Pepsi stock has been hit hard ahead of earnings on concerns about weight-loss drugs.
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PepsiCo shares rose Tuesday after the beverage and snacks maker reported quarterly earnings and revenue ahead of expectations.
Pepsi
(ticker: PEP) reported third-quarter earnings of $2.24 a share, up from $1.97 during the same period one year ago. Revenue rose to $23.45 billion from $21.97 billion. Core earnings in the quarter were $2.25 a share.
Analysts had expected a profit of $2.15 a share on revenue of $23.41 billion.
Organic revenue grew by 8.8% from the same period the previous year. Pricing and the mix of products boosted revenue by 11%, while organic sales volumes fell 2.5%.
The company said it now expects its annual core earnings per share to rise 13% at constant currency rates to $7.54, from previous estimates of 12% growth to $7.47. It reiterated previous guidance for a 10% rise in full-year organic revenue.
Pepsi now expects fiscal 2024 results to be toward the upper end of its long-term outlook, which is for organic sales to grow 4% to 6% and adjusted earnings to grow by a high-single-digit percentage.
Pepsi shares were up 1.3% at $163.28 in early trading, although the stock remains down 9.5% for the year so far.
“We note that five of PepsiCo’s seven segments realized operating margin expansion with four segments delivering triple digit expansion,” Wedbush analyst Gerald Pascarelli wrote in a research note. He kept an Outperform rating and $195 target price on the stock.
Reaction to the earnings report could end up being as much of a referendum on the impact of Ozempic and other weight-loss drugs as it will be about profits and losses. Expect the stock to move as much on commentary about the impact of the new drugs as the release itself.
Worries over the introduction of the weight-loss drugs have already caused Pepsi stock to fall 9.8% over the past month. But there won’t be much showing up in the numbers yet, given the use of
Eli Lilly’s
(LLY) Mounjaro and
Novo Nordisk’s
(NVO) Ozempic and Wegovy is still limited.
Instead, it will be up to Pepsi’s management to frame the potential impact in a way that makes investors less concerned.
Wedbush’s Pascarelli is backing Pepsi to be able to calm the worries.
“While we acknowledge that it is early days and the situation will remain fluid, the notion that a significant part of the nondiabetic population will pay in excess of $1K per month for this medication on a long-term basis seems unreasonable to us,” he wrote.
In prepared remarks released alongside the results, Pepsi’s executives didn’t reference the weight-loss drugs but they did say they were continuing to invest in portion-control packages, zero-sugar beverages, and convenient foods with lower sodium and low-or-no saturated fat content.
Write to Adam Clark at [email protected] and Ben Levisohn at [email protected]
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