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News

PepsiCo stock loses some fizz despite upbeat Q2

 

Wednesday, July 13, 2022, 8.45am GMT

The news shaping the markets today

US Treasury Secretary Janet Yellen announced additional aid of $1.7 billion to Ukraine in its ongoing war with Russia. WTI crude oil prices rose slightly this morning.


New Zealand’s Reserve Bank raised its official cash rate by 50 bps to 2.5%. Despite the central bank raising rates for the sixth straight time, the NZD/USD forex pair remained under pressure.


Korea’s central bank hiked its base rate by 50 bps to 2.25%, announcing the biggest hike since adopting interest rates as its primary policy tool in 1999. The news sent the KRW/USD pair slightly higher in forex trading this morning.


Japan’s Reuters Tankan sentiment index for manufacturers came in unchanged from the previous, at 9 in July, amid the ongoing chip crisis. The news exerted pressure on the JPY/USD forex pair.


Brazil’s industry confidence indicator remained at an eight-month high of 57.8 in July. The BRL/USD pair declined slightly in forex trading this morning.

 

What’s happening: Shares of PepsiCo edged lower on Tuesday, despite the company reporting upbeat results for its second quarter.

What happened: Apart from reporting solid results, PepsiCo boosted its full-year revenue projections.

Investors grew concerned, however, around the food and beverage giant posting a decline in sales in one of its major regions during the latest quarter.

How were the results: The Purchase, a New York-based company reported growth in sales for the quarter ended June 11, topping market views.

  • Sales grew by 5.2% year-over-year to $20.23 billion, exceeding the consensus estimate of $19.51 billion.
  • Adjusted earnings came in at $1.86 per share, surpassing market expectations of $1.74 per share.

Why it matters: Several issues, including supply chain bottlenecks and rising raw material prices due to pandemic restrictions, have forced packaged food makers to raise the prices of their products. At the same time, retailers face easing consumer demand due to high inflation.

CFO Hugh Johnston said PepsiCo had not witnessed any slowdown in consumer demand, despite an increase in prices. The company hiked prices late last year and is preparing to raise prices again soon.

Net revenues from Frito-Lay North America grew 14% year-over-year in the quarter, while sales of Quaker Foods North America climbed 17%. However, the revenues of PepsiCo Beverages North America declined 1% during the quarter. Latin America sales climbed 23% from a year ago, while Europe sales slipped 8%.

The company’s gross profits rose 4.6% year-over-year to $10.8 billion. However, its profit margin contracted by 35 basis points to 53.4%. The company recorded a charge worth $1.4 billion during the quarter, related to the write-down of some assets due to the ongoing Russia-Ukraine war.

Management raised their organic revenue growth guidance for fiscal 2022 to 10%, from the previous outlook of 8%. They maintained their guidance for core constant currency EPS growth of at least 8%, with the expectation implying core earnings of $6.63 per share, just shy of the consensus estimate of $6.66 per share.

How shares responded: PepsiCo’s shares fell 0.6% to close at $169.50 on Tuesday, after the release of quarterly results but rose by 0.2% in after-hours trading. The stock has lost around 2% year to date.

What to watch: Investors will keep an eye on inflation and supply chain disruptions. Markets will also monitor the ongoing Russia-Ukraine crisis and rising covid-19 cases in China.

The markets today

The Canadian dollar will be in focus today ahead of the BoC’s interest rate decision

Context: The CAD/USD forex pair edged lower on Tuesday amid a sharp decline in crude oil prices.

Details: Crude oil tumbled on Tuesday, exerting pressure on the Canadian dollar as the country is the one of the biggest exporters of the commodity.

Covid-19 restrictions in China, the world’s biggest crude importer, and concerns over an economic slowdown weighed on oil prices. US crude prices fell 7.9% to close at $95.84 per barrel on Tuesday.

Losses for the CAD/USD forex pair were limited, with traders expecting a big interest rate hike from the Bank of Canada.

Canada’s government bond yields declined on Tuesday, tracking the move in US Treasuries.

The CAD/USD forex pair fell around 0.1% to close at 1.3022. Canada’s S&P/TSX Composite Index lost around 1% to settle at 18,670, extending losses from the previous session.

What to watch: Investors will keep an eye on the Bank of Canada’s interest rate decision. The BoC had raised its overnight rate by 50bps to 1.5% on June 1 and is widely expected to boost rates further to 2.25% at its upcoming meeting.

Markets will also focus on inflation data from the US, with the country’s annual inflation rate projected to accelerate to 8.8% in June, from 8.6% in May.

Other Markets: US indices closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.62%, 0.92% and 0.97%, respectively.

Support & resistances for today

Technical Levels News Sentiment
EUR/USD – 1.0023 and 1.0033 Positive
EUR/JPY – 137.44 and 137.66 Negative
WTI Crude Oil – 95.30 and 95.80 Positive
FTSE 100 – 7205.27 and 7223.28 Positive
Nikkei 225 – 26375.84 and 26467.34 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0034, -0.05%) Dow ($31,970, 0.01%) Brent ($99.80, 0.3%)
GBP/USD (1.1899, 0.08%) S&P500 ($3,824, 0.01%) WTI ($96.03, 0.2%)
USD/JPY (137.12, 0.18%) Nasdaq ($11,789, 0.08%) Gold ($1,726, 0.1%)

What else to watch today

Germany’s consumer price index and current account, the UK’s GDP, industrial production, manufacturing production, construction output, balance of trade and goods trade balance, France’s inflation rate, Spain’s consumer price index, Turkey’s unemployment rate, labour force participation rate and car production, Eurozone’s industrial production, South Africa’s retail sales, US MBA mortgage applications, gasoline stocks, crude oil inventories, heating oil stocks, distillate stockpiles, Cushing crude oil stocks, government budget and Fed Beige book, India’s money supply M3, Brazil’s retail sales, as well as Australia’s new home sales.

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