PepsiCo, Inc. (NASDAQ:PEP) is poised to announce its fourth-quarter 2023 financial results on February 9, before the market opens, with expectations of both bottom and top-line growth. The Zacks Consensus Estimate for fourth-quarter revenues stands at $28.2 billion, reflecting a 0.9% increase from the corresponding figure in the year-ago quarter.
In terms of quarterly earnings, the Zacks Consensus Estimate is set at $1.72, indicating a 3% growth from the $1.67 reported in the prior-year quarter. This consensus mark has remained steady over the past 30 days. Notably, in the last reported quarter, PepsiCo outperformed earnings expectations by 3.7%, maintaining an average earnings surprise of 5.6% over the trailing four quarters.
Key Considerations
PepsiCo’s success is attributed to the resilience and strength of its diverse portfolio, streamlined supply chain, enhanced digital capabilities, flexible go-to-market distribution systems, and robust consumer demand trends. The company is expected to have thrived in delivering convenience, variety, and value to customers through its brands in the upcoming quarter.
Fourth-quarter results for PEP are anticipated to showcase gains from improved pricing across all segments. The bottom line is likely to benefit from ongoing efforts to mitigate inflationary pressures through effective cost and revenue management initiatives. The company is expected to capitalize on the resilience and strength of its global beverage and convenience food businesses.
Projections suggest a consolidated organic revenue growth of 6.2% year-over-year for the fourth quarter, driven by a 9.6% increase in price/mix, offset by a 3.5% decline in volume. Market share growth in the liquid refreshment beverage category, especially in carbonated soft drinks, ready-to-drink tea, and water categories, is expected to contribute positively, supported by investments in innovation and execution.
PepsiCo’s food business is likely to report revenue growth across core brands such as Doritos, Lay’s, Ruffles, Tostitos, and Cheetos. The Quaker business is anticipated to benefit from market share gains in various categories, capitalizing on the increased demand for convenient and value-driven tasty products.
Challenges and Headwinds
However, the fourth-quarter gross margin for PepsiCo may face headwinds from inflationary labor, transportation, and commodity costs. Unfavorable currency rates are also expected to contribute to challenges.
Increased advertising and marketing expenses, coupled with additional investments in digital capabilities and purpose integration, are likely to lead to a rise in SG&A expenses in the upcoming quarter. Adjusted gross margin is estimated to expand by 30 basis points to 52.8%, attributed to the easing of supply-chain challenges, partly offset by inflationary costs. Our model anticipates a year-over-year rise of 1.1% in adjusted SG&A expenses to $11.9 billion, resulting in a 10-basis-point expansion in the operating margin to 10.6% in the fourth quarter. Investors will be closely watching how PepsiCo navigates these dynamics and capitalizes on its growth opportunities in the impending financial report.
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