The second-quarter earnings season is kickstarting now and global beverage and snack giant PepsiCo has released its earnings today. This week, banks like Wells Fargo and Citigroup are also releasing their earnings.
The second-quarter earnings season is coming at a time when recession fears have been rising. The global economy is anyways slowing down while most economies globally are raising rates to tame soaring inflation. China is a notable exception here as it is looking at fiscal and monetary policy stimulus at a time when other countries have been tightening.
China has reimposed lockdowns and we saw a crash in Chinese stocks yesterday. NIO also fell as markets fear that its production might take a hit amid the lockdowns. Meanwhile, amid all the noise over a recession and lockdowns in China, PepsiCo reported a refreshing set of numbers in its second quarter.
PepsiCo’s revenues increased 5.2% to $20.23 billion in the quarter. The revenues were ahead of the $19.51 billion that analysts were expecting. Notably, the company took a 3% hit on its revenues due to adverse currency movements. Like all other multinational US companies, PepsiCo is negatively impacted by a stronger US dollar. The dollar index has surged this year as traders have sought solace in the greenback amid the flight to safety.
PepsiCo reported an EPS of $1.86 in the second quarter which was also higher than the $1.74 that analysts were expecting. Adverse currency movements shove 2% from the beverage giant’s EPS in the quarter.
Commenting on the earnings, PepsiCo’s Chairman and CEO Ramon Laguarta said “We are pleased with our results for the second quarter as our business momentum continued despite ongoing macroeconomic and geopolitical volatility and higher levels of inflation across our markets.”
PepsiCo Reported Better-Than-Expected Earnings Despite Headwinds
Laguarta added, “Our results are indicative of our highly dedicated employees, the strength and resilience of our categories, agile supply chain and go-to-market systems and strong marketplace execution.”
Notably, food companies have been battling with multi-year high inflation as well as the labor shortage. However, companies with strong pricing power have been able to pass on the higher costs to buyers. PepsiCo has been investing in its brand and is in a sound position to pass on higher input costs to buyers.
After the strong performance in the second quarter, PepsiCo also raised its full-year outlook. It now expects full-year organic revenue growth of 10%, which is 2 percentage points higher than its previous guidance. The company expects its core EPS in constant currency to rise by 8% this year.
PepsiCo is among those stocks that pay good dividends. Rival Coca-Cola, which also forms part of Berkshire Hathaway’s portfolio is also on the list of dividend-paying stocks. In its second-quarter earnings release, PepsiCo said that it intends to return $7.7 billion to stockholders in 2022 which would include a dividend of $6.2 billion and a stock repurchase of $1.5 billion. While Silicon Valley tech companies prefer stock buybacks over dividends, companies in the old economy still prefer to pay healthy dividends.
Dividend Stocks Have Outperformed in 2022
Dividend stocks have outperformed in 2022 and PepsiCo stock is down only about 2% in the year even as the broader markets are down in double digits. After a decade of underperformance, value stocks started to outperform their growth peers last year and the trend has continued this year also. As the US Federal Reserve continues to raise rates despite a slowing economy, Wall Street analysts have also been warming up to cheap value stocks while ditching richly valued tech stocks.
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