PepsiCo’s (NASDAQ:PEP) Q4 Earnings Results: Revenue In Line With Expectations
Food and beverage company PepsiCo (NASDAQ:PEP) met Wall Street’s revenue expectations in Q4 CY2024, but sales were flat year on year at $27.78 billion. Its non-GAAP profit of $1.96 per share was 0.9% above analysts’ consensus estimates.
Operating Margin: 8.1%, up from 6% in the same quarter last year
Free Cash Flow Margin: 13.7%, up from 10.4% in the same quarter last year
Organic Revenue rose 2.1% year on year (4.5% in the same quarter last year)
Sales Volumes fell 1% year on year (-4% in the same quarter last year)
Market Capitalization: $208.6 billion
Company Overview
With a history that goes back more than a century, PepsiCo (NASDAQ:PEP) is a household name in food and beverages today and best known for its flagship soda.
Beverages, Alcohol, and Tobacco
These companies' performance is influenced by brand strength, marketing strategies, and shifts in consumer preferences. Changing consumption patterns are particularly relevant and can be seen in the rise of cannabis, craft beer, and vaping or the steady decline of soda and cigarettes. Companies that spend on innovation to meet consumers where they are with regards to trends can reap huge demand benefits while those who ignore trends can see stagnant volumes. Finally, with the advent of the social media, the cost of starting a brand from scratch is much lower, meaning that new entrants can chip away at the market shares of established players.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.
With $91.85 billion in revenue over the past 12 months, PepsiCo is one of the most widely recognized consumer staples companies. Its influence over consumers gives it negotiating leverage with distributors, enabling it to pick and choose where it sells its products (a luxury many don’t have). However, its scale is a double-edged sword because there are only so many big store chains to sell into, making it harder to find incremental growth. To accelerate sales, PepsiCo must lean into newer products.
As you can see below, PepsiCo grew its sales at a tepid 4.9% compounded annual growth rate over the last three years as consumers bought less of its products. We’ll explore what this means in the "Volume Growth" section.
PepsiCo Quarterly Revenue
This quarter, PepsiCo’s $27.78 billion of revenue was flat year on year and in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 1.4% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and indicates its products will see some demand headwinds.
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Volume Growth
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
To analyze whether PepsiCo generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.
Over the last two years, PepsiCo’s average quarterly sales volumes have shrunk by 2.4%. This decrease isn’t ideal as the quantity demanded for consumer staples products is typically stable. Luckily, PepsiCo was able to offset fewer customers purchasing its products by charging higher prices, enabling it to generate 6.1% average organic revenue growth. We hope the company can grow its volumes soon, however, as consistent price increases (on top of inflation) aren’t sustainable over the long term unless the business is really really special.
PepsiCo Year-On-Year Volume Growth
In PepsiCo’s Q4 2024, sales volumes dropped 1% year on year. This result was a step in the right direction compared to its historical levels.
Key Takeaways from PepsiCo’s Q4 Results
We struggled to find many resounding positives in these results. Its volume growth missed and its gross margin fell short of Wall Street’s estimates. While EPS exceeded expectations, it was a very small beat. 2025 guidance was also roughly in line with expectations. Overall, this quarter could have been better. The stock traded down 1.8% to $147.60 immediately after reporting.
PepsiCo didn’t show it’s best hand this quarter, but does that create an opportunity to buy the stock right now? We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
