PepsiCo, Inc. (NYSE:PEP) is poised for both top and bottom-line growth as it prepares to disclose its fourth-quarter 2023 financial results on Feb 9, before the markets open. The Consensus Estimate for fourth-quarter revenues is set at $28.2 billion, indicating a 0.9% uptick from the corresponding figure reported in the previous year’s quarter.

For quarterly earnings, the Consensus Estimate stands at $1.72, reflecting a 3% increase from the $1.67 reported in the same quarter of the prior year. Notably, this consensus estimate has remained unchanged over the past 30 days.

In the preceding quarter, the company surpassed earnings expectations by 3.7%, maintaining an average earnings surprise of 5.6% over the last four quarters.

Key Considerations

PepsiCo has been leveraging the strength and adaptability of its diverse portfolio, modernized supply chain, enhanced digital capabilities, flexible distribution systems, and robust consumer demand trends. The to-be-reported quarter is anticipated to showcase the company’s success in delivering convenience, variety, and value proposition to customers through its brand offerings.

The fourth-quarter results are expected to benefit from improved pricing across all segments. The company is likely to continue reaping the rewards of effectively managing inflationary pressures through strategic cost and revenue initiatives. PepsiCo is anticipated to capitalize on the resilience and strength of its global beverage and convenient food businesses.

An estimated consolidated organic revenue growth of 6.2% year-over-year is anticipated for the fourth quarter, driven by a 9.6% increase in price/mix, offset by a 3.5% decline in volume.

Market share expansion in the liquid refreshment beverage category, particularly in carbonated soft drinks, ready-to-drink tea, and water, is expected to contribute to the positive performance in the beverage segment. Investments in innovation and execution are also factors likely to enhance overall results.

PepsiCo’s food business is experiencing revenue growth in core brands such as Doritos, Lay’s, Ruffles, Tostitos, and Cheetos. The Quaker business, in particular, has seen market share gains in various categories, capitalizing on heightened demand for convenient and value-driven tasty products.

Nevertheless, inflationary pressures from labor, transportation, and commodity costs are expected to partially impact PepsiCo’s gross margin in the fourth quarter. Adverse currency rates may also present headwinds.

Increased spending on advertising, marketing, and digital capabilities, as well as efforts to integrate purpose throughout the company, are likely to contribute to a rise in SG&A expenses for the to-be-reported quarter.

Forecasts suggest a 30 basis points expansion in the adjusted gross margin to 52.8% in the fourth quarter, attributed to easing supply-chain challenges, partially offset by inflationary costs. Additionally, an estimate of $11.9 billion for adjusted SG&A expenses signals a 1.1% year-over-year increase. Factoring in the gross margin expansion and higher SG&A expenses, our model predicts a 10-basis points expansion in the operating margin to 10.6% for the fourth quarter.

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