Tuesday, July 14, 2020

PepsiCo Beats Expectations with Fizzy Q2 Results

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News shaping
the markets today

     

What’s happening: PepsiCo Inc reported its second-quarter results ahead of expectations on Monday, exceeding estimates for both sales and earnings.

What happened: Being among the first packaged foods companies to report results for the second quarter, PepsiCo was being closely monitored by investors to gauge how customers are responding in the current turmoil.

The Purchase, New York-based company’s sales exceeded market estimates, as customers continued to stock up on packaged snacks due to extended lockdowns. Despite the upbeat results, PepsiCo’s stock gave up most of their gains during the regular session yesterday.

How were the results: The beverage and snack giant reported a decline in earnings and sales for the second quarter, but the numbers surpassed expectations.

  • Revenue declined 3.1% to $15.95 billion but came in higher than the consensus estimate of $15.37 billion.
  • Net income stood at $1.65 billion, or $1.18 per share, down from $2.04 billion, or $1.44 per share, in the same quarter last year.
  • Excluding onetime items, the company’s core earnings came in at $1.32 per share, beating expectations of $1.25 per share.

Why it matters: With lockdown orders extending amid a rise in coronavirus cases, people continued to buy their favorite snacks, including Tostitos, Doritos, and Fritos, lifting sales by double digits for most of PepsiCo’s brands.

The company even recorded double-digit sales growth for its newer snacks to its fruit-chips line Bare Snacks. Revenue at Quaker Foods North America unit jumped 23% to $664 million, while Frito-Lay North America sales rose 6.6% to $4.27 billion.

PepsiCo’s online sales of potato chips spiked 93.5%, while tortilla chips sales jumped 101.2% in the week ending June 20.

However, the company’s core beverage sales were soft during the quarter, with in-restaurant sales suffering a major blow due to social distancing guidelines. Revenue from the company’s North America beverages unit declined by 7% in the quarter.

How shares performed so far: PepsiCo’s shares closed the regular session higher by 0.3% at $134.91, after rising as much as 2.7% earlier in the session. The company’s stock gave up most of their gains amid the massive pullback in the overall equity market yesterday, with Nasdaq 100 recording its sharpest intraday reversal in three months. PepsiCo’s shares have lost around 1% year to date.

What to watch: Investors expect PepsiCo’s ecommerce business to benefit from the trend of growing online grocery shopping. Analysts project this business to generate revenue of $3 billion in 2020, versus around $2 billion last year. Investors will also look for signs of an improvement in the company’s beverage segment due to the easing of restrictions in some parts of the world.

The Markets Today

     

British stocks will be in focus today, ahead of various economic reports scheduled for release during the day.

Context: London stocks closed higher on Monday, rebounding from last week’s decline ahead of the second-quarter earnings season. However, a continued rise in covid-19 infections kept the overall market sentiment subdued.

Details: Investors look forward to the second-quarter earnings season commencing, although expectations are low. Against the gloomy backdrop, markets will be focusing on the recovery plans of various companies and management projections for the remainder of 2020.

The blue-chip FTSE 100 index closed higher by 1.3% on Monday, driven by BHP Group and Rio Tinto, which are scheduled to report their production data for the latest quarter later this month. Shares of G4S climbed more than 9% yesterday, after the security company said it is likely to cut around 1,150 jobs at its cash unit. The mid-cap FTSE 250 index gained 1.2% in yesterday’s session.

The FTSE 100 has rebounded about 26% from its March lows, supported by various fiscal stimulus measures. However, the index has struggled to extend its gains so far this month, mainly due to uncertainties around the Brexit negotiations and rising coronavirus cases.

Asian shares also started the week on a strong note, despite various US states reporting a record surge in covid-19 infections.

 What to watch: Investors await a basket of economic data from the UK, including the balance of trade, manufacturing production, construction output, industrial production, gross domestic product and goods trade balance. Industrial production in the UK, which fell 20.3% in April, is expected to rise 6% in May. Britain's GDP is expected to contract by 20.4% in May, after plunging at a record 24.5% pace in April. The UK’s trade deficit on goods is expected to increase to £8.1 billion in May, from April’s £7.49 billion.

Other Markets: US indices trading closed mostly lower on Monday, with the S&P 500 and Nasdaq 100 down 0.94% and 2.13%, respectively. However, the Dow Jones index rose 0.04% in yesterday’s session.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

China’s foreign direct investment, Germany’s consumer price inflation and Zew economic sentiment index, Switzerland’s producer and import prices, Spain’s inflation rate, Eurozone industrial production and Zew economic sentiment index as well as the US NFIB small business optimism index, annual inflation rate, Redbook index and API crude oil stockpiles.