Equity

Millions

Million

<ul class="list-ic vertical">
 <li><span>1</span> <a>Net profit margin is up by 0.88% while the gross profit margin by 1.4%</a></li>
 <li><span>2</span> <a>No significant positive movement in liquidity and solvency of the company despite the increase in cash and cash equivalents by 55%</a></li>
 <li><span>3</span> <a>Revenue is expected to increase by 10% by the end of next quarter</a></li>
</ul>
<p>PepsiCo, Inc (Nasdaq: PEP) was founded in 1898, based in Purchase, New York. Pepsico, Inc. manufactures, markets, distributes, and sells beverages and convenient food worldwide. PepsiCo has segregated itself among seven segments: Frito-Lay North America, Quaker Foods North America, Pepsico Beverages North America, Latin America, Europe, Africa, Middle East and South Asia and Asia Pacific, Australia and New Zealand, and China Region. PEP’s product portfolio consists of various daily consumable products in the range of beverages and snacks and some ready-to-cook items through various known brand names.<strong> PepsiCo, Inc is the parent company oo these well-known brands</strong>: Lay’s, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker, Aquafina, Emperador, Diet Mountain Dew, Diet Pepsi, Gatorade Zero, Propel, Marias Gamesa, Ruffles, Sabritas, Saladitas, Tostitos, 7UP, Diet 7UP, H2oh!, Manzanita Sol, Mirinda, Pepsi Black, San Carlos, Toddy, Walkers, Chipsy, Kurkure, Sasko, Spekko, White Star, Smith’s Sting, Sodastream, Lubimy Sad, Pepsi, and other brands. PepsiCo<strong> </strong>distributes all these products through wholesalers and retailers such as food service customers, grocery stores, drug stores, convenience stores, discount stores, mass merchandisers, membership stores, hard discounters, e-commerce retailers, and authorized independent bottlers, and supply chain components through direct delivery.</p>
<h2 class="wp-block-heading" id="strong-price-movement-of-pep-stock-and-increase-in-buy-volume-before-quarterly-announcements-strong"><strong>Price Movement of PEP Stock and Increase in Buy Volume Before Quarterly Announcements</strong></h2>
<p>On October 10th, 2023, PepsiCo, Inc. announced its quarterly results for Q3, 2023, which led to an increase in Pepsico share price by $3.04 (1.88%) in a day in the pre-market session; the rise was 1.95% at the end of the session. There was a spike in buying volume on the announcement day and the two days prior to the announcement, the highest in the whole quarter, which last spiked at the time of the announcement of the last quarterly report. PEP shareholders believe in holding the PEP<strong> </strong>stock for a longer period as there is no notable sale trend in terms of volume barring two or three trading days.</p>
<div class="wp-block-image">
 <figure class="aligncenter"><img decoding="async" loading="lazy" width="761" height="671" src="https://www.thecoinrepublic.com/wp-content/uploads/2023/10/image-348.png" alt="Growth in Sustainable Profits not supporting Financial Health of PepsiCo, Inc" class="wp-image-175135" srcset="https://www.thecoinrepublic.com/wp-content/uploads/2023/10/image-348.png 761w, https://www.thecoinrepublic.com/wp-content/uploads/2023/10/image-348-300x265.png 300w, https://www.thecoinrepublic.com/wp-content/uploads/2023/10/image-348-750x661.png 750w" sizes="(max-width: 761px) 100vw, 761px">
  <figcaption class="wp-element-caption">
   Source: https://www.investing.com/equities/pepsico-chart
  </figcaption>
 </figure>
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<h3 class="wp-block-heading" id="strong-highlights-of-the-q3-2023-report-by-pepsico-inc-strong"><strong>Highlights of the Q3, 2023 Report by PepsiCo, Inc.</strong></h3>
<p>Increase in quarterly gross profit (GP) margin by 1.4% from 53.084% to 54.49% annually. This increase in gross profit margin is the result of an increase in quarterly revenue by 6.745% from $21,971 Million to $23,453 Million and a comparative increase in costs of sales by almost half the percentage growth in revenue, i.e., 3.56%, so the quarterly gross profit is increased by 9.56% in absolute terms from $11,663 Millions to $12,778 Million. Operating profit (OP) margin&nbsp; increased by 1.86% from 15.26% to 17.12% due to the tepid increase in selling and distribution and<a href="https://www.thecoinrepublic.com/2023/06/08/u-k-fca-proposes-advertising-merits-ban-crypto-incentives/" target="_blank" rel="noopener noreferrer nofollow"> advertising</a> and marketing expenses compared to the increase in sales. Last year, there was a change in operating profit because of gains through the sale of Tropicana and the impairment of intangible assets. Still, the quarterly trend is based on recurring items. There is a relatively smaller increase in the net profit margin – less than 1%, that is 0.88% from 12.29% to 13.18% quarterly. Net profit is increased from $2,702 Million to $3,092 Million (an increase of 14.4% in absolute terms) leading to increase in EPS by 14.87% from $1.95 to $2.24. Revenue growth is driven by the increase in units sold. In contrast, the total volume of the goods sold remains more or less equal as consumers are moving towards smaller packaging. Going ahead, prices of the products is expected to increase in line with the rise in inflation, which might lead to inflated revenue but will not result in a growth gross profit margin. To cover the inflation costs in their snacks business, PepsiCo is currently focusing on decreasing the quantity per unit rather than increasing the price per unit to keep the products affordable to the masses. With the change in consumer mindset and preferences, PepsiCo, Inc. is focusing on developing products with less sugar, fats, oils, and sodium, and introducing new products. To improve sales, company has also improvised its supply chain management.&nbsp;</p>
<div class="wp-block-image">
 <figure class="aligncenter"><img decoding="async" loading="lazy" width="1200" height="742" src="https://www.thecoinrepublic.com/wp-content/uploads/2023/10/image-349.png" alt="Growth in Sustainable Profits not supporting Financial Health of PepsiCo, Inc" class="wp-image-175136" title="Chart" srcset="https://www.thecoinrepublic.com/wp-content/uploads/2023/10/image-349.png 1200w, https://www.thecoinrepublic.com/wp-content/uploads/2023/10/image-349-300x186.png 300w, https://www.thecoinrepublic.com/wp-content/uploads/2023/10/image-349-1024x633.png 1024w, https://www.thecoinrepublic.com/wp-content/uploads/2023/10/image-349-768x475.png 768w, https://www.thecoinrepublic.com/wp-content/uploads/2023/10/image-349-750x464.png 750w, https://www.thecoinrepublic.com/wp-content/uploads/2023/10/image-349-1140x705.png 1140w" sizes="(max-width: 1200px) 100vw, 1200px">
 </figure>
</div>
<h3 class="wp-block-heading" id="strong-expectation-of-10-growth-in-revenue-for-pepsico-inc-in-the-q4-2023-strong"><strong>Expectation of 10% growth in revenue for PepsiCo, Inc in the Q4, 2023</strong></h3>
<p>The Chairman and CEO, Ramon Laguarta and Vise Chairman and CFO, Hugh Johnston are expecting organic revenue growth of 10% on a consolidated basis in the next quarter which is quite achievable as the company is reporting revenue growth of more than 5% over the last 10 quarters and is expected to do the same considering the strategic changes that the PepsiCo is making in its product line and supply chain to cater the changing preferences and demand pattern of the consumers.&nbsp;</p>
<h3 class="wp-block-heading" id="strong-increasing-dividend-payment-to-pep-stockholders-strong"><strong>Increasing Dividend Payment to PEP stockholders&nbsp;</strong></h3>
<p>As per the statement by Laguarta, the company is planning to increase its cash outflow by increasing the dividend payment to <a href="https://www.thecoinrepublic.com/2023/03/01/paypal-stock-price-fearful-of-shareholders-passing-mini-tender/" target="_blank" rel="noopener noreferrer nofollow">shareholders</a>. There is a quarterly increase in total dividend payments by 7.74% from $4,586 Million to $ 4,941 Million to increase the value delivered to shareholders, and the company is maintaining a healthy dividend payment ratio of around 50% as per the last dividend payment, and it can increase further. Cash and Cash Equivalents at the year-end are up by 55.4% from $6,518 Million to $10,131 Million which supports PEP’s decision to increase the dividend payment and this increase in value to the shareholders can boost the prices of PEP (stock). Looking at the other liabilities of PepsiCo it is not a very great time to increase the dividend payments to shareholders as this will decrease Earnings attributable to PEP stockholders in the coming quarters.</p>
<h3 class="wp-block-heading" id="strong-pepsico-s-profitability-not-supporting-its-liquidity-and-solvency-strong"><strong>Pepsico’s Profitability, not supporting its Liquidity and Solvency</strong></h3>
<p>Despite the increase in Cash and Cash Equivalents by 55% the Current Ratio of the company is less than the acceptable range of 1x with around 0.8x, which means that the all the excess cash that (Pepsico) currently has will be absorbed in paying off the short term liabilities. On a quarterly basis, Long-term Debt is increased by $180 Million (0.55%) while the Total Assets are increased by 8.42% from $92,187 Million to $99,953 Million in a year. Pepsico’s Debt to to-equity ratio is poor around 2.0x, which means the company has double the amount of Long Term Debt from the amount of Equity so Pepsico, Inc will need huge cash to cover this interest cost.&nbsp;</p>
<div class="wp-block-image">
 <figure class="aligncenter"><img decoding="async" loading="lazy" width="1200" height="742" src="https://www.thecoinrepublic.com/wp-content/uploads/2023/10/image-350.png" alt="Growth in Sustainable Profits not supporting Financial Health of PepsiCo, Inc" class="wp-image-175137" title="Chart" srcset="https://www.thecoinrepublic.com/wp-content/uploads/2023/10/image-350.png 1200w, https://www.thecoinrepublic.com/wp-content/uploads/2023/10/image-350-300x186.png 300w, https://www.thecoinrepublic.com/wp-content/uploads/2023/10/image-350-1024x633.png 1024w, https://www.thecoinrepublic.com/wp-content/uploads/2023/10/image-350-768x475.png 768w, https://www.thecoinrepublic.com/wp-content/uploads/2023/10/image-350-750x464.png 750w, https://www.thecoinrepublic.com/wp-content/uploads/2023/10/image-350-1140x705.png 1140w" sizes="(max-width: 1200px) 100vw, 1200px">
 </figure>
</div>
<h4 class="wp-block-heading"><strong>Low Cash Availability and Huge Debts are a Negative Sign for PepsiCo</strong></h4>
<p>The steady growth in profitability does not support the growth of liquidity and solvency of the company, which can be a reason for negative sentiment in the minds of shareholders as all the excess cash will be absorbed in paying off short-term and long-term liabilities and toward the interest payment that will arise. So, more earnings components will be needed for the company, and the growing dividend trend can halt to support the company’s financing. PepsiCo Inc. should focus on improving its financial health along with steady growth in profits to ensure long-term sustainability in the market and create a positive outlook for the PEP share.</p>

Growth in Sustainable Profits not supporting Financial Health of PepsiCo, Inc

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