PepsiCo, Inc. PEP has reported robust fourth-quarter 2023 results, wherein earnings surpassed the Zacks Consensus Estimate and improved year over year. The top line missed the consensus estimate and declined year over year.

The results reflect gains from strength and resilience in its categories, diversified portfolio, modernized supply chain, improved digital capabilities, flexible go-to-market distribution systems, and robust consumer demand trends. However, soft volumes hurt the top line.

PEP shares declined 2.1% in the pre-market session following the earnings release on Feb 9, owing to soft fourth-quarter sales results. Shares of the Zacks Rank #3 (Hold) company have gained 4.1% in the past three months compared with the industry’s 7.4% growth.

 

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Quarter in Detail

PepsiCo’s fourth-quarter core EPS of $1.78 beat the Zacks Consensus Estimate of $1.72 and increased 6.6% year over year. In constant currency, core earnings improved 9% from the year-ago period, backed by the mitigation of inflationary pressures through cost-management and revenue-management initiatives. The company’s reported EPS of 94 cents rose 152% year over year in the quarter. Adverse currency rates impacted EPS by 2% in the quarter.

Net revenues of $27,850 million declined 0.5% year over year and missed the Zacks Consensus Estimate of $28,242 million. Revenues were impacted by a unit volume decline of 3% for the convenient food business and were down 2% for the beverage business. This was partly offset by an improved price/mix in the reported quarter. Foreign currency impacted revenues by 1.5%.

On an organic basis, revenues grew 4.5% year over year, driven by growth across categories and geographies. The consolidated organic volume was down 4%, while effective net pricing improved 9% in the fourth quarter. Pricing gains were driven by strong realized prices across all segments.

Our model predicted organic revenue growth of 6.2% for the fourth quarter, with a 9.6% gain from price/mix and a 3.5% decline in volume.

PepsiCo, Inc. Price, Consensus and EPS Surprise

 

PepsiCo, Inc. price-consensus-eps-surprise-chart | PepsiCo, Inc. Quote

On a consolidated basis, the reported gross profit increased 1.2% year over year to $14,753 million. The core gross profit rose 1.3% year over year to $14,898 million. The reported gross margin expanded 91 basis points (bps), whereas the core gross margin expanded 97 bps.

We anticipated the core gross margin to expand 30 bps to 52.8%. In dollar terms, core gross profit was expected to increase 1.4% year over year.

The reported operating income of $1,683 million rose 106% year over year. The core operating income grew 8.7% year over year to $3,185 million and the core constant-currency operating income improved 10%. The reported operating margin expanded 313 bps from the year-ago quarter. Meanwhile, the core operating margin expanded 97 bps due to ongoing holistic cost-management initiatives to drive superior supply chain and distribution efficiencies.

Our model predicted core SG&A expenses of $11.9 billion, which indicated year-over-year growth of 1.1%. As a percentage of sales, core SG&A expenses were anticipated at 42.1%, flat with the prior-year quarter.

We expected a core operating margin of 10.6%, with a 10-bps expansion from the year-ago quarter’s actual.