PepsiCo’s (PEP) third-quarter financial results are not expected to see a “material” upside to projections, while its full-year organic sales outlook could face some pressure amid continued sluggish domestic trends, RBC Capital Markets said Friday.
The beverage and snacks company is scheduled to report third-quarter results Tuesday. RBC lowered its adjusted earnings expectations to $2.28 a share from $2.31 and its revenue outlook to $24.02 billion from $24.34 billion. Wall Street is looking for $2.30 and $24 billion, respectively.
“We are expecting (PepsiCo’s) quarter to look like recent prints, with modest topline results and in-line to slightly better EPS, and don’t see material upside overall,” RBC co-Head of Global Consumer and Retail Research Nik Modi said in a note to clients. The company’s international business is once again expected to lead the growth amid “muted” domestic trends,” Modi wrote.
Although Frito volumes have improved sequentially, they’re still not “overly robust” given the macroeconomic pressures on snacking, according to the note. Beverage volumes in North America continue to seem soft, while Quaker consumption has yet to improve “meaningfully,” Modi said. The company can improve its domestic business volumes sequentially, though it may have to rely more on promotions.
“Short interest in (PepsiCo) picked up last quarter and has remained elevated, likely indicating investors still have concerns over the growth trajectory of (the company’s) domestic business,” Modi wrote.
In July, the company said it expected full-year adjusted EPS of at least $8.15 and organic revenue growth of “approximately” 4%. RBC said Friday it sees “modest pressure” to the organic sales outlook given volume pressure domestically, but would expect the earnings guidance to be largely maintained.
The brokerage lowered its full-year adjusted EPS estimate to $8.12 from $8.15 and its organic sales growth projection to 3.2% from 3.8%. The Street’s views are for $8.15 and 3.7% growth, respectively, according to the note.
RBC reduced its price target on the PepsiCo stock to $176 from $177, with a sector perform rating.
Earlier this week, the company agreed to acquire Garza Food Ventures — which does business as Siete Foods and makes tortillas, salsas, seasonings, sauces and snacks — for $1.2 billion. The deal is expected to close in the first half of 2025.