PepsiCo (NASDAQ:PEP) reported its latest earnings numbers last week, and although they beat expectations, it wasn’t all good news for the soft drink giant.
The company’s second-quarter revenue of $22.5 billion came in slightly less than analyst expectations but on the bottom line, its adjusted earnings per share of $2.28 easily beat estimates of $2.16.
The danger, however, is that future quarters may not be as strong. PepsiCo has benefitted from raising its prices, allowing its top line to generate good growth even amid uninspiring demand. But that strategy could be changing now that economic conditions aren’t ideal.
PepsiCo’s management is going to offer more deals in the second half of the year, and prices could come down for many products as well. CEO Ramon Laguarta stated that, “in the U.S., there is clearly a consumer that is that is more challenged,” and admits that, “there is some value to be given back to consumers after three or four years of a lot of inflation.”
The company reported net revenue growth of just 0.8% this past quarter and year-to-date the growth rate is just at 1.5%. By reducing prices, this can help give the top line a boost but depending on how aggressive the reductions and deals are, it can result in a potentially underwhelming bottom line for PepsiCo.
Currently, the stock is down 2% year to date and is trading at 24 times its trailing earnings. It’s not too steep of a valuation for the business given its solid brands and financials. And when you combine that with a 3.3% dividend yield, PepsiCo can make for an excellent stock to buy right now, even if its earnings dip a bit in the next few quarters.
