PepsiCo 4Q22: DB Sees Upside to Consensus Estimates for Organic Growth, Leading to Higher EPS

Deutsche Bank believes the current consensus EPS appears likely to be elevated given ongoing cost pressures, supply chain bottlenecks, growing BTL headwinds, and PEP's own propensity to reinvest. Therefore, while constructive on PEP's performance in the current quarter following the recent pullback, Deutsche Bank maintains its Hold rating with a $186 price target as it awaits further clarity on the cost headwinds the company faces this year.

Despite price/mix realization and moderating commodity costs (and what appears to be an aggressive mix shift to FLNA), Deutsche Bank has lowered its gross margin estimate to build allowances for the dilutive impact of pricing net of manufacturing cost inflation and lingering supply chain inefficiencies. Specifically, Deutsche Bank now models a gross margin of 52.3% (down from 52.6%, and vs. Street: 52.1%). However, Deutsche Bank's estimate of EBIT margin rises slightly to 11.1% (up from 11.0% vs. Street: 10.9%) as Deutsche Bank expects SG&A productivity/cost control/sales leverage to offset selective reinvestment and A&M expenses. Deutsche Bank's EPS estimate remains unchanged at $1.66 (Street: $1.64).

Deutsche Bank's EPS estimate of $7.17 (down from $7.20) is 1.4% below consensus, as Deutsche Bank expects inflation, other cost headwinds, and PEP's own propensity to reinvest to continue to impede more substantial margin expansion, along with the negative impact of the BTL program.

Bloomberg's consensus estimate is revenue of $26.886B, adj. net income of $2.274B, and adj. EPS of $1.643.