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PepsiCo surprises big on third quarter earnings

Brian Sozzi
Editor-at-Large

Thank you rest of the world and snacks.

PepsiCo (PEP) reported third quarter total revenue of $17.18 billion on Thursday, beating Wall Street forecasts for $16.93 billion. Organic revenue — a key performance measure for the company — rose 4.3%, topping analyst forecasts for 3.4% growth. Core earnings — another closely watched measure on PepsiCo —came in at $1.56 a share versus estimates for $1.50 a share.

PepsiCo’s stock popped nearly 3% in pre-market trading.

Performance for PepsiCo’s two key segments — North American Beverages and Quaker Foods North America — continued to deliver mixed results. Volume at Quaker Foods North America fell 1% and by 1.5% for PepsiCo North America Beverages. Core operating profits dropped 11% and 5%, respectively, for the segments.

But it was PepsiCo’s overseas businesses and the powerhouse that is Frito Lay North America that essentially made the quarter. Core operating profits rose 7% at Frito Lay, 12% in Latin America and 14% in Europe — likely reflecting the company’s efforts under new CEO Ramon Laguarta to more closely manage costs.

The company’s guidance was on the favorable side, too. It expects to meet or exceed its organic sales growth of 4% this year. Full-year core earnings are still seen dropping 3% to $5.50 a share.

The earnings beat and generally solid operating profit showings in key businesses should feed the bull case on PepsiCo that more recently, has come into question, according to those on Wall Street following the stock’s strong 22% year-to-date gain.

“We continue to believe that the market underestimates the mix shift occurring at Pepsi, with the beleaguered PepsiCo Bottling North America segment accounting for just 19% of profit in FY19, down from 26% in FY16, while the high-growth and accelerating US snacks and international segments are now three-quarters of profit,” said Morgan Stanley analyst Dara Mohsenian. “We also believe PepsiCo valuation remains compelling, with PepsiCo trading at a -5%/-15% CY20 P/E and EV/EBITDA discount to mega-cap peers (KO/CL/PG) despite superior fundamentals.”

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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