PepsiCo cut its earnings outlook Thursday, but CNBC’s Jim Cramer sees reason to be more optimistic about the struggling beverage and snack giant.
The company reported better-than-expected third-quarter profits and revenue, but cut its full-year profit forecast as rising costs and investments to revive demand weighed on margins. Shares rose 3% after the report, as investors focused on improving sales trends and a widely anticipated lower guidance.
“It’s a big step to say that PepsiCo is completely out of the woods here, not when they’re facing so many age-old challenges,” the “Mad Money” host said. However, given the reason for the forecast cut and the stock’s relatively low valuation, “I feel a lot better about this story. You could do a lot worse than buy PepsiCo here.”
PepsiCo shares have struggled since hitting an all-time high in May 2023, before concerns about the impact of GLP-1 weight loss drugs on snack consumption began to spread on Wall Street. More recently, rising inflation, oil prices and interest rates have added to the pressure, sending PepsiCo shares down nearly 10% in September alone. The stock closed Wednesday at its lowest level since April 2020.
Cramer said the positive stock reaction was due to two factors: improving sales momentum and lower earnings expectations that were already largely priced into the stock’s price.
“Wall Street didn’t care about the drop in earnings forecasts because everyone knew it was inevitable,” he said.
PepsiCo’s new earnings forecast calls for growth of between 2.5% and 3.5%, down from 5% to 7%.
“Look, the new guidelines could have been a lot worse,” Cramer said. “Many people thought they were hearing that the company was being eaten up by higher costs. Instead, we got a great story about how PEP is investing to maintain revenue growth.”
For Cramer, this distinction is important. PepsiCo is investing more in advertising, product innovation and lowering prices to attract consumers. These efforts are putting pressure on margins, alongside rising fuel and packaging costs, but appear to be helping to revive sales.
Organic revenue rose 3.1%, ahead of the FactSet consensus of 2.75%. This is also the company’s strongest performance since the fourth quarter of 2023. Importantly, it maintained its organic revenue growth outlook at 3% and raised its reported revenue growth forecast to 6%, up from a prior forecast of 4% to 6%.
CEO Ramon Laguarta said the company is “acting with urgency to sustainably improve our performance in North America,” while identifying additional cost reductions to fund growth initiatives.
Cramer warned that PepsiCo still faces challenges from changing consumer habits, including the impact of weight-loss drugs. But with the stock price at about 15 times the midpoint of his reduced earnings forecast and a dividend yield of about 4.61%, he said that’s no small thing.
Gn bussni
