Pepsi Gains Ground and Improves Second Quarter Profitability

As the second quarter of 2020 was hit hardest by pandemic restrictions, there was no doubt that PepsiCo’s large moat (DYNAMISM) second quarter 2021 results would be led by sizzling numbers. The company reported a rise in already high investor expectations (beats above and below the FactSet consensus), demonstrating commendable progress on a large number of strategic priorities. In our opinion, the most impressive achievement was the improvement in profitability of the beverage business in North America (operating margin up 400 basis points), which was clouded by both injuries. exogenous and self-inflicted in recent years. Management has raised its forecast for organic revenue growth to 6% (from 5%). This momentum combined with the time value should increase our estimate of fair value from $ 146 to approximately $ 151; this reflects partial compensation as we incorporate Morningstar’s probability-weighted forecast for an increase in the US statutory tax rate to 26%. As improving fundamentals are reflected in the price, we increasingly see the stock as the ultimate buy and hold investment.

Revenue of $ 19.2 billion increased 20.5% year-over-year. While a sizable portion of this amount was due to currency and acquisitions, organic growth was extremely healthy at 12%. The dominant snack business continued to perform impressively across major markets and Frito-Lay platforms, although Quaker – the clearest beneficiary of the pandemic-triggered dining opportunities – has started to decline. in line with our expectations (down 13%). Beverage sales grew 21% organically, supported by a strong rebound in North America. While the latter faced easy compromises, especially in the foodservice channel (where drinks doubled in the quarter), we were encouraged to see the continued strength of convenience and gasoline, which is a good barometer of the company’s progress against strategic categories like sports and energy drinks.

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