PepsiCo (PEP) Q2 2024 earnings summary

Executive summary

• Net revenue for Q2 2024 was $22.5B, up 0.8% year-over-year, with organic revenue growth of 1.9% and double-digit EPS growth, despite a significant product recall at Quaker Foods North America.

• Operating profit rose 11% to $4.05B, with margin up 1.6 points to 18.0%; net income attributable to PepsiCo increased 12% to $3.08B, and diluted EPS grew 13% to $2.23.

• Growth was driven by effective net pricing, productivity savings, and international strength, partially offset by higher operating costs and lower organic volume.

• Management is accelerating productivity and commercial investments, especially in North America convenient foods, to stimulate growth.

• Significant charges related to the Quaker product recall and ongoing productivity plan impacted results.

Financial highlights

• Year-to-date net revenue was $40.8B, up 1.5%; operating profit rose 8% to $6.8B; net income attributable to PepsiCo for 24 weeks was $5.13B, up 10%.

• Free cash flow for the 24 weeks was $(259)M, down from $628M in the prior year, due to unfavorable working capital.

• Cash dividends paid in the 24 weeks totaled $3.5B; share repurchases were $461M.

• Q2 2024 gross margin expanded by 126 bps; operating margin expanded by 160 bps year-over-year.

• Net cash provided by operating activities for the first 24 weeks was $1.32B, down from $2.02B year-over-year.

Outlook and guidance

• 2024 organic revenue growth is now expected at approximately 4% (previously at least 4%), reflecting subdued North America performance.

• At least 8% increase in core constant currency EPS for 2024; core EPS guidance of at least $8.15 (up 7% from 2023).

• Total cash returns to shareholders projected at $8.2B, including $7.2B in dividends and $1.0B in share repurchases.

• Foreign exchange expected to be a 1 percentage point headwind to reported net revenue and core EPS growth.

• Management anticipates continued higher operating costs, especially in transportation and labor, for the remainder of 2024.