PepsiCo shares fall after Q1 results announcement, product recall hits net revenues

Shares of PepsiCo Inc closed 2.91% lower on Tuesday and traded 0.43% lower in after-hours trading after the company reported its first quarter results.

PepsiCo registered a 2.26% year-over-year (y-o-y) rise in its net revenue for the first quarter at $18.25 billion. Operating profit rose over 3% during the quarter to $2.72 billion while net income rose 5.69% to $2.04 billion.

Core operating margin increased 180 basis points, led by both Europe and Latin America which each delivered a significant improvement in their core operating margin. Core gross margin and core operating margin expanded 35 and 40 basis points compared to the prior year, respectively, it said.

The company stated that its net revenue decline was impacted by a previously announced voluntary recall of certain bars and cereals in its Quaker Foods North America division.

PepsiCo Chairman and CEO Ramon Laguarta said during the first quarter, the company’s businesses remained agile and performed well, with a strong performance from its international business. “We delivered a sequential improvement in our volume trends, and year-over-year growth in our net revenue, operating profit margin and earnings per share (EPS) –despite the impact of certain product recalls at Quaker Foods North America and a difficult net revenue growth comparison from the prior year,” he said.

Laguarta remained upbeat about the company’s international business which stood at $36 billion and is growing at a high single-digit level with good profitability. “We have been investing in capacity. Right now, we are in the process of opening factories in Vietnam and in China and in India, and in Mexico; we just opened one in Poland,” he said while adding that the international business is going to continue to be a big source of growth.

Varun Beverages shares rise, being the largest franchise of Pepsico in the world

Shares of Varun Beverages closed 1% higher on Wednesday post Pepsico's strong earnings. Varun Beverages Ltd has been associated with PepsiCo since the 1990s and is a key player in beverage industry and one of the largest franchisee of PepsiCo in the world.

Outlook

PepsiCo pointed out that geographically, it continues to expect international organic revenue growth to exceed North America organic revenue growth. The company said geopolitical tensions and macroeconomic volatility are expected to remain elevated, while disruptions associated with ongoing conflicts in certain international markets may persist. PepsiCo believes the financial impacts associated with product recalls at Quaker Foods North America will moderate as the year progresses.

The beverage giant said it continues to expect inflationary pressures to moderate compared to the prior year but pointed out that certain agricultural commodity costs may remain elevated.

For 2024, the company said it continues to expect total cash returns to shareholders of approximately $8.2 billion through $7.2 billion in dividends and $1 billion in share repurchases.

Shares of PepsiCo have lost 0.9% since the beginning of the year. The stock has fallen over 7% in the last one year.