• Macroeconomic Challenges: Even though inflation concerns have eased, proposed tariffs by the current administration are raising fears of potential economic instability.
• Geopolitical Risks: Increased geopolitical tensions, trade disputes, and strained international relations complicate the risk environment. A drop in consumer spending—vital for PepsiCo’s business—could result from further economic deterioration.
• Mixed Performance Metrics: While PepsiCo has achieved moderate revenue growth averaging 5% over the past three years and maintains a 14% operating margin, the latest quarterly results underscore the challenges of balancing declines in volume with pricing power. Although market share gains in Pepsi Zero Sugar in North America are encouraging, the broader economic situation cannot be overlooked.

Downside Risks and Investor Considerations

If we benchmark against the 2020 market sell-off, a similar decline of about 30% from PepsiCo’s recent highs could see stock prices drop below $110.

This situation poses a critical question for investors: If the market experiences a downturn that pushes the stock below $110, would you hold your position or consider selling? Understanding your risk tolerance amidst potential volatility is essential in this uncertain landscape.

Holding onto a declining stock can be challenging.  Assessing your strategy is vital, especially during turbulent times.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.