PepsiCo Inc (NASDAQ:PEP, ETR:PEP) shares traded higher after it reported mixed quarterly earnings and lowered its full-year revenue forecast.
Earnings per share (EPS) of $2.31 narrowly beat estimates of $2.30 while revenue declined by 0.6% to $23.3 billion, below the $23.9 billion Wall Street consensus.
For the second quarter in a row, the company lowered its full-year organic sales forecast. Pepsi now expects a low-single-digit increase from approximately 4% growth, down from its earliest estimate of at least 4%.
The company continues to expect at least an 8% increase in core constant currency EPS for the full year.
This implies earnings per share of $8.15, above the Street forecast of $8.13.
Bank of America analysts noted that Pepsi's EPS beat was driven by gross margin upside, boosted by moderate inflation and productivity.
“Tapping more productivity than originally planned is likely how Pepsi plans to deliver reiterated EPS despite the pulldown on organic sales guide, but volume performance in Q3 suggests to us the potential need for further support next year,” they wrote in a note to clients.
The bank’s analysts repeated their ‘Buy’ rating on Pepsi and a $185 price objective, representing a price-to-earnings multiple of 22x their calendar year 2025 EPS estimate.
Pepsi shares traded 1.3% higher about $169 late morning on Tuesday.
“Now that remedial actions to address volume weakness are underway the stock should behave well if market share follows suit,” analysts wrote.
“We believe Pepsi's premium to non-alcoholic beverage peer average of 20x is warranted by their strengthened position and pricing power to manage through the ongoing inflationary environment.”